Obamacare Fail Continues

Minnesota the latest domino to fall

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Nearly two months ago, on August 16, I published an essay remarking on the commencement of the Obamacare death spiral: Premiums for individual policies purchased over the much-vaunted online exchanges have increased rapidly; healthy customers are staying away (because the penalties associated with ignoring the individual mandate are rather light) and health insurance companies are dropping out of the game, having lost plenty of money pursuing this market. I forecast that we were no more than a few years away from full collapse of those exchanges.

In that essay I mentioned North Carolina as an example of the trend, as news reports at the time contained plenty of detail concerning the failures of Obamacare in that state; Aetna had also just announced a major nationwide abandonment of Obamacare policies which hit North Carolina fairly hard. While economically illiterate Obama administration sycophants tried to dismiss Aetna’s move as corporate posturing in the face of an antitrust challenge (Aetna was then trying to merge with Humana), casting the withdrawal as a case of evil white male business executives using the health coverage of poor widows and orphans as a “bargaining chip,” those of us with brains realized that this actually represented cold, hard business reality: Obamacare was a bust.

I asserted that further evidence of the Obamacare death spiral would slowly emerge, as each state went through its regulatory rate-setting exercise for the coming year, but that these things make for bad drama as they unfold too slowly for low-attention-span newspaper editors to follow. More evidence has recently emerged proving me right, so allow me a moment of gloating.

Minnesota just went through its annual rate-setting exercise, and state regulators have approved rate increases 50% to 67% for Obamacare exchange plans, following last year in which rates were allowed to increase 14% to 49%. Blue Cross and Blue Shield of Minnesota has dropped out of the Obamacare market entirely, due to financial losses, and the remaining insurers are capping new enrollment because they fear a mass influx of ex-Blue Cross customers — even at punishingly higher rates! Find me any other business that will raise prices 67% and still turn customers away for fear of losing money! For good measure, the state’s own insurance commissioner has described the state of the Obamacare exchange as an “emergency situation” with the market close to “collapse.”

Even the New York Times has finally woken up to reality, at least in part. In a remarkable recent article, they’ve come to admit that Obamacare is “ailing” and “will almost certainly have to change to survive.” This is quite a turn-around from the laudatory panegyric penned six and a half years ago, when the law was first passed, which promised coverage for the uninsured and (somehow) a reduction in the federal budget deficit.

The Democrats would love to double down on this failure, introducing a “public option” (i.e. a government-run HMO) which would serve the Obamacare market, but inevitably suck up ever increasing subsidies from the taxpayer. This is plainly a mistake. We have an abundance of health insurance plan administrators and funding programs in this country, not a shortage. What we have a shortage of is cost control.

The details are illuminating. As a society, we spend around $9,500 per person per year on healthcare — young, old, poor, rich, private insurance, Medicare, VA, and everything else all averaged together. This is nearly double the average of “high income” nations in general, which is $5,251 per person per year. Yet there is at least one corner of the U.S. health care system which does a fairly good job at cost control: Medicaid spent around $5,800 per person in 2011. Now, this is not quite as impressive as it sounds, given that some health spending on the dual-eligible elderly (the elderly, as a group, being far more expensive than children or people of working age) is shifted to the Medicare column away from Medicaid. But you can strip out the elderly and still see the cost savings: The national average health expenditure in 2012 for children and non-senior adults was is $3,500 and $6,600, respectively, while for Medicaid the numbers were $2,500 and $3,200 in 2011. And given that the national averages include Medicaid recipients, we can assume that the national averages for non-Medicaid people are higher still; Medicaid saves money. Granted, Medicaid coverage also kind of sucks, with many doctors and clinics choosing to forgo its rather paltry reimbursement rates… but hey, beggars can’t be choosers. It does deliver life-saving and life-improving care to people who need it.

Obamacare is an expensive boondoggle. Its central thesis was to place opaque, incomprehensible private insurance plans featuring unaffordable deductibles and co-pays in the hands of people who are only marginally better off than poor Medicaid-eligible citizens. This was a huge mistake. The bill contained, almost as an afterthought, a Medicaid expansion provision which sought to widen the scope of people eligible to enroll in state-run Medicaid plans, and set aside subsidy money to cover these people; most states have accepted this offer and expanded their Medicaid systems. Had the “universal coverage” effort been limited to this sort of thing, the whole process would have been simpler and far more honest. And successful.

People who receive Obamacare subsidies are functionally beggars who shouldn’t be choosers, and who shouldn’t be placed into health plans that are nicer than they — or we as a nation — can afford. If you need a subsidy then you need to be in Medicaid, with all the cost controls that entails. But Obama and the Senate Democrats dreamed big and dreamed stupid, so instead we’re left with a mess. Obamacare should be shut down and the subsidy money re-routed into Medicaid coverage for those citizens who, once the exchanges are gone, can’t afford their own health plans. We’ll always have the poor; as a society we’ve lost our appetite for watching them die of disease in the streets; we’ve got to find the cheapest and most efficient way to assuage our consciences and move on.

There is one more topic to consider: The cost of health care for the average working American. Someone not so poor that he should ever be eligible for subsidized Medicaid, but also someone not so rich that he would shrug off the difference between a health care system that costs him $10,000 per year to cover his family and one which costs $20,000.

But once again I’m out of space, so that awaits another day.

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