The Failure of Health Care Reform: An Insider’s View

Employer health insurance premiums went up on average about 9 percent in 2011, and you can expect a lot more where that came from.  Only a fool didn’t see this coming, which is to say the White House, every member of Congress who voted for the health care legislation, and all of their liberal enablers who have dreamed so long for the day when the government would take control of the health care system.

I was in the middle of the fight against ObamaCare.  Trying to explain to Democrats and their staffs why the legislation would make health insurance premiums explode was like banging your head against the Berlin Wall.

They would mindlessly—almost zombie-like—regurgitate the liberal talking points, asserting that if we could just get everyone in the health insurance pool, premiums would go down, not up.  Didn’t President Obama repeatedly promise that premiums would fall $2,500 for a family by the end of his first term?

So the government:

•    Provides coverage to an additional 45 million to 50 million uninsured Americans—note that the uninsured spend less than half of what the insured spend on health care, so their spending will rise significantly;

•    Requires insurance to cover lots of additional treatments and services, in many cases free of charge to the patient; and

•    Guarantees that people will spend very little out of pocket, which insulates them from the cost of their decisions;

And the president argues—well, he used to argue, until the facts could no longer be denied—that total health care spending would go down!

Every aspect of the current health insurance system that makes health care so expensive—requirements to cover lots of additional therapies, limiting patients’ cost exposure, and subsidizing the most expensive health plans (through employers or the government) so that more people will choose them—is in ObamaCare … on steroids.

Under normal conditions, health insurers and their actuaries would have spoken out vociferously, trying to inject some insurance principles into the debate.  But there were at least two countervailing factors this time around.

First, the Obama administration and the Democrats who controlled Congress at the time made it clear that they would make life—and the ability to do business—hell for any insurer that fought them.  I can recall talking to an insurance company executive in August of 2009, the summer of the huge rallies against ObamaCare, who told me he had a stack of red folders on his desk—demands from Democratic committee chairmen for various types of information.  The message was clear: get on board with ObamaCare or expect to spend a lot of time answering committee demands, or testifying before Congress, or worse.  So far I haven’t found anyone willing to speak out on the record about these strong-arm tactics—and probably won’t until 2013.

Second, the primary health insurance trade association, America’s Health Insurance Plans (AHIP)—which is run by, Karen Ignani, who worked as a Democratic Hill staffer and for the AFL-CIO—never took an aggressive stand against ObamaCare.

Ignani and the AHIP board made a decision to work with the administration.  That was a reasonable approach at first.  However, insurers soon realized that ObamaCare would violate every actuarial principle of insurance and demonize them to boot—and yet barley a peep of dissent was heard from them.

In fact, I, as the director of a small free market health insurance research and advocacy group at the time, received some pressure to tone down our objections to ObamaCare.

Health insurers knew the problems the legislation would create.  I sat in the office of an insurance company executive who complained that it would be very difficult to remain in business given the restrictions and price controls in the legislation.  But, he said, they were hoping the company would find a way to survive.  And yet like so many others, he never spoke out.

The point is that ObamaCare was meticulously crafted by people who didn’t have a clue how health insurance worked or how people respond to the various economic incentives in health care and insurance.  And we just got another example of my claim with the notice of the probable mothballing of the CLASS Act, yet another actuarially unsound provision in ObamaCare.

The ObamaCare effort was like those Utopian planners who have a vision for how an economy should work, and then try to force everyone to conform to that vision

And the people who did understand the health care system—and I’m not just talking about health insurers—who should have known better, mostly remained on the sideline … if they weren’t actively helping.

Well, Obama got his health care law—along with a lot of economic turmoil and public dissatisfaction.  And now we have to hope the Supreme Court or the 2012 elections will save us from the utopian fools who are only now beginning to learn that remaking a sixth of the U.S. economy was tougher than they thought

Merrill Matthews is a resident scholar at the Institute for Policy Innovation in Dallas, Texas. This post originally appeared at Forbes.

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20 replies »

  1. “It was a bad sign that the Affordable Health Care Act barely discussed risk adjustment or its costs.”

    Just one of several bad signs. But hey, the bill had to be passed to learn what was in it later. Sort of the same lame rhetoric Obama tried to pull with his Jobs Bill recently. Scam us once, shame on you, scam us twice…

  2. Have you ever noticed that the insurance companies are raising their rates and declining new applicants like crazy in the small business market — but when it comes to Medicare Advantage, these very same companies are cheerfully advertising for new customers, with moderate their premium increases?

