How Obamacare Disincentivizes Inexpensive Insurance


credit: alles-schlumpf / Foter.com / CC BY-NC-SA

When you subsidize something, you get more of it. Obamacare is set to spend about $23 billion on private insurance subsidies next year, and more than $130 billion annually by 2021. And, so we'll end up as a nation with a lot more health insurance.

But there's one type of insurance that Obamacare doesn't subsidize: the relatively inexpensive, high-deductible insurance plans that can make a lot of sense for a lot of individuals, especially the young and healthy. And that's going to create a significant disincentive to utilize those types of plans, explains Jed Graham of Investor's Business Daily:

For a bit less, $137 a month (after subsidies), a 21-year-old can get bronze coverage [Obamacare's lowest coverage level for non-catastrophic insurance]. Yet while the price is more realistic, the deductible of $5,000 may be so high that young people wonder whether the price is worth the sacrifice.

More good news: Those under 30 will have yet one more option, buying catastrophic coverage. These policies come with an even higher deductible of $6,400, but they are less expensive.

But here's the final piece of bad news: Because such policies come with no federal subsidies, workers earning 250% of the poverty level would pay the exact same $137 a month out of pocket for the cheapest catastrophic coverage as they would for the cheapest bronze-level plan.

The existence of these sorts of incentives will probably drive up overall health spending: The evidence is pretty strong that people with more insurance utilize more health care services (although it's far less evident that they get commensurate improvements in health). It will also drive up costs for taxpayers, as more individuals like Graham describes are likely to take the publicly subsidized insurance option rather than the catastrophic plan at the same price. 

What this really does is highlight how absurd it was for President Obama and others to suggest that the health law would bring down insurance premiums for most people. Even with expanded insurance pools, a big part of the point of the law was not only to get more people to buy insurance coverage, but to get people to buy more insurance coverage — broader and more expensive plans designed to please folks like Health and Human Services Secretary Kathleen Sebelius who think that catastrophic insurance, the kind that's actually focused on protection from major financial shock, somehow doesn't count.