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  • Obamacare 2nd Birthday: No Surprise, Still Not Lowering Costs

    This This week Obamacare will have its second birthday, but there’s little reason to celebrate. Throughout the week, Obamacare advocates will be emphasizing the law’s supposed benefits on specific groups of Americans. But as Heritage’s research over the past two years has shown, Obamacare harms Americans—even the provisions showcased by the left.

    Today, the focus is on how Obamacare is supposed to lower costs. Advocates of the law argue that provisions like the insurance rate review, the medical loss ratio (MLR) requirement, and the small business tax credit decrease health care costs. But Heritage research shows that these provisions have been largely ineffective at lowering costs.

    A Powerless Provision

    Obamacare implements a rate review of “unreasonable” premium increases, arbitrarily defined as any increase that exceeds 10 percent. Heritage’s Ed Haislmaier explains:

    These rate-review provisions were an entirely political exercise from the start. They were only added to Obamacare in the fall of 2009—after the health-insurance industry had the temerity to point out that other provisions of the legislation would drive up premiums—in order to give [the Obama Administration] authority to review so-called “unreasonable” premium increases. Blame for Obamacare’s inevitable cost increases could thereby be deflected onto insurers.

    Haislmaier adds that “it is a well-documented effect of price controls that sellers respond to the imposition of price ‘ceilings’ by turning them into price ‘floors.’” In this case, that means raising premiums as high as they’re allowed: 9.9 percent.

    It is not as if there was no oversight before Obamacare. Competition among insurers and state regulatory oversight already protect consumers from unjust rate hikes.

    A Competition Killer

    Obamacare imposes an MLR requirement on insurers in the individual market to spend 80 percent of premium revenue (85 percent in the group market) on medical claims or activities that improve quality. If the ratio is not met, insurers must rebate the difference to the consumer. As Haislmaier testified before Congress, the MLR harms start-up insurance companies by forcing them to rebate funds instead of reinvesting in their business growth or repaying investors. In addition, existing insurers are already leaving the market because of the requirement. Decreasing the number of insurers in the market erodes competition and gives consumers less choice.

    Moreover, the MLR won’t lower costs; it could instead increase them by creating an incentive for insurers to charge higher premiums as a means of protection against the MLR requirement. Haislmaier states, “This is because if an insurer overestimates expected spending on medical care, it must refund excess premiums to policyholders, but if it underestimates expected claims costs, it cannot keep more revenue the next year to recoup that loss.”

    A Failed Incentive

    Obamacare’s small business tax credit was supposed to make health insurance more affordable for small businesses to offer employees coverage. The Administration’s initial estimate was that 4 million small businesses would be eligible to receive the credit. However, as of October 2011, only 309,000 firms have applied—just 7 percent of the original estimate—as the number of small businesses not offering coverage continues to grow.

    These are just some of the ways in which Obamacare will not reduce health care costs—and they’re only the beginning. The main provisions of the law don’t kick in until 2014, at which point expansive benefit requirements and new rules for insurers will further drive up the cost of health insurance for Americans.

    To learn about how to bring costs down in the health insurance market by empowering individuals instead of government, read Heritage’s reform proposal, Saving the American Dream.

    Posted in Obamacare [slideshow_deploy]

    3 Responses to Obamacare 2nd Birthday: No Surprise, Still Not Lowering Costs

    1. Blake says:

      A couple corrections to your assertions about the MLR rule. Insurance companies are not required to provide rebates or lower premiums until August, 2012. Therefore the benefits of this rule have not been fully seen for consumers. The National Association of Insurance commissioners, a group made up of Republican, Democratic, and non-partisan insurance commissioners; found that this rule will save consumers as much as $2 billion over the next three years.

      There is simply no evidence that this rule will increase insurance costs. In fact, we are seeing the opposite. Blue Cross Blue Shield plans in Illinois, Texas, Oklahoma, and New Mexico set aside $88 billion for rebates to individual and small group policyholders.

      Finally, the insurers that have announced they are withdrawing from state markets are largely insurers that were too small to be subject to this rule. And your statement about "start-up" insurers being harmed is simply incorrect. New insurers get a delay in meeting this new rule.

      You should correct this post to reflect these facts. Thank you.

    2. hawthorne says:

      well what is your damn solution. republicans did not even pay any attention to spiraling healthcare costs. stop whinning and propose a better plan. in two years you have had enough time to put one together.

    3. Bobbie says:

      Wake up people!
      Blake, anything of the peoples put in the hands of government costs needlessly more and because the government forced this nationalized health care on us through false pretenses, there's absolutely no trust.
      hawthorne, grow up. ignorance isn't helpful. free market solutions with you in control of your personal health care, needs nothing more to say. Obama had three years and still can't come up with one that's helpful or productive to America(ns,)! and our personal health care he is unconstitutionally intruding to control.

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