    The reason is that in the under-65 market, insurance carriers are on their own. If they lose money on bad risks, they bear the loss themselves.

    In the Medicare market — and in most other countries, incidentally — there is a risk adjustment program, paid for with tax dollars, that effectively subsidizes the insurers who pay out more in claims.

    So there you have it — a socialistic government program, behind the scenes, which enables capitalist companies to put on a cheerful face to the public.

    And though this sounds contorted, it probably is the only way that America can have universal health insurance.

    It was a bad sign that the Affordable Health Care Act barely discussed risk adjustment or its costs.

  3. Right-wing nutjob checking in, here.

    It is pretty cool that Matthew Holt publishes arguments from both sides of the political aisle. Reeks of…journalism.

    That said, it’s embarrassing for people on my side to argue that a premium increase now is somehow “because of” Obamacare. It’s politically useful, because the electorate is too stupid to know otherwise, but we shouldn’t lie, because we teach our children not to.

    What he actually said, as far as I can tell, was that costs would go down because:

    1. the government will give people and doctors more information than they have now, and they’ll be so thrilled to finally understand how it all works that the patients will voluntarily choose less care, and the doctors, who up till now have been doing about 30% more than they need to, will stop it. Because of “information”.

    2. a government panel, intentionally insulated from “politics” (read: will of the people), will decide what the government will pay for. Because, apparently, the government cannot decide now what it will pay for. Then, somehow, even though we won’t tell anyone what to do, in all the land Grandmas should take a pain pill rather than have a pacemaker, and doctors won’t be allowed to do all those amputations for profit. (I think I’m quoting him on these examples.) But, this is not rationing, and anyone who says “death panel” should be shot.


    3. More rules for private insurance companies. Because if they make less profit, health costs will go down. Or something.

    But no matter what we think of these brilliancies, none of them have really happened yet.

  4. Insurance companies do not as a rule raise their premiums for political reasons. Instead they raise premiums because of claim trends in the people that they cover.

    The economic recession of 2008 meant fewer new companies, and a tougher time for small business.

    Therefore, most insurance companies are left with an aging risk pool.

    This starts an actuarial death spiral, where as premiums go up you see healthy people dropping their insurance. Pretty soon the covered population is older and sicker, and either soon to file a claim or on claim already.

    This trend has nothing to do with health care reform. Thus I am backing up what Matthew Holt said above.

    Incidentally, a public option would not have solved this trend if the public plan was going to be experience-rated. The public option would itself be filled with sick persons.

    The only solution is to break out of small risk pools and use taxes rather than premiums…i.e. Medicare for all.

    Bob Hertz, The Health Care Crusade

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  6. C’mon John, many of my best friends are right-wing nutjobs–you included! If we can’t have a bit of friendly banter here, what’s the point?

  7. A public option was torpedoed with all the artillery the insurance industry could find and the assault worked. The notion crashed and burned. So we will never know whether or not a public option would have been better or worse than what we got.

    (Psst. It was an OPTION, not a MANDATE.)

  8. “crafted by people who didn’t have a clue how health insurance worked”

    Yeah, and it’s worked out SO well. “If it ain’t broke, don’t fix it,” Right, pardner?

  9. “In fact, I, as the director of a small free market health insurance research and advocacy group at the time, received some pressure to tone down our objections to ObamaCare.”

    Reeks of some personal Dr. Phil and Oprah Issues, as does your tone in general.

  10. “liberal enablers who have dreamed so long for the day when the government would take control of the health care system.”

    Well, let’s waste no time in poisoning the well.

  11. Thank you Mr Holt for the clarification. My opinion is for profit entities do NOT collude with others who would impede that profit agenda, unless crafty and alternative options lie available in the future.

    I guess we wait to see if PPACA survives or dies by mid 2012.

  12. DeterminedMD I think the editors put lots of right-wing nutjobs up on THCB to inflame the commenters/appear balanced!

    This particular genius is attributing the rise in insurance premiums in 2011 which are based on actuarial activity in 2010 to a law which doesn’t take effect until 2014. And somehow he seems to think that the ACA is bad for insurers. I promise you it’s way better than the alternative–the collapse of the private insurance market. Which is why (despite the BS) almost all the big guys supported it.

  13. So, how will the usual suspects counter what this man is claiming? He’s got his own agenda, he is misrepresenting the facts, he has a Republican agenda alone? God forbid someone here calls him a racist!

    Amazing how the projections of one group are so profound and defendable, until the group gets called on it.

    Nice post, kinda surprised the blog editors allowed it though.