Understanding pre- and post-Obamacare health plans
As I outlined in my blog post, “Concentrate more on cutting the size of the healthcare pie . . .” the primary healthcare solution is to regulate care providers in a manner that stimulates price competition among them. Free-market price competition will reduce prices to levels more in line with prices charged throughout the rest of the world. Premiums will never reach affordable levels until prices for care (not coverage) are dramatically reduced.
Don’t misunderstand me, changing the design of health plans is also an important component of the solution but it will not dramatically reduce prices of care. Supporters of Obamacare believed that changing the design of health plan benefits will, in turn, control the prices of the underlying care and reduce premiums. Benefit design changes in Obamacare did nothing to make premiums affordable. This article summarizes what health plans looked like before and after Obamacare.
Before Obamacare. Health plans negotiated by labor unions offered significant covered benefits with limited out-of-pocket obligations. Driven by market forces to compete for labor, insurers (and non-union employers) designed group and individual plans with low-cost doctor visits and low deductibles similar to union-sponsored health plans. High-deductible plans (with lower premiums) were also available for those willing to self-insure the routine and lower-cost healthcare services. As premiums became widely unaffordable and motivated by market forces to keep policyholders, insurers began imposing more dramatic provisions to keep premiums in line for most policyholders (the healthiest majority). These provisions included (i) denying coverage to the sickest of new policy applicants (making them eligible for high-risk pools) (ii) excluding coverage of pre-existing conditions of new policyholders, (iii) imposing monetary caps on benefits for treatment of specific diseases or conditions, and (iv) imposing lifetime benefit limits. These provisions resulted in keeping premiums affordable for a majority of policyholders but left the minority of the sickest citizens with substantial bills to pay after exhausting the more-limited insurance benefits. In other words, pre-Obamacare plans covered significantly more for lower-cost routine care of a substantial majority of the people while covering less of the more expensive catastrophic and chronic care incurred by the few.
After Obamacare. Democrats in Congress viewed health insurers and the limited coverage provisions outlined above as “villainous.” Obamacare essentially inverted the coverage formula. Obamacare covers virtually all of the expensive catastrophic and chronic care costs of the few while covering very little of the routine or minor care costs incurred by most of the people. Deductibles and out-of-pocket costs had to sky-rocket for a majority of the people to allow premiums to cover the expensive care of the few. A significant of Americans now felt not only that premiums remained unaffordable, but now they could not afford the deductibles before realizing any insurance benefits.
Conclusion. Which seems more fair to you? First, to leave a few of the sickest people with a larger share of their expensive care to pay personally. Second, make a significant number of people pay larger deductibles so that their premiums can be pooled to pay for the expensive care of the few. Or third, to stimulate price competition among care providers so that care and coverage is more affordable across the spectrum of individuals. I believe that failure of Obamacare clearly shows that plan design does little to make premiums or care more affordable. When will the light go on in the brains of Congressmen telling them to focus their attention on working directly with healthcare providers to reduce the prices they charge for services? Hopefully soon.