ObamaCare, Insurance Exchanges, & The Coming Price Explosion

One of the features of the Patient Protection and Affordable Care Act, the health-care reform bill colloquially known as Obamacare, is the creation of insurance exchanges that will offer heavily subsidized policies and coverage for people who cannot get insurance through their employers.

In projecting the program's costs, the Congressional Budget Office figures that about 7 percent of the workforce currently covered by employer-provided insurance will drop those policies and sign up for the subsidized insurance. That estimate—and hence, the cost structure of the program—has been challenged by sources such as McKinsey & Company, the consulting firm, which reckons a far higher percentage of workers will opt out of their current job-based plans. In a survey of employers released in June, McKinsey found that 30 percent will "definitely or probably" drop their coverage as Obamacare kicks into high gear in 2014. Among "employers with a high awareness of reform, this proportion rises to more than 50 percent," says the report. Why? It will be cheaper to pay fines than to provide coverage.

If those estimates are accurate, the cost savings ObamaCare supporters tout are a pipe dream.

Glenn Morton, the author of the new book Passing Obamacare, has worked for nearly two decades in the health-insurance business, most recently as a broker who helps employers find better deals among providers. In a discussion with Reason's Nick Gillespie, Morton adds another problem with recently released Obamacare rules: The mandate to reduce the percentage of insurance costs that go to administrative costs effectively means that insurance brokers' commissions will be either drastically cut or reduced altogether. If brokers' role in hunting for better coverage plans is eviscerated, argues Morton, companies will lose their main ally in the search for affordable and dependable coverage plans. The result, says Morton, will be that more and more companies will cease to offer insurance, thus driving even more people into the insurance exchanges and the cost of Obamacare up and up. CBO says the cost of giving subsidies to 16 million individuals over Obamacare's first decade will be $466 billion alone.

About 4.30 minutes. Shot by Meredith Bragg, Jim Epstein, and Josh Swain. Edited by Anthony L. Fisher.

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