Yesterday the Kaiser Family Foundation released a white paper which largely conceded that premiums in the individual market will likely be rising under ObamaCare due to the new benefits insurance plans must provide and the sicker people the plans are forced to cover.
However, the authors argued that there will be countervailing forces pushing premiums downward:
The incentives for more efficient delivery and lower administrative costs, reinforced by the minimum loss ratio and rate review provisions, should set the stage for a more robust effort by the industry to limit costs and cost increases in this market. The large number of new enrollees also will provide greater incentive for the health plans to invest in cost control programs for the nongroup market.
Or they might set the stage for more insurers dropping out of the individual market.
Under ObamaCare’s medical-loss-ratio regulations, insurers in the individual market are allowed to spend no more than 20% of their premiums on administrative costs, including profits. These first went into effect in 2011, and the left-wing Commonwealth Fund recently examined what happened:
The other component of reduced overhead was lower profit margins, indicating that overall premium growth was restrained in the individual market. In 2010, individual insurers had an operating profit margin of 0.15 percent overall, but this dropped to an operating loss of –1.2 percent in 2011, amounting to a $351 million reduction in operating profits overall…On a per-member basis, individual insurers’ operating profits diminished (or losses increased) by $35.
The Commonwealth Fund argued that due to the profit losses and other reductions in administration costs “consumers benefitted in the form of restrained premium increases.”
Well, that’s one way to look at it. Another way is that those “restrained premium increases” will be short-lived if insurers’ profit losses in the individual market continue long-term. Since companies that consistently operate at a loss eventually go out of business, in the long-run you’ll see fewer insurers competing in the individual market. And less competition means that the price of premiums will rise.
Of course, left-wing policy wonks seldom look that far ahead, and politicians almost never do. Insurers, on the other hand, may be. Greg Scandlen recently pointed to some news articles showing that many insurers were wary about jumping into the exchanges:
Health plan chains (multiple insurance companies with a single owner) gave notice that they will not even bother to apply to participate in health exchanges in half of all states. The revelation at investor conferences is a warning that despite all the political verbiage most private carriers do not need (or want) a large book of business in the small group and individual markets, and have no intention of losing money to sell rich benefits to people with higher-than-average underwriting risk.
Neither of the articles Scandlen links to makes notice of the effect medical-loss-ratio regulations have had on profits. But it sure looks like insurers have.
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