The latest round of double-digit health insurance premium increases announced last week by insurance companies participating in the state’s MNsure marketplace, is just the latest sign that all that was wrong with the U.S. health care system was not made right by the Affordable Care Act.
While political critics of the ACA and MNsure seized on the rate increases to lay blame at the feet of Gov. Mark Dayton or President Obama, the reality is far more complicated. For one thing, premium increases are being experienced across the board, not just on the exchanges authorized by the ACA— and they are being driven by the longstanding cost spiral in the American health care system generally.
It’s not just those using the public insurance exchanges who are feeling the pinch. Health insurance premiums are skyrocketing for many businesses as well as public institutions, fueled largely by higher prices for hospital care and prescription drugs.
The state’s five insurers in the MNsure marketplace say the rate increases come down to simple economics. The premiums they receive aren’t enough to cover the cost of the health care they are required to provide. The numbers back up their argument, or the state’s Department of Commerce wouldn’t allow rate hikes anywhere close to the levels proposed for 2017.
While subsidies will help to buffer the impact for many of those who buy insurance through MNsure, there’s no buffering the effect to taxpayers if the cost of those subsidies grows out of control. And for those who don’t qualify for subsidies, the impact of rate increases, ranging from 35-70 percent for next year alone, won’t be buffered in any way. The pain will be enormous and it will, almost certainly, cause more Americans to pay the penalty for non-compliance with the ACA’s insurance mandate, rather than buy high-priced insurance that, for many healthy, middle-aged people, is a poor investment.
Critics often refer to the ACA as government overreach, yet its primary flaw is a lack of boldness. Cost containment is the only way to address the crisis in the American health care system and a wholesale restructuring of the profit-centered foundation of the system is the only means of achieving such containment.
We’ve all heard of the military-industrial complex, that unsavory alliance of military contractors and their well-greased legions of Washington politicians who combine to keep the public money spigot flowing. Yet that very same model of profit and political influence drives the equally unsavory health care-industrial complex, with its legions of lobbyists paid by Big Pharma, medical device manufacturers, care providers, and the health insurance industry. In crafting the ACA, President Obama decided not to take on those big dogs, and we ended up with a law that further entrenched the political power, and ultimately the profits, of the big industry players.
While some of the law’s changes brought modest health care savings, it also instituted some perverse incentives. At first glance, it seemed like a good idea to require insurance companies to expend at least 80 percent of their premiums on actual care, or require them to refund money to ratepayers. Yet this meant insurance companies no longer had incentive to contain costs, since their effective profits were based on a percentage of their overall premiums. It didn’t take them long to realize that 20-percent profit off of $2 billion in premiums was twice as much as 20-percent off of $1 billion. The old incentives, of adding to profits by reducing health care expenditures, were suddenly less important to insurers. Higher premiums, not cost containment, became the primary means to higher profit. It is no surprise, therefore, that premiums are now rising quickly.
And as more people moved into the ranks of the insured, thanks to the ACA, there were that many more potential consumers of prescription drugs. And while consumers are highly sensitive to the price of drugs when they’re paying the bill themselves, when it’s covered by insurance, there’s little incentive to ask for generic alternatives or do without. That’s helped fuel a major spike in prescription drug prices as the pharmaceutical companies take advantage of the expanded ranks of the insured to further add to company profits.
The bottom line is pretty obvious. We can’t control the rising cost of health care and premiums until Washington musters the will to break up the immense political and economic power of the health care industry. The ACA failed to do that job. Until Washington can get it done, the out-of-control health care cost spiral will continue to escalate.