Obamacare premiums, premiums for those purchasing individual insurance plans in state healthcare exchanges, are set to skyrocket and increase by 22 percent this upcoming year, according to a report released by the Department of Health and Human Services this past Monday.
There is no question that this is extremely problematic and needs to be addressed. Obamacare has been successful in its goals of increasing insurance coverage and slowing health care inflation. The uninsured, non-elderly population has dropped drastically from 18.2 percent in 2010, to 10.5 percent this past year – a historic low. Annual growth in medical care costs decreased from upwards of 11.5 percent in 1983, to less than 3 percent last year.
However, there is truth in saying that healthcare reform has not lived up to its promise for middle-income Americans, who are not insured by their employer and seek insurance coverage through state-level exchanges. The recent increases in premiums highlight this. To be eligible for subsidies, families of four must make less than $97,200 per year, and a couple less than $64,080. Approximately 85 percent receive such subsidies for purchasing in the healthcare exchange, which rise automatically proportionate to premium costs. This is problematic as increased premiums necessitate increased government spending. Those 15 percent who do not qualify for subsidies, but still face rising costs, are similarly faced with two, both problematic, options: let healthcare continue to take up an increasing share of their income, or simply no longer buy insurance. Both are unacceptable, hurting families and our country’s overall health and economy.
This does not mean, however, that Obamacare has failed; it would be a mistake to throw its foundation and progress away. Obamacare is rather not working as it should, and there are specific reforms we can make to get it there. It is important to understand why individual premiums have risen in this way, so we can address it correctly going forward.
There are two main reasons premiums have increased. Firstly, there is not enough competition in the exchanges between insurance companies. Opponents of Obamacare say it ignores the benefits of free-market principles in the healthcare market, however stable, controlled capitalism is actually a principle upon which the well-functioning of the Affordable Care Act rests. In absence of competition, premiums are increasing. Large insurance companies are deciding to leave state exchange markets, because they are not profitable. This is related to the second reason premiums have increased: not enough healthy people are signing up for insurance. To function correctly, healthy people are required to pay into the system to balance out the risk of companies insuring the sick. Without healthy people, premiums rise as companies need to compensate for the costs of insuring sick people, which require more medical spending. This is not a radical idea – this is the nature of insurance markets. Insurance companies are essentially risk-pooling enterprises. This is the line of reasoning behind the individual mandate, and one of Obamacare’s leading provisions that companies cannot deny coverage to those with preexisting conditions.
Paul Krugman of the New York Times offers one practical solution: “strengthen the mandate.” Obamcare introduced a penalty to incentivize people who don’t buy insurance, to do so. Currently, the penalty (primarily healthy) individuals face for not buying health insurance is too small to make a difference in their decision.
A second proposal is a cornerstone of Hillary Clinton’s healthcare policy platform: introduce a “public option” into healthcare exchanges. This would have the effect of stimulating competition, and bringing competing companies’ premiums down. Critics of the latter argue this is a move towards a single-payer system. However the truth is, regardless of the potential merits or drawbacks of a single-payer system, that is not going to happen anytime soon. Rather, introducing a public option is an important way to keep costs in check and provide more choices to consumers.
In the final days of the election, opponents of President Obama are using this report to preemptively claim that one of his greatest achievements, healthcare reform, has failed. While the news of increasing premiums from the Department of Health and Human Services is troubling, it is not the end all, be all, and has in fact been forecasted for some time. Rather, we should move to protect the progress of the Affordable Care Act, and build off its legacy to ensure it is working for all Americans.