The Real Health Insurance Shock Is Coming Next Fall

Obviously, the whole Obamacare implementation is in disarray.  Some of this I expected -- the policy cancellations -- and some of it I did not -- the horrendous systems implementation.  But I actually thought that most of this would be swept under the rug by a willing media.

What I really expected was for the true shock to come next fall.  And I think it is still coming.  I believe that despite rate increases, insurers are likely being overly optimistic about how much adverse selection and cost control issues they are going to have.  As a result, I expected, and still expect, huge premium increases in the fall of 2014.

Why?  The main benefit of Obamacare is for people who cannot afford health insurance but want it, and for people who are very sick and have lost their insurance.   Obamacare is a terrible plan as implemented because it futzes with virtually everything in the health care system when a more limited plan could have achieved the same humanitarian coverage goals.

Anyway, one reason Obamacare is so comprehensive is that it is based on a goal of cost control for the whole system.  Unfortunately, most all of its cost control goals are faulty.  From Megan McArdle, in an amazing article covering a huge range of Obamacare issues:

But I think it’s also clearly true that the majority of the public did not understand this. In 2008, the Barack Obama campaign told them that their premiums would go down under the new health-care law. And the law’s supporters believed it.

Q. Obama says his plan will save $2,500 annually for my family. How?

A. Through a combination of developing efficiencies in the system, expanding coverage to all Americans, and picking up the cost of some high-cost cases. Specifically:

-- Health IT investment, which will reduce unnecessary and wasteful spending in the health care system. Examples include extra hospital stays because of preventable medical errors and duplicative diagnostic tests;

-- Improving prevention and management of chronic conditions;

-- Increasing insurance industry competition and reining in the abusive practices of monopoly insurance and drug companies;

-- Providing reinsurance for catastrophic cases, which will reduce insurance premiums; and

-- Ensuring every American has health coverage, which will reduce spending on the “uncompensated” care of uninsured people who end up in emergency rooms and whose care is picked up by institutions and then passed through higher charges to insured individuals.

The part about reinsurance was always nonsense; unless it’s subsidized, reinsurance doesn’t save money for the system, though it may reduce the risk that an individual company will go broke. But the rest of it all sounded entirely plausible; I heard many smart wonks make most of these arguments in 2008 and 2009. However, it’s fair to say that by the time the law passed, the debate had pretty well established that few to none of them were true. “We all knew” that preventive care doesn’t save money, electronic medical records don’t save money, reducing uncompensated care saves very little money, and “reining in the abusive practices” of insurance companies was likely to raise premiums, not lower them, because those “abuses” mostly consist of refusing to cover very sick people.

The result?  Many of these things that supposedly reduced costs actually increase them.  So if you think the shock is high now, wait until next fall.  We will see:

  • Rates going up
  • Less choice, as insurers pull out of many local markets
  • Narrowing of doctors networks, and reduced choice in doctors
  • Companies dropping health care and dumping workers (and retirees if they can get away with it) into the exchanges and Medicare.


  1. CTD:

    I've been saying this for a while: The real fun will start when the first state finally has its last insurance provider pull out of the market. Some only have three or four now.

  2. Methinks1776:

    It is not "cost control". They are attempting price controls. The
    insurance industry cannot just raise prices without regulatory approval
    and I have a feeling that's one of the reasons pricing is optimistic.
    The other reason is that part of the OBullishitcare deal is government
    re-insurance schemes to backstop the health insurers' risks. Some of
    those backstops phase out, but after the fall election.

    the insurance industry is held hostage by der Fuhrer's regime (and make
    no mistake, it is), I don't think you'll see those premium jumps until
    after the mid-term election. I hope I'm wrong about that, but I doubt
    it. Most of these cancellations are not effective immediately, so
    renewal notices might be coming out after the first Tuesday in November -
    at the....uh..."request" of the regime. And, apparently, the voters
    were morons enough to re-elect this degenerate after he shoved
    Obullshitcare down their throats, so I have zero faith in the public's
    ability to think beyond the promise of government cheese.

  3. Robert Hewes:

    You are, of course, correct. Keep in mind the end goal of this program, though: a one payer system. And that's when things will really get ugly.

  4. GA:

    I do not believe insurance companies are particularly sanguine about enrollment; I think they know that if they raise rates to the correct levels before they can produce actual enrollment results, they'll be pilloried for "price gouging" and likely face reprisals from Das Administration.

  5. Passenger Pigeon:

    Insurance companies will recognize a death spiral when they see it and bail out big time.

  6. Not Sure:

    "Many of these things that supposedly reduced costs actually increase them. So if you think the shock is high now, wait until next fall. We will see:
    -Rates going up
    -Less choice, as insurers pull out of many local markets
    -Narrowing of doctors networks, and reduced choice in doctors
    -Companies dropping health care and dumping workers (and retirees if they can get away with it) into the exchanges and Medicare."

    Shorter version, in progressivespeak: "Market failure". Requiring, of course, more government intervention.

  7. MingoV:

    The democrats cared nothing about the uninsured and the high insurance costs of those with preexisting medical problems. If they had, the simplest solution was to mandate health insurance that meets reasonable requirements and to provide subsidies to those with high premiums due to preexisting conditions.

    ObamaCare was designed to be a big, bureaucratic, costly failure. (It was, however, supposed to let us enroll.) The democrats would blame problems on insurers, clinicians, hospitals, drug companies, etc. They then would push for full socialization of health care. We need to end this ASAP.

  8. Me too:

    Where's Ganganelli is defense of this crap?

  9. mesocyclone:

    They're still babbling that costs will flatten out because of the benefits of electronic records.

    While electronic records are long overdue, they aren't going to save Obamacare.

  10. irandom419:

    I'm in favor of Obamacare, just like I'm in favor of Socialized Medicine that is for people I don't like.