Break It, You Own It

The Obama administration is getting a crash course in the old axiom "you break it you bought it" when it comes to their recently enacted health care plan.

The administration thought themselves clever scheduling the first wave of insurance market reforms to take effect just before the November election. Many of these reforms are the most popular element of their health plan.

But the measures are also destructive to the existing insurance markets. So the administration is watching insurance businesses adapt to accommodate the new Obama rules, in ways that are leaving politicians spooked, and consumers unhappy.

First up is the impact of the new rules on premiums. Insurance rates are rising across the nation in the individual and small group markets, sometimes by more than 20 percent. The Obama team blames the recession for these price hikes (and "greedy" insurers). But the industry's profitability is largely flat. Plans are merely passing along their higher costs, some of which is a direct result of the new rules.

Just how much Obamacare is spiking the rates is subject of debate. The Obama team cites a study saying their rules only account for about 1 to 2 percent of the increase. A better picture comes from the research reports issued by Wall Street analysts who track these firms, and have no political motivation to understate the impacts.

Cowen is in line with others when they write "the mandates will raise costs (and premium levels) by 8-10% in the individual market and 2-4% in the small group market on average (with a negligible impact on the large group segment)."

The bigger story, however, may be the quiet steps that large group plans are taking.

The administration estimated that up to 85 percent of employer-based plans would keep their benefits static to qualify for "grandfathering" under the new rules, and avoid the full brunt of Obamacare's expensive regulation. Now it looks like only about 50 percent of plans will qualify for grandfathering. What about the rest?

They are opting for greater flexibility that comes with jettisoning their "grandfathered" status so that they can reduce benefits and raise co-pays to offset rising costs. The plans calculate that they can fully blunt the cost of Obamacare's future rules by cutting benefits, and they're right.

Many consumers will get an initial taste of these changes this fall. Co-pays and cost sharing will rise. It's an ironic outcome for the Obama team. Their entire scheme was predicated on a rejection of the Bush Administration's drive toward "consumer oriented" health plans designed to give patients more choices but also more financial skin in the costs of their health care decisions.

But the bigger casualty may be choice itself. The fastest way to cut costs is to reduce options, and employer plans are rolling out new products with narrow networks of doctors and hospitals. This is the irony of Obamacare. The President promised more choice and lower prices. We're getting the opposite. Now that the administration has broken the private market, they will own these consequences.

Scott Gottlieb, M.D., is a resident fellow at AEI.

Photo Credit: White House Photo by Pete Souza

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