Wasn’t Obamacare Supposed to Stop Insurance Rate Hikes?

Supporters of Obamacare often attempt to reassure themselves by claiming that opponents of the law are ignorant and demagogic. The PPACA Pack, on the other hand, is enlightened, cerebral, and compassionate.

In reality, however, Democrats are the ones who speak most demagogically about health care. Like when the Democratic National Committee says that “insurance companies … overcharge for insurance just to boost their profits and CEO bonuses.” Indeed, the DNC went so far as to claim that Obamacare “frees Americans from the fear of insurance companies raising premiums by double digits with no recourse or accountability.” Kathleen Sebelius and the DNC would have you believe that Obamacare prevents rate hikes by cracking down on those demonic, profit-hungry insurance companies, and that repealing the law would allow insurers to once again run amok.

So, then, how to explain the news this month that Blue Shield of California was “seeking cumulative hikes of as much as 59% for tens of thousands of customers” this year? Wasn’t PPACA supposed to stop these supposedly abusive practices?

Unfortunately not. Blue Shield has stated that the new rates “meet the federal requirement that 80 percent of premiums are spent on healthcare expenses,” putting paid to the nonsensical argument that marketing expenses and CEO bonuses are driving premium increases. As Blue Shield detailed in a lengthy statement, the rate hikes correlate directly to increases in the cost of health care, including 4 percent “to cover the costs of enhanced benefits required under healthcare reform.” Despite these increases, Blue Shield expects to lose $10-20 million in 2010 and $20-30 million in 2011 on their individual plans.

New California insurance commissioner Dave Jones, in his first act in office, fired off a letter to Blue Shield, calling on the insurer to suspend its rate hike. “I wish to satisfy myself that all the pending proposed increases have been thoroughly and excessively reviewed.”

But Blue Shield of California is a not-for-profit entity “that has long advocated for universal coverage,” and the company was not cowed by Jones’ posturing. Instead, Blue Shield CEO Bruce Bodaken said the company would have its increases reviewed by an independent actuarial consultant, promising to refund Blue Shield’s policyholders with interest if the company had calculated its rate increases incorrectly.

But neither independent consultants nor press releases from politicians can change the basic facts of health costs. As Jordan Rau recently chronicled in an insightful piece for Kaiser Health News, hospitals are taking advantage of their monopoly status to charge more for their services, and insurers have no choice but to pass those increases onto their policyholders, or they would go out of business.

Indeed, Obamacare is guaranteed to increase, not decrease, underlying health costs. The law subsidizes excessive health spending, and imposes costly mandates on insurance plans that drive costs upward. Those who are genuinely concerned about rising health costs must start by repealing that law.

UPDATE: If you’re a fan of Xtranormal, you’ll enjoy this take-down of the Left’s view of health insurance:

— Avik Roy is an equity research analyst at Monness, Crespi, Hardt & Co. in New York City. He blogs on health-care issues at The Apothecary.

Avik Roy — Avik Roy is the President of the Foundation for Research on Equal Opportunity (FREOPP.org), a non-partisan, non-profit think tank.

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