By: Merrill Matthews & Mark Litow – wsj.com – January 13, 2013
Thanks to mandates that take effect in 2014, premiums in individual markets will shoot up. Some may double.
Health-insurance premiums have been rising—and consumers will experience another series of price shocks later this year when some see their premiums skyrocket thanks to the Aﬀordable Care Act, aka ObamaCare.
The reason: The congressional Democrats who crafted the legislation ignored virtually every actuarial principle governing rational insurance pricing. Premiums will soon reﬂect that disregard—indeed, premiums are already reﬂecting it.
Central to ObamaCare are requirements that health insurers (1) accept everyone who applies (guaranteed issue), (2) cannot charge more based on serious medical conditions (modiﬁed community rating), and (3) include numerous coverage mandates that force insurance to pay for many often uncovered medical conditions.
Guaranteed issue incentivizes people to forgo buying a policy until they get sick and need coverage (and then drop the policy after they get well). While ObamaCare imposes a ﬁnancial penalty—or is it a tax?—to discourage people from gaming the system, it is too low to be a real disincentive. The result will be insurance pools that are smaller and sicker, and therefore more expensive.
How do we know these requirements will have such a negative impact on premiums? Eight states—New Jersey, New York, Maine, New Hampshire, Washington, Kentucky, Vermont and Massachusetts—enacted guaranteed issue and community rating in the mid-1990s and wrecked their individual (i.e., non-group) health-insurance markets. Premiums increased so much that Kentucky largely repealed its law in 2000 and some of the other states eventually modiﬁed their community-rating provisions.
To see this article, click read more.