“Reform” Means Higher Costs, Not Lower


A reader asks: “If the current bill passes are my health insurance costs likely to go up, down, or remain about the same?”

If the form that I believe most likely to pass actually passes (insurance reforms, individual mandate, weak or no public option or co-ops), I believe that they will continue to go up. There simply is nothing in the bill that would make things more affordable. In health care markets, for a convoluted nest of reasons, more competition causes prices to go up, not down.

Despite the concern and interest in health plan profits and executive salaries, most of what dictates the cost of health care insurance consists of:

  1. How effective are they at lining up providers willing to take a discount? That willingness depends on the ability of the health plan to say, “We’ve got many or most of the people in your market. If you   want a lot of patients to amortize your fixed costs, you have to deal with us, and you have to cut us a good deal.” Small, new insurers cannot say that.
  2. How effective are they at limiting what they cover?
  3. How effective are they at not covering sick people, either by not covering them in the first place, or by kicking them out?
  4. How good are they at avoiding paying the bills that people do run up?

Look these over. Health insurance reform closes the last three of these (at least somewhat). This will drive up the cost of providing insurance, since they are providing for more people, and sicker people, and being forced to pay their bills, as well as being forced to provide some minimal coverage (such as preventive and maintenance matters) for no co-pay.

The first one means that if any new mechanism is just competing for provider networks at market prices, they will pay more, not less.

And there is nothing in the bill about capping profits, or putting a minimum on medical loss ratios (the amount of the premium dollar that is paid out in health care resources), or capping executive salaries. So though everyone is talking about “affordable” health care, all the reforms actually being contemplated mean higher costs, not lower.

With nearly 30 years’ experience, Joe Flower has emerged as a
observer and thought leader on the deep forces changing healthcare in
the United States and around the world. As a healthcare speaker,
writer, and consultant, he has explored the future of healthcare with
clients ranging from the World Health Organization, the Global Business
Network, and the U.K. National Health Service, to the majority of state
hospital associations in the U.S.  He has written for a number of
healthcare publications including, the Healthcare Forum Journal,
Physician Executive, and Wired Magazine.  You can find more of Joe’s
work at his website, www.imaginewhatif.com, where this post first appeared.

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4 replies »

  1. Whats interesting here is that Obama stood in the White House back in May with leaders of insurance, hospitals and other medical industries, and promised savings of $2 trillion over the next decade. So if this form does pass, then its really not a step in the right direction.

  2. Your response to the reader’s question chooses to focus on the macro level impact on commercial premiums, and I assume you are talking about individual policies. I agree that premiums will increase in a macro sense (in reality they’ll increase at an alarming rate even if no reform passes.) But, if you wanted to answer the personal question of what happens to “my” premiums, the answer is much more complicated. The impact will be felt differently depending on if you are younger or older. It matters what underwriting regulations your state has currently and how they’d change under the new bill (unless the bill grandfathers old policies’ underwriting pools.) Ultimately, there will be winners and losers, but I agree that in aggregate there will be more losers.

  3. Although it’s arguable that any “reform” that cost more isn’t reform at all, the bigger issue here is that, as the President said two weeks ago, the insured are already paying a whopping “hidden tax” in the form of higher premiums to support care for the uninsured. The aggregate size of that tax — $1.9 Trillion over the next 10 years — is more than adequate to cover the cost of any of the current reform proposals moving through Congress. So, where is that money going and why is anyone asking Americans to pay more?