Medicare

One Year After ObamaCare, Health Insurance Premiums Are Still Rising

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As the one year anniversary of the Patient Protection and Affordable Care Act nears, The New York Times notices that health insurance premiums still haven't gone down. Just the opposite, in fact:

The new federal health care law may eventually "bend the cost curve" downward, as proponents argue. But for now, at many workplaces here, the rising cost of health care is prompting insurance premiums to skyrocket while coverage is shrinking.
As Congress continues to debate the new health care law, health insurance costs are still rising, particularly for small businesses. Republicans are seizing on the trend as evidence that the new law includes expensive features that are driving up premiums. But the insurance industry says premiums are rising primarily because of the underlying cost of care and a growing demand for it.
Across the country, premiums have more than doubled in the last decade, with smaller companies particularly hard hit in recent years, federal officials say.

The article presents the two stories of the rising cost of health care—costs are rising because of government mandates, and costs are rising because of growing demand for expensive care—as competing. But they don't have to be. In some sense, they're both right.

We know, for example, that benefit mandates drive up the cost of insurance. This ought to be self-evident to anyone who's ever purchased, say, car insurance: A bigger benefit package means more expensive premiums. The same is true in the health insurance market. In 2009, the Council on Affordable Health Insurance, an insurance-industry group, counted 2,133 state-level insurance mandates nationwide and estimated that the existence of the mandates adds anywhere from 20 to 50 percent to the cost of health insurance.

But a combination of technological advances and demand probably play a role too. But where does that demand come from, and what is driving spending on new technology? There's good reason to believe that this is also a product of government policy.

Take as much as you'd like!

When MIT's Amy Finkelstein looked at the beginnings of Medicare, which obviously provided a huge boost in the nation's health insurance figures, she found evidence that it was the introduction of a new, unlimited health insurance benefit that drove both the demand for care and the adoption of expensive new medical technologies. The National Bureau of Economic Research summarizes some of her findings:

Unlike an isolated individual's change in health insurance, market wide changes in health insurance may increase market demand for health care enough to make it worthwhile for hospitals to incur the fixed cost of adopting a new technology. Consistent with this, Finkelstein presents suggestive evidence that the introduction of Medicare was associated with faster adoption of then-new cardiac technologies.

Call it the Buffet Effect: When health care is presented as an all-you-can-consume affair, demand for it goes through the roof. This helps explain why Medicare's initial cost-estimates were so low. Experts guessed that individuals would continue to use roughly the same amount of care as they did prior to having health coverage. In fact, it turned out that the Medicare population used far, far more coverage immediately. First year costs were almost four times the maximum projected figure. Ultimately, Finkelstein estimates that the introduction of Medicare may have been responsible for about 40 percent of the total increase in per capita health spending between 1950 and 1990.

And as Finselstein suggests, all that extra demand helped pave the way for additional supply: More money poured into expensive new hospital equipment and specialized staff. No doubt there have been upsides to all this extra spending—life-saving technologies developed and life-extending procedures perfected that might not have been in a different world.

But overall, it's not clear that Medicare and its all but unlimited commitment to health spending have significantly improved health outcomes. Finkelstein found no change in elderly mortality during Medicare's first decade in operation. A massive study of the effects of health insurance by the RAND Corporation between 1971 and 1982—considered the industry standard in terms of health insurance research—found that introducing cost-sharing into the health insurance equation produced, on average, no decrease in health outcomes, but significantly reduced the use of health care services. Subsidized coverage resulted in improved health outcomes for a handful of ailments, mostly in lower-income populations. A metastudy of consumer-driven plans with high deductibles found similar results: Cost-sharing and less comprehensive coverage resulted in dramatically lower expenses, but no average reduction in health outcomes.

Again, it's the Buffet Effect: When health care is a buffet, people use more, especially when it's being paid for by someone else. There's not much evidence, however, that doing so increases overall health.

So mandates probably help explain part of the story. But government-subsidized coverage is likely a large factor too. Yet the response of those who authored the PPACA was not to change the way the government provides coverage. It was to expand the subsidization of generous coverage and, at the same, time, make it more difficult for insurers to weed out waste through activities like fraud prevention and utilization review. A decade from now, I suspect, The New York Times will be telling the same story.

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58 responses to “One Year After ObamaCare, Health Insurance Premiums Are Still Rising

  1. As the one year anniversary of the Patient Protection and Affordable Care Act nears

    I see you aren’t doing couch duty yet, Mr. McArdle. How are those swanky cosmo cocktail parties?

  2. The new federal health care law may eventually “bend the cost curve” downward, as proponents argue. But for now, at many workplaces here, the rising cost of health care is prompting insurance premiums to skyrocket while coverage is shrinking.

    I’ve been asking all along what metric will we use to judge the success or failure of the toxic sausage making clusterfuck we witnessed being made in 2009-10.

    Apparently supporters won’t be using insurance costs.

    Life expectancey? Won’t be any good news there. Trends will hold steady.

    Health care as a percentage of GDP? Nah, that will continue to rise.

    Number of people on the health care dole? Ding, dind, ding! I think we have our metric.

