Obamacare and the Cost Curve: What To Expect

Families everyday are forced to make difficult financial decisions because of the costs of health care (mine included). As we get closer to full-blown implementation of the “Affordable” Care Act, here’s why I think these decisions will become more difficult over time:

-For those who attain health insurance through work, you’re looking at a probable premium increase that wouldn’t have otherwise occurred thanks to a health insurance tax imposed on providers. One study estimates that increase could range from 13-23%.

-The real hammer will be imposed upon the individual market, as many of those plans do not meet the “essential benefits” mandate of the law. Per Avik Roy of Forbes.com, benefits mandates add 4% to the cost of a health plan, benefits you’ll have to pay for regardless of how “essential” they are for you.

-Also, the individual insurance market will now be subject to Obamacare’s community rating and guaranteed issue regulations. The community rating alone is estimated to sock healthy, younger individuals with a premium increase of over 40%. It’s been estimated these type of regulations in New York make health insurance premiums 42% higher. Avik Roy also demonstrates the unintended consequence of adverse selection would even raise premiums on elderly patients, the ones allegedly protected by these regulations.

-For those states that will expand their Medicaid coverage via Obamacare (which is not required per the Supreme Court decision last June), this will create more cost-shifting since Medicaid historically underpays providers. Medicaid already adds approximately $1800.00 to a family’s private health insurance premiums due to cost-shifting.

As I stated in a previous health care post, these costs relating to Obamacare are estimates, but estimates born out of acknowledgment of the laws of supply-and-demand, and the reality that regulations add to expenses. For whatever reason, the left does not want to acknowledge these realities.

So how do you bend the cost curve down? Repealing Obamacare would be a start, but not an end-point. As Milton Friedman showed, by 1997 the impact of our tax laws encouraging the purchase of third-party payer health insurance amounted to a 57% increase in the cost of health care, and Medicare/Medicaid accounted for an additional 43%. These two provisions increased costs 100%. Getting a handle on 3rd-party payer health care is required to get health care inflation under control. With the regulations and distortions that provide favorable treatment to employer-purchased 3rd-party insurance still in place, the expansion of Medicaid, the disincentives to purchase low-cost catastrophic coverage (the true model for insurance), and no Medicare reform in sight, expect the health care cost curve over time to get costlier.

**UPDATE 7/9/13: Implementation of the employer mandate is getting pushed back a year, as are implementation of anti-fraud measures.

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