The failed Republican effort to kill Obamacare had a saving grace. It’s small but significant. We now know the chief cause of skyrocketing health-insurance premiums since Obamacare was activated in 2013. And it’s not the “essential benefits” everyone is forced to buy, though they’ve often been blamed.
The culprits—guaranteed issue and community rating—are more prosaic. They happen to be two of the more popular provisions of Obamacare. Together they drive up premiums nearly 10 times as much as essential benefits do.
This is a surprising fact, largely unknown to those who pay the premiums. When asked in a poll for the Hudson Institute earlier this year, 63 percent preferred lower premiums and 27 percent favored Obamacare’s protections of preexisting conditions mandated by community rating.
Guaranteed issue requires insurance companies to offer policies to all applicants. Community rating forces them to charge the same premium to everyone, regardless of one’s health status (including preexisting conditions) or how much medical care one uses.
The impact of Obamacare’s mandates was studied by McKinsey & Company, the management consulting firm, for the Department of Health and Human Services. McKinsey focused on the hikes in premiums in Tennessee, Georgia, Pennsylvania, and Ohio.
The increased risk for insurers from guaranteed issue and community rating caused between 73 percent and 76 percent of the rise in premiums in Tennessee from 2013 to 2017, between 44 percent and 52 percent in Georgia, between 53 percent and 62 percent in Pennsylvania, and between 41 percent to 50 percent in Ohio.
For a 40-year-old male in Tennessee, the monthly premium increased from $104 in 2013 to $431 in 2017 (for the Obamacare silver plan). The increase was from $94 to $323 in Georgia, from $119 to $373 in Pennsylvania, and from $102 to $264 in Ohio.
Those are not bland results. HHS learned of them in May but was nervous about releasing them. They might have created a problem for congressional Republicans. The House and Senate had already accepted guaranteed issue and community rating in their proposed replacements for Obamacare.
And Republicans had often cited the package of essential benefits as a likely cause of soaring premiums. They had also found preexisting conditions a difficult issue to deal with.
We have Senator Ron Johnson (R-Wisconsin) to thank for making the McKinsey study public. After learning of it, he requested documentation of the findings. “They wouldn’t give it to me,” he told me. When he asked again, they still wouldn’t. This was the response of the new Republican-led HHS.
Then Johnson sent letters to HHS secretary Tom Price and McKinsey, asking again for the study’s results. That worked. But before HHS handed over the documentation, all the McKinsey and HHS markings were removed.
“Had we never passed Obamacare, premiums should be somewhere in the $300 per month level versus $574,” Johnson said in a Senate floor speech in July. “This is the damage done by Obamacare. And this, I’m very sad to report, is what we are not adequately addressing.”
Johnson said the “good news” in the “root cause analysis” by McKinsey has been ignored on Capitol Hill. “The good news is you can actually cover people with high cost and preexisting conditions without collapsing insurance markets. They’re called high-risk pools.”
A second study by HHS examined the impact of Senator Ted Cruz’s amendment to allow insurers to sell policies without all the essential benefits. Cruz handed out copies of the study to the 49 Republican senators who gathered last month for lunch at the White House with President Trump.
“The results are remarkable,” Johnson and Senator Mike Lee wrote in a “dear colleague” letter. If insurers “were to offer Obamacare-compliant plans and non-Obamacare compliant plans there would be a significant decrease in premiums,” they wrote.
Monthly premiums in the individual health insurance market would reach an average of $845 by 2024 under Obamacare, the HHS analysis found. Under the Cruz amendment with two risk pools included, premiums would be 30 percent lower for a 40-year-old man with an Obamacare-compliant plan.
“Premiums for non-Obamacare compliant plans are estimated to be as much as 77 percent lower,” Johnson and Lee noted.
Cruz said HHS found that his amendment would expand insurance coverage by 2.2 million people. And what it does for premiums is “powerful,” he said. “HHS found that it will reduce premiums by over $7,000 a year. If you’re a single mom, if you are a schoolteacher [or] a truck driver, $7,000 a year is a lot of money.”
The thrust of the two studies, taken together, is to buttress the case for deregulation of health insurance. With more risk pools and other protections for preexisting conditions, community rating could be abolished. And people would be free to buy the level of insurance they want, not what is required by the federal government.
But they wouldn’t be able to wait until they get seriously ill to buy insurance. That would be like buying home insurance as your house is burning down.
What about the impact of “essential” benefits—everything from “breastfeeding coverage” to “wellness services”—on premiums? In Tennessee, they’re responsible for less than 2 percent of the rise in premiums. In Georgia and Ohio, it’s 5 percent to 8 percent, and in Pennsylvania it’s 7 percent to 11 percent. The answer: not huge.
Fred Barnes is an executive editor at The Weekly Standard.