    1. Extra costs are profits! Yay!

    2. “Call it the Buffet Effect: When health care is presented as an all-you-can-consume affair, demand for it goes through the roof”
      I’d say that is 180 degrees wrong – when you own the buffet, and you know that all the food you put out, no matter how tasteless or expensive, will be paid for….well expect one huge buffet.

      1. well expect one huge buffet.

        By this logic Las Vegas should be the medical epicenter of the world. Also, has Jimmy Buffett weighed in on this?

    3. They will use the same argument they did vis a vis the stimulus. It would have been worse if we didn’t do it.

      1. 8%? I meant to say 12%.

  3. When health care is presented as an all-you-can-consume affair, demand for it goes through the roof.

    Economics… how does it work, again???

    Ultimately, Finkelstein estimates that the introduction of Medicare may have been responsible for about 40 percent of the total increase in per capita health spending between 1950 and 1990.

    Nooo! How can you say that???

  4. There’s not much evidence, however, that doing so increases overall health.

    I have kind of a philosophical problem with the assumption that doctors and hospitals are there to increase the overall health of the population at large.

    They’re not, really. They are there to make specific interventions into specific health problems. While this should have some marginal impact on the statistics for the health of the population at large, its impact will be utterly swamped by lifestyle.

    1. Wait, it’s almost like you’re saying the choices people make have an impact on their health. I suppose next you’ll say they should be responsible for those choices…and how is that fair ?

    2. Yeah the overall health agrument is a red herring, I think. It depends on so much more than just quality and availability of health care–personal lifestyle habits, violent crime, car accidents, suicide, etc all impact health and doctors have no control over that stuff.

    3. I have kind of a philosophical problem with the assumption that doctors and hospitals are there to increase the overall health of the population at large.

      Mr. Dean, where you not aware that the sole reason for employers was to employ people and making a profit for providing a good or service is tertiary? This is the analogous assumption.

  5. That’s because Obamacare forces HMO to cover “children” up to 26 years. Really Obama? What about 44 year old teenagers? What about 84 year old babies? Yeah, that’s Obama, our Mulatto Marxist in Chief.

    Mulatto is not a racist word, it simply means “half-white/half-black.”

    Calling him a Mulatto Marxist is no more racist than comparing George W. Bush to a Chimpanzee.

    And for the record, my issue with Obama is not him being 50% black but 100% Marxist.

    300 New Yorkers protest hearings on US Muslims.
    http://libertarians4freedom.bl…..on-us.html

    1. Next thing you’ll say, he was born in Keynesia when asked if he’s a Keynesian…

      1. I don’t know where he was born, but I know where he grew up, INDONESIA!

    2. The lady asshole doth protest too much, methinks

      1. Aw, a Mulatto Marxist sympathizer, how cute. Hey, you enjoy being Obama’s bitch? Does it feel nice when he rapes you with his taxes and regulation?

  6. Isn’t it better that the government wipe everyone’s ass? Is wipng your own ass something we really want to leave up to Big Toiletpaper? Why should some people get double-ply when others have to put of with cheap Chinese toiletpaper?

    1. Chinese ToiletPaper will taken over the country by 2040.

      1. And the externalities? If people don’t wipe, they stink up the high-speed rail. It’s just better to have government do some things for us.

  7. This ought to be self-evident to anyone who’s ever purchased, say, car insurance

    what if you’re so stupid you think your liability insurance covers damage to your own car?

    1. Then you too can be elected President.

  8. God the comments today are even more formulaic and content free than usual. Is DNS a bot that posts a “Mr. McArdle” response on every Suderman byline? Do you think you were even funny the first time?

    And asshole #2, why bring up “Mulatto” unless you intended it in a negative way? There’s enough to dislike about Obama’s governing without resorting to (unimaginative) ad hominem.

    I’ll go back to my cave now.

    1. a “Mr. McArdle” response on every Suderman byline?

      He broke it, he bought it. On both counts.

      1. You must be one of his ex’s.

  9. The article presents the two stories of the rising cost of health care?costs are rising because of government mandates, and costs are rising because of growing demand for expensive care?as competing. But they don’t have to be. In some sense, they’re both right.

    You forgot to mention the third story:
    greed and gouging

    1. Re: rather,

      greed and gouging

      Next thing you’ll say, is that fuel makes planes explode!

    2. If by greed, which means wanting to get something for exchanging nothing, you mean using the law apparatus to curtail market forces, which is what Mega Medicine Industry — Big Medical Insurers, Big Hospitals, Big Pharma, Big Med Equipment Makers, FDA bureaucrats, CDC bureaucrats, Medicare bureaucrats, Medicaid bureaucrats — have colluded to achieve with ObamaCare, then you would be right.

    3. it really is amazing to me what little people know about how markets work

      next thing hell be telling us is plane crashes are caused by gravity.

      1. Why do you think economics isn’t taught in High School?

        They need to breed people that are easily deceived by wordsmiths. Rigorous logic isn’t good for the revolution.

