How to Make Health Insurance Less Expensive: Stop Requiring More Expensive Plans



For those still scratching their heads, trying to figure out how to produce a health insurance market where premiums are less expensive, it turns out the answer is pretty simple: Allow insurers to sell health plans that are less expensive. Really. That's it. 

Right now, health plans sold through Obamacare's exchanges must meet a variety of standards, including a minimum actuarial value, which tells you the percentage of estimated health costs consumers enrolled in any particular plan can expect to have covered. So a plan with an actuarial value of 80 percent would cover an estimated 80 percent of costs, and a 90 percent value would cover 90 percent, and so on and so forth. 

Currently, Obamacare divides plans into three tiers, Gold, Silver, and Bronze, based on actuarial value, with Bronze of course being the cheapest, lowest-value plans. 

The law requires all Bronze plans in both the individual and small market to maintain an actuarial value of 60 percent. According to an analysis by the health consulting firm Avalere, which has been influential in coverage of Obamacare, adding in something like a "Copper tier" with a minimum value to 50 percent would reduce premiums by almost 18 percent relative to average premiums for Bronze tier plans. 

It would be cheaper for consumers. It would also be cheaper for taxpayers. With the addition of lower-tier plans, the federal government would end up paying out about $5.8 billion less in subsidies over the next 10 years, according to Avalere's estimate. 

Adding a Copper plan to the system is the sort of health-law fix that one might expect to be embraced by some (not all) Democrats over the next few years, because it leaves the law in place while making it cheaper and somewhat less restrictive. That means it could even garner support from Republicans too, depending on the circumstances.

But the real lesson here isn't about the particular savings or the management of the law. It's that restrictive government mandates make health insurance more expensive, and while mandates aren't the only factors that determine premium pricing, if you loosen or remove those mandates, insurance becomes cheaper. It's that simple.