ObamaCare vs. Free Market: May the Best Plan Win

The debate at Forbes over what ObamaCare — and more specifically minimum medical cost ratio requirements — will mean for health insurers is a fun one.  This being the holiday season, let me take this opportunity to say I disagree with everyone.

Rick Ungar argues that the MCR rules will mean the death of the health plan industry and the arrival of single-payer healthcare in America.  Well, Rick, we may one day go to single-payer, but it won’t be because of MCR requirements.  My back-of-the-envelope calculations suggest that MCR regulations will cut industry profits up to 7% in 2011 and new reform-related taxes will trim another 10%.  So health insurance will become a far less profitable industry, but still a viable one.  Even if margins are tiny, aggregate profits remain big.

Avik Roy argues that MCR regulations will lead to private health plan monopolies that drive up premiums.  Roy tends to write in a dizzying array of concentric circles, but I think his argument is MCR rules will force small individual plans to exit the market while making it harder for start-ups to enter. 

That would leave the big plans as monopolies.  Rather than cut administrative costs, he argues, they will raise premiums and spending to hit the 80% individual MCR minimum.  His math looks like this.  A plan with a $10k premium, $7k in medical costs and $3k in admin costs would have a 70% MCR.  But a $15k plan with $12k in medical costs and $3k in admin costs would have an 80% MCR.  The arbitrary MCR rules, he argues, just encourage waste.

Of course, there’s another way plans can meet the MCR: reduce premiums.  Or as Citi analyst Carl McDonald noted last year:

I think what you’ve started to see and will be seeing more of is plans lowering premium rates to bring that adjusted loss ratio closer to 80%. The thought is that a lower priced product will be better at attracting new members than maintaining the same price and writing a rebate check….Doesn’t always mean that absolute premium dollars go down, but it could mean that a plan that was planning on raising rates 10% because of increasing cost trends doesn’t have to do that anymore.

In other words, there’s a good chance plans will keep a lid on premiums and take the margin hit in exchange for share. Yes, there will be consolidation, so Roy is right on that score.  But there’s also the chance that innovators will figure out how to operate with a lower cost structure in an exchange — providing commoditized individual coverage that meets basic benefit and MCR requirements and beating traditional players at their own game. 

Finally, there’s John Graham, who argues that both Ungar and Roy are correct.  Monopolies will arise initially, he says, but they will abuse the public trust.  Result: the last of the health insurance industry’s political supporters will “switch sides and collapse” in support of “Medicaid-for-all” (I assume he means Medicare for all, but you get the point).

Frankly, I just can’t see someone like House Majority Leader Eric Cantor (R-VA) or John Goodman of the National Center for Policy Analysis switching sides in favor of single-payer.  More likely is a continued evolution toward a public-private system in which health plans are heavily regulated — sort of like utilities. 

One interesting sidebar: Even as we debate the merits and faults of ObamaCare, the private market is rapidly adopting consumer-directed health plans — the approach favored by free-market advocates.  Or as Drew Altman of the Kaiser Family Foundation notes:

Conservatives rail about Obamacare, but they may be winning more than they are losing; it is their vision of insurance with more “skin in the game” that is gradually taking over the marketplace because employers have no other way to control costs.

In other words, we’ve unwittingly created a real-world health system laboratory — providing a unique opportunity to simultanously test and compare the liberal vs. conservative approaches.  May the best plan win.

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2 Responses to ObamaCare vs. Free Market: May the Best Plan Win

  1. sunforester says:

    Just get all the free health care mandated by our political elite completely eliminated, and we will see our private health care industry rebound after this economically crippling and perversely distorting burden is lifted. Obamacare hands out lots and lots of free stuff, so it absolutely must be repealed in its entirety.

    I have no other choice than to hope that our Supreme Court will get rid of Obamacare for good. The Supremes are also part of our political elite that over the decades have taken power away from we the people over our own lives. As a result we are now at the point that we face the ultimate delight of the political elite – utter power over what we the people can do or buy, thanks to Obamacare.

    Because our Supreme Court has so eroded the self-determination of we the people in favor of themselves and their fellow political elite, I worry deeply that they will continue to serve their own interests and allow Obamacare to continue to hand out all the free stuff that privileged, freeloading voters can eat. In that case, kiss our private industry (any private industry) goodbye. In that case, kiss our economy goodbye as well.

  2. Jeb says:

    Obama care is targeting families with autistic children who will likely need long term health care. They want to pretend they don’t exist. They want to push them into a black hole where their delicate needs aren’t considered. nevermind it will cost states upwards of a million dollars to place severely autistic individuals into state institutions or group homes. Never mind Obamacare doesn’t have a clue what it takes to care for the most vulneralbe of autistic community. Oh, yes, let us just enjoy the sweet words of Obama and others like him. Let us believe their lies. Their empty promises to generate more votes. The fact is Obama and many other politicians don’t undertand what it’s like to live with an autistic child. They don’t care. They don’t want to know. They will say anything they can to convince you they care, but the reality is they can’t know, they don’t want to know, they can care less! Fools! don’t be fooled by this nonsense. These people will tell you anything to get another vote, but ask yourselves, do they really understand what it is like to raise an autistic child? Do they get what we go through? NO, they don’t, and never will, unless we show them what it’s like and even then, they will feign ignorance, and tell us what we want to hear, until they’re elected and then they will do whatever they want to squash us into oblivion. So what then? WHO do we vote for? No doubt, Obama doesn’t understand what autistic children need, or what their families face with long term health care insurance coverage. He doesn’t have a clue. He, like so many other politicians, is content where he is. He’s sending his wife onto vacations to Africa. He’s living the life. He’s got his man, To hell with everyone else, right? And is he different than the others? We will see…

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