President Obama’s speech today seemed designed to reassure us that all is well with the new health-care law, from both the implementation and the policy perspective.
Unfortunately, all is not as well as he is making things out to be. On the implementation side, as I wrote last week, the administration is facing a host of serious logistical challenges, and has already missed a series of early implementation deadlines.
The policy side, however, is more important, and it is becoming increasingly clear, even to the White House, that the new bill is likely to drive premiums upward. According to to an AP story this morning, the White House is worried that “escalating premiums will force more people drop their policies before the law is fully implemented.” Administration officials are right to be concerned, but they are also making the problem worse, as the president announced a series of regulations that will exacerbate insurance costs.
This piece in The Hill sketches out the details of some of the announced changes, namely bans on lifetime limits, pre-existing-condition exclusions, and policy rescissions. The fact sheet provided by the White House in advance of the speech acknowledges that these limitations drive up premium costs, but tries to minimize the impact of each particular requirement. In the speech, President Obama warned that insurance companies should not see the new law as “an excuse” to increase prices, but the reality is that they may not have any other choice.
The problem is compounded by the fact that these changes are coming in an environment in which premiums are already headed upward, as a recent study by the Kaiser Family Foundation shows. According to the study, 77 percent of insurance holders in the individual market reported premium increases from their current or previous insurer. The new law, unsurprisingly, is making things worse. As the story notes, “Insurers have warned that some of the immediate effects of the law — such as barring them from rejecting children under 19 for coverage and allowing some young adults to stay on their parents’ policies until age 26 — could add to premium inflation in the short term.”
Many people are willing to accept higher costs in exchange for limitations on some of the insurance companies’ most noisome practices. But we do need to get costs under control somehow. The administration has promised that expanding coverage to all will drive costs down, yet a new study by John Cogan, Glenn Hubbard, and Daniel Kessler has just shown that the Massachusetts plan, on which the administration based the new federal law, has led to premium increases in employer-sponsored plans on the order of 6 percent. We remain faced with these twin problems of significant cost hikes and implementation hiccups, and today’s speech did little or nothing to fix either problem.