  10. In fact, it turned out that the Medicare population used far, far more coverage immediately. First year costs were almost four times the maximum projected figure. Ultimately, Finkelstein estimates that the introduction of Medicare may have been responsible for about 40 percent of the total increase in per capita health spending between 1950 and 1990.

    Buffet effect? How about the Milking effect brought to you by doctors/hospitals/drug pushers

    1. But why don’t people give a shit about the milking? Because most of them aren’t directly affected by it.

      1. But they are, and they treat it like most hidden taxation by ignoring the expense

    2. Re: rather,

      How about the Milking effect brought to you by doctors/hospitals/drug pushers

      How about the Shafting effect of regulations and licensing laws? How about the Fleecing effect, of making hospitals tend to people regardless of payment ability?

      1. Against the Shafting effect, the Milking effect but the Buffet effect doesn’t prevail because the doctor/hospitals determine the care and write the scripts.

        The Fleecing effect would be alleviated by the other’s diminishment. I’m still waiting for the libertarian humane solution for the poor and mentally incompetent.

        1. Re: rather,

          I’m still waiting for the libertarian humane solution[???] for the poor and mentally incompetent.

          You’re creepy.

          1. OK my fault for handing you that Godwin

            1. Re: rather,

              By the way, the “solution” is not to impose one. Impositions generate an exponential number of problems that would require new “solutions”… The conundrum of government, in a nutshell.

              1. I know some things are worse than the conundrum of government. I think the latter is the lesser of two evils

                1. Re: rather,

                  I know some things are worse than the conundrum of government.

                  Like what? Planetary wide destruction? Gamma ray bursts?

                  I think the latter is the lesser of two evils.

                  I bet you do.

                  1. Yes, I do, and will continue to do so till Libertarians/Senator Tom Coburn types come up with an ameliorized plan, other than the charity fairy?

                    1. Of course the charity fairy gave a hell of a lot more money, people, and time to Haiti than did the government. Just an observation.

                    2. Yes, it did but you know as well as I do, it cannot replace the government

  11. PAY ATTENTION TO ME!!!

  12. Every intelligence service in the world (the Fwench and the UN and the Clinton Administration too! Oh my!) said Saddam had WMD, dating back to the early 1990s. Yet Bush LIIEEEDDDD!

    Well, at least half of the world’s economists and none of the conservative/libertarian commentariat expected Ocare to reduce costs nor increase access.
    In fact, current world events (AKA reality) also pointed out that Ocare was a scam.

    So, Lefties and Cosmotarians alike, say it slow and say it proud: Obama LIIIIEEEEEEDDDDDDDDD!

    1. people died (will die)?

  13. In a free country, I would only get insured for dental and emergency. For the rest, I would bargain shop.

    1. Dental insurance is probably one of the worst buys there is. Paying out of pocket for routine cleaning and checkups and the occasional filling is the best policy.

      Dental health is one of those areas where good habits (in this case regular cleaning and flossing) pay off.

  14. Oh, and one little link:
    http://theincidentaleconomist……mes-again/
    What is interesting is the idea that you cannot prove that having medicaid is WORSE than being uninsured. Let that sink in. What that would also imply is the notion that proving that medicaid is BETTER than being uninsured also can’t be proven.

    The point I would make is: the idea that health insurance is an unalloyed good is not borne out by the data.
    The article mentions some reasons, but my view is that the predominant one is that researchers are loath to publish “null” results. Publishing an article that nothing happened, or even worse, nothing you can PROVE happened, well, it just sucks publication wise.

    1. Actually a considerable amount of the research that has been done shows that outcomes for those on Medicaid are in some areas worse than for the uninsured. It’s not definitive, but then any public health research never is.

  15. You forgot to mention the third story:
    greed and gouging

    The average margin for health insurance is around 2 – 3%. Hospitals, maybe 5%.

    Yeah, gouging is the problem here.

    1. I once talked to one of the idiots that thought their profit margins had to 15% because they only payed out 85% in medical costs.

      I also had a liberal tell me if it wasn’t for corporate profits, we would pay wholesale for our consumer goods.

      Really, this is what these people think.

  16. “You forgot to mention the third story:
    greed and gouging”

    “Greed” is a term used by econ-ignoramuses to admit they haven’t a clue.
    “Greed” is constant in human behavior, so to assign “greed” as a cause for a specific event is to throw up your arms and admit you really ought to STFU

  17. Wow thanks for posting this article about boosting benefits it was very interesting and insightful and very well put together.

  18. Wow thanks for posting your article it was very interesting and insightful. I have found many other interesting articles at http://www.healthplanexplorer.com on this topic as well so keep up the good work and thanks again for the article.

  19. Picture in the not too distant future that the federal government must make a desparate move to save the economy from total collapse by eliminating the largest single expenditure?institutional health care for those with diminished mental capacity. This is going to be relatively easy because the largest payer of hospital and nursing facility care is the Medicare system and the chief policy maker is the director of the Centers for Medicare and Medicaid Services (CMS) who serves at the pleasure of the president of the United States.

  20. I almost had a heart attack my blue cross renewal premium just went down about 5%, and my policy is considerably less than a similar policy I had a few years ago. Very shocking!

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