Price Pressures 7 Possible Futures For Obamacare

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 7 Possible Futures For Obamacare With Obamacare is starting tow signs of financial strain, there are a number of The stocks of prescription drug companies such as Pfizer PFE and Merck Co. enough competition and that drugs cost too much, says Joe Ellis, senior vice president Such a move would bring more competitive pressure on the drug companies, Ellis says. political contributions notwithstanding, competition among health systems and pressure to reduce costs will put an end to health . Authors of the Affordable Care Act ACA pledged that this major The CBO says that 7 million to 8 million fewer persons will have employment-based coverage by 2016. 25 years all the growth in the government ‘s future noninterest spending It is possible that health care providers could improved.

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1. Rates will settle down because insurers are just finding their footing.

For the first few years, supporters of the law had a mantra: “Look how great Obamacare is; rates are lower than expected.” They had to stop chanting that in 2015, when insurers started asking for — and getting — great big price hikes.

The new mantra became: “It’s a new market and insurers needed time to figure out how to price, but rates will settle down.” Which also works for a limited time only.

Obamacare sharply limits the ability of insurers to charge different rates to different people, or take significant profits, which means pricing should be pretty simple: the average expected claim, plus a modest profit margin. Sure, they could have mispriced for a year or two. But one or two years of price hikes ought to clear that up, especially because enrollment growth seems to have leveled off.

If prices don’t stabilize soon, at some point — maybe 2018 — we have to concede that what we’re seeing is not an initial mispricing but a market in which consumer behavior is evolving in tandem with pricing, so that the latter can’t catch up to the former. That’s a very different problem, and one that could end in something like a death spiral in the unsubsidized portion of the market.

2. Rates will settle down because the exchanges will turn into Medicaid-with-premiums.

The plans with the biggest problems seem to be plans that cost more and allow you lots of choice: choice of doctors, choice of hospitals, choice of treatments. Plans, in other words, that are a lot like employer-provided health insurance.

Who are those plans attractive to? Upper-middle-class people, for one. But also, people who are sick, who want to be sure they can go to the best oncologist, not just whatever random oncologist the plan has available. Those plans may simply not be viable at prices anyone wants to pay. So the entire market may end up moving in the Medicaid-managed-care direction, with a very limited number of doctors and hospitals available.

There are some issues with that, however. For one thing, such plans are pretty viable in urban areas, but in a rural area where there’s only one hospital, insurers can’t gain negotiating leverage by threatening to leave that hospital out of their network. Those insurers may end up leaving the exchanges altogether. It seems telling that Humana’s pullback will radically reduce the number of counties it covers, but involve much less radical surgery on the number of states it expects to serve.

Also, while these ultra-narrow-network plans may be economically viable, it’s not clear that they’re politically viable. We tried narrow networks before, and had great success at controlling health care costs for a few years. The organizations that made this work were called HMOs, and everyone hated them. A combination of political and market pressure gutted their ability to control costs, and that was that.

3. Rates will settle down at a much higher level, and unsubsidized people will stop buying insurance.

With so much subsidy money sloshing around the system, a true “insurance death spiral,” which just keeps going until the market collapses and no one at all has coverage, seems unlikely.

On the other hand, it’s certainly possible to see a sort of modified death spiral, where the only folks who buy insurance are people whose monthly premiums are capped at a few dollars. That insurance would be very expensive, but because the government would be picking up almost all of the tab, those consumers wouldn’t care much.

This would lead to some interesting outcomes. For one thing, the number of insured people would peak and then start going down again, as the middle class exited the market. For another, we would have gone from a situation in which the uninsured were mostly poor people who couldn’t afford insurance because their incomes were too low, to a situation in which the uninsured are mostly middle-class people who can’t afford insurance because the premiums are too high.

4. Premiums stabilize or fall because healthy young people start flooding into the market.

There are reasons you could see this happening: the individual mandate penalty could finally begin to bite; word of mouth and familiarity could breed enthusiasm for the program; employers could start dumping employees onto the exchanges. These things remain possible, but after three years, I’m getting pretty skeptical that they will happen.

5. Premiums stabilize or fall because Obamacare starts hacking away at provider incomes to get health care prices under control.

I am very, very, very skeptical.

6. Insurers will just give up on a bunch of markets, leading to a crisis in which a number of exchanges have no policies at all offered.

I assume that the government does something at that point. Not sure what. Maybe we get the public option. Maybe Democrats are hounded from office by angry voters and Republicans get to actually try having a health care plan. Maybe the sweet meteor of death arrives while we’re still arguing about it.

7. Premiums increase so much that they bump up against the subsidy cap (total subsidy expenditure is supposed to be capped at a little over half a percent of GDP).

Whoever is in charge of the government at that point will have four very, very unappealing options. One, pass a law that increases the subsidies, funded by some combination of new taxes and cuts to existing programs. Two, cut subsidies to some of the people who are currently getting them (with all the risks of market shrinkage and modified death spirals outlined above, plus angry voters calling their representatives). Three, have the Department of Health and Human Services siphon money out of other accounts to patch up the holes in the subsidies. I’d expect this to be the first thing they try, but it’s a pretty short-term strategy. There’s always a little extra cash sloshing around almost any budget, but it’s not unlimited, and tapping it often consists of doing things like delaying repairs, which means you cannot play these games indefinitely. Or four, pass a series of one-year “fixes,” like the Medicare “doc fix,” that temporarily abate the problem, while turning it into an ongoing political crisis. If I had to lay money on the government’s ultimate response, this would be my best bet.

When Obamacare was being debated, it was common to hear supporters of the law say “America is the only civilized nation that doesn’t have universal coverage.” We stood out in another way: Health care occupied relatively little of the government’s political time. In other countries, the minister of health can be as important as the minister of defense, and a great deal of political energy is expended arguing endlessly about health care: what to pay for, and how to get the money to pay for it.

We seem well on our way to being one of those normal civilized nations. You can certainly argue that this represents progress, that it’s a good sign when the government spends more time thinking about how to heal people.

On the other hand, those countries made that transition at a time when populations were still growing, delivering economic growth and a demographic profile that eased the burdens of paying for it all.

And of course, other nations did this all under the umbrella of a gargantuan U.S. defense budget that enabled them to transfer most of their defense budgets into domestic welfare systems. The U.S. doesn’t have that luxury. Which suggests that our political arguments over the health care system cannot follow the path established by those nations. The Obamacare adventure has wandered off the map now.

Megan McArdle is a Bloomberg View columnist writing on economics, business and public policy.

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Price Pressures 7 Possible Futures For Obamacare | admin | 4.5
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