Home > Solution-Problem, Unintended Consequences > Health insurance is under attack in Washington state

Health insurance is under attack in Washington state

File this under the oh-so-obvious unintended consequences tab.  When Obamacare was passed, it sounded the death knell for health insurance as we know it, despite some of our politicians’ most disingenuous rhetoric to the contrary.  Of course, even as the political roadshow was going on, the more sober-minded among us knew that, were this thing to pass, competition and freedom in the health insurance market would pass away.

We’re seeing one more in a line of unintended consequences in Washington state, where child-only insurance policies have gone the way of the dodo due to inordinate cost pressures from Obamacare.  Basically, Obamacare has created such a huge cost increase for certain types of insurance policies, such as child-only policies, that Regence Blue Cross Blue Shield had to drop them.  Regence would still offer health “insurance” to children through their parents (although it is emphatically NOT real insurance if it does not take into account preexisting conditions), but the child-only insurance market is dead and gone. 

Not that that has deterred Washington State Insurance Commissioner Mike Kreidler from suing Regence for it, claiming that the decision violates the law requiring “insurance” to be offered to people of any age and regardless of preexisting conditions.

This press release from Regence is very telling.  I encourage you to read it yourself, but let’s go through the main points.

This gross politicization of such a complex regulatory problem does not help address the very real economic challenges of providing coverage to Washingtonians seeking individual insurance policies, especially children.

Oddly enough, it doesn’t seem that politicizing economic decisionmaking leads to the best possible outcomes for market participants.  Who knew?  Oh right, everyone who opposed Obamacare.

Over the past several months, we have had at least five separate conversations with the Commissioner and his staff regarding planned changes…Never once did the Commissioner or his staff express any concern that these changes might violate state law. We’re disappointed that the Commissioner appears to have suddenly changed his perspective.

It should be fairly obvious as well that politicizing important economic decisions takes the power out of the hands of the market participants and sets it squarely at the feet of the politicians.  The problem, of course, is that politicians may change their minds on a whim.  Where everything is regulated, everything depends on the fancy of the regulators.  Be careful lest you upset them.

We’ve been very clear that we will insure kids during open enrollment periods when the child is not the sole subscriber — and we will do so regardless of health status. Dozens of carriers across the country have found it necessary to adopt similar policies [getting rid of child-only policies and covering children through parents/guardians].

We were “sold” this bill based on certain promises (and I say “sold” loosely because our politicians voted for it in the face of overwhelming popular opposition, indicating that very few people were ever truly sold).  Among those promises was the idea that you could keep your insurance if you liked it.  In this brave new world, however, it’s becoming abundantly clear that that only exists in Washington D.C. fantasyland.  “Dozens of insurers” have had to fundamentally change what they offer, including eliminating certain choices, based solely on this law.  That’s not what we were sold.

While more than ten carriers have deserted Washington’s individual market — leaving three today — Regence has continued to insure these members despite losses of more than $33 million in the last three years.

Ten insurance carriers have been driven from the Washington market, leaving only three – that’s very telling.  This never specifies whether it is entirely due to Obamacare, and my thought is that it probably is not.  However, it is undoubtedly due to regulatory changes at various governmental levels, of which Obamacare is only the latest and largest.  After all, there is no compelling reason why ten insurance companies would flee the state market; either everyone in Washington got sick at the same time, or it has become exceedingly difficult to do business within the state’s borders.  And we are supposed to believe that the proper response to enormous regulatory burdens is more regulation?

And what are we to make of the $33 million loss?  Certainly companies can choose to offer particular products that don’t make money, provided that they stay on top of their overall obligations.  Usually loss-making products have other intended effects, such as being a “gateway” product, or perhaps a product that has potential in the long term, but difficulties in the present.  However, where losses are being created solely through government interference, it is completely implausible to believe that the company will continue that product as such for any length of time.  And where the losses are not even localized to a single product, it’s implausible to believe the company as a whole will continue to remain solvent at all.  It’s called “killing the golden goose,” and it’s all too common.

We want to avoid the mistakes of the 1990’s when a small minority was allowed to game the insurance system by purchasing insurance only when they were sick, which led to rate spikes and the collapse of the individual market.

This is what I was referencing above when I said that forced coverage regardless of preexisting conditions (so-called “guaranteed issue”) makes a “health insurance” product emphatically not insurance.  Insurance involves paying someone periodic premiums to insure that monetary assistance will be available in times of crisis.  “Guaranteed issue” puts the cart before the horse.  Rather than “pay your premiums in case you get sick,” the system operates more along the lines of “wait until you get sick and then pay a premium.” 

Insurers are financially viable simply because most people do not need to utilize the offered monetary assistance in an amount that is greater than the premiums they pay.  Yet when insurers are forced to accept and pay out to people who have never paid in before getting sick, the monetary outflows will very quickly eclipse revenues, and the whole insurance company becomes bankrupt. 

At this point, one of two things will happen.  First, insurance companies will attempt to raise their premium rates to a level that is enough to cover an immediate catastrophe.  For example, in a normal insurance market, where monthly premiums of, say, $100 paid for one year (total $1200) will cover, say, $1000 of expected hospitalization costs, insurance companies can remain financially viable, pay all expected costs, and still have a cushion left over for catastrophic costs.  However, where monthly premiums are only paid immediately before the costs are incurred, insurers cannot cover their costs at all.  Using the above example, a monthly premium of, say, $100 paid for one month (total $100) will be expected to cover $1000 of normal costs with enough cushion left over for catastrophic injuries.  Clearly, premiums would have to rise, and in this case, they would have to rise by more than 1000%.  Of course, if such premium hikes price buyers out of the market or are politically unacceptable, the second and only other option is to abandon the market, either by dropping your product offerings or going bankrupt.

What Regence is referring to when noting the “rate spikes” and “collapse of the individual market” is exactly what is explained in the preceding paragraph.  These types of regulations lead to very logical and obvious consequences.  We know where this road leads, and it is not pretty.

So in light of all this, can we please reconsider Obamacare?  Most of the law hasn’t even taken effect yet, and already the edifice is crumbling.

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