Wednesday, March 06, 2013

Obamacare Bare Bones Health Insurance

In my world, Bare Bones Health Insurance refers to catastrophic plans such as those that (currently) are HSA qualified. High deductible. No copay's. Health insurance for those who are more concerned about large claims that can bankrupt you vs. low dollar claims that can be paid with petty cash.

But come this fall, Obamacare plans sold in the exchange will introduce the American public to a new kind of Bare Bones Health Insurance.
There's mounting evidence that even though the new health coverage will be austere, it'll still be pricey.
Health plans have ample incentives to price the Obamacare coverage high, which is precisely what they're likely to do.
For one thing, insurers will want to protect against the risk that individuals entering the exchanges are those who most need health insurance because of pre-existing illness. If this sort of "adverse selection" occurs, it will raise costs to insurers. To guard against this, insurers are likely to price the coverage at a premium.

But, but, but . . . Obamacare is supposed to be AFFORDABLE.

Well yeah. That was the promise.

If you still believe in the tooth fairy, you can also believe Obamacare Bare Bones Health Insurance plans will be affordable.

The House Makes the Rules
Second, health plans want to reduce uncertainty around how all the risk-sharing provisions in Obamacare will eventually play out. The legislation puts in place mechanisms that forces Washington to share with health plans some of the cost of the covering the sickest beneficiaries. But the regulations outlining these parameters were only released last Friday (3/1/2013). Nobody yet trusts how they'll work.
But, but, but . . . it's the government.

They would NEVER lie to us. Right?

Never Bet Against the House
Insurers know that any excess profits they earn will have to be paid back to the government, anyway (owing to caps that Obamacare places on how much profit health plans can earn). Bare Bones Health Insurance plans are better off aiming high, and owing money back, then getting underwater.
This is called risk management.

Something the folks in DC (with the ability to print money and borrow excessively with impunity) don't understand.

Avoiding Adverse Selection
Third, health insurers will want to reduce the incentive for employers to drop coverage and dump employees into the exchanges. This is especially true when it comes to insurers' lucrative small group and large group segments.
If insurers price the exchange products too low, they'll give employers another inducement to do this sort of dropping. By pricing exchange products higher relative to the insurance offered in the private market, they reduce this incentive.
Do you think the rocket surgeons in Congress considered this?

Nah. That would presume they actually have a clue about private industry.

The Dealer Shows His Hand
The architects of Obamacare designed the scheme without much thought to how its overlapping incentives would discourage competition on the price of the new coverage. Health plans will try to drive down costs by offering very narrow networks of providers that they can more easily control. It will be a race to the bottom to see which plan can offer the cheapest benefit, while still meeting minimum standards. But it won't be a race to the bottom on price.
Carriers know how to play this game, even when Congress makes the rules.

With Obamacare Bare Bones Health Insurance plans, consumers lose.
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