Democrats in Congress are desperately trying to keep Obamacare on life support. The latest scare tactic is from the Kaiser Family Foundation (KFF), which estimates that Obamacare premiums will rise 114% without extending the so-called enhanced subsidies. The following is from a CNBC article:
In 2021, the American Rescue Plan Act, a pandemic relief law, temporarily increased the amount of the premium tax credit and expanded eligibility to households with an annual income of more than 400% of the federal poverty limit. (This includes a family of four with income of more than $128,600 in 2025, for example.)
One would have to dig deeper into the fine print to see which scenario KFF is referring to. Averages mean almost nothing when the subsidies and the premiums vary with age, income, region, and the type of plan purchased. In years prior to the enhanced subsidies, only the poor (who got generous subsidies) and the sick found Obamacare to be a fair value. The middle class and upper middle class largely opted out of Obamacare due to the prohibitive cost and low value.
Obamacare is a bad deal regardless of who is paying the tab. And taxpayers subsidizing a bad deal to make it affordable distorts the market further and delays needed reform. The reality is ACA Marketplace plans are beneficial for less than 10% of those who have them. The left-leaning Commonwealth Fund calculated that about 90% of those with ACA plans do not surpass their deductibles. That suggests they would be no worse off financially if they were uninsured rather than enrolled in Obamacare. Before covid (2019) just under one-quarter of enrollees (23%) did not file a claim during the plan year. After enhanced subsidies came into effect that proportion increased to more than one-third (35%).
Obamacare was purposely designed to be a bad deal for most people. By most, I mean a bad deal for more than eight-in-ten customers. In health care there is what is known as the 80/20 rule. That is, 80% of costs are accrued by the sickest 20% of enrollees. People purchase insurance in case they land among the unlucky 20%. Actuaries claim that the sickest 20% is not the same every year but sometimes it is. That is the whole point of Obamacare: to force me to overpay every year to the tune of $5,000 to $7,000 so the sickest 5% of people my age can get coverage for the same price as me.
I had Obamacare for 2.3 years, 2022, 2023 and part of 2024. The combined premiums totaled nearly $20,000, of which Uncle Sam paid roughly $5,500. My out-of-pocket premiums were about $14,000. During this 28-month period I did not file a single claim. My first year the insurance company’s provider network was so bad the State of Texas asked them not to participate in the Texas Marketplace the following year. I consulted with physicians a time or two, but none were in my network. I received some health care, a prescription in addition to comprehensive blood tests each of those years but I paid for it all out of pocket.
I know what you’re thinking: insurance is best when you do not have to use it. That is true and I do not worry that I am not getting my money’s worth out of my auto, motorcycle, umbrella, and homeowner’s insurance if I do not suffer a loss. The difference between my other insurance products and Obamacare is that all the other policies’ combined cost is about half what an ACA plan will cost me next year.
What should my health coverage cost? It is hard to estimate but a poor-quality health plan, with 40% cost-sharing and deductibles of $8,000 to $9,000 for 28 months would probably have cost no more than $4,000 if not for Obamacare regulations. In round numbers I threw away $10,000 down an Obamacare rathole (and the government flushed an additional $5,500 on my behalf). In that regard it was a $10,000 tax on my health that would have been better spent added to my health savings account for future medical care. Where did that $10,000 go? Undoubtedly it went to pad the health insurance company’s profit margin. Health insurers would argue it was used to pay for someone’s medical care. Perhaps it went to pay for another patient’s $2 million drug. The reason $2 million drugs exist is because Obamacare banned annual and lifetime caps on benefits. When 90% of customers are no worse off without your overpriced product, it is time to go back to the drawing board and design a better product. Let the enhanced subsidies expire. Without any subsidies Obamacare would collapse under its own weight.
Read more at: Affordable Care Act premiums will rise 114% if enhanced subsidies expire, KFF says
OK, let’s try a libertarian experiment. (sort of)
1. We cancel the Obamacare subsidies.
2. We let the insurance companies underwrite again.
3. The 90-95% who are in good health can find insurance easy to get and much cheaper.
4. This leaves two problem groups:
a. Those with chronic illness, who now cannot find insurance. They might find a pollicy which excludes the one condition they have. This is exactly what happens with disability insurance.
b. Those in good health, the young invincibles, who don’t see a need to buy any insurance. They don’t have many claims, but their claims are a problem.
Here is the challenge.
Some of the persons in group 4 will get very sick but cannot pay for their care. They could declare bankruptcy but that does not pay the hospitals anything.
The Obamacare “solution” is guaranteed issue + subsidies. You don’t like it, I don’t blame you.
One solution discussed in about 2008 was a high-risk insurance pool with big government subsidies. That is approximately what we do for floods and hurricanes.
Paul Ryan volunteered to come up with a government contribution for high-risk pools. I think he suggested $5 billiion a year. That is about 10% of what acturaries think it would cost.
$50 billion a year would be a bargain compared to Obamacare. If we can get beyond Republican stinginess, this concept might work.
The current system of large subsidies for health plans that 90% of enrollees do not use is inefficient. As you suggest, there are better ways to subsidize high risk individuals than the current system that invites high prices. There was an interim high-risk pool that was to bridge the gap between the old risk-rated system and the new Obamacare implementation. The experts thought it would be fully subscribed due to the huge need. I forget the percentages now that 15 years have gone by but as I recall only a small fraction of people signed up compared to what experts anticipated. A primary complaint about high-risk pools was that they were expensive, but I doubt they cost more than Obamacare. I would support a system of mandatory savings (MediSave) and reasonable high-deductible insurance (MediShield) like Singapore has.