Topics: Obamacare

Hospitals will still have a 'free rider' problem under Obamacare

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Beltway Confidential,Philip Klein,Barack Obama,Obamacare,Health Care Exchanges

President Obama and his allies have consistently argued that his health care law was prudent, because without it, uninsured individuals would continue to show up at hospitals and receive care without paying, thus driving up costs on everybody else.

But now, the Wall Street Journal has reported, hospitals are concerned that the law could exacerbate this problem, known as uncompensated care.

The reason stems from the high deductibles in health care plans offered on Obamacare's new government-run exchanges. A deductible is the amount that individuals must pay for care before the benefits of a health insurance policy kick in.

As both the Journal and the New York Times reported on Monday, consumers may be surprised to find out how high the deductibles are on many of the plans offered on the new exchanges.

For instance, the Journal article noted that the average individual deductible for the exchanges' lower-cost bronze plans is $5,081 per year, or 42 percent more than the average deductible on the individual market in 2013, before Obamacare went into effect.

Now, in fairness to Obamacare, it isn't really proper to single out the cheapest plans on the exchanges (which will have the highest deductibles) and then compare that to all the plans on the pre-Obamacare market. An apples to apples comparison would have to look at the average for all plans on the exchanges, which would include more expensive plans with much lower deductibles and thus bring the Obamacare average down.

Also, it's worth noting that prior to Obamacare, individuals could purchase plans with deductibles of $10,000 or even $20,000, but now total out of pocket costs are capped at $6,350. In fact, one of the criticisms of Obamacare among conservatives has been that it is raising premiums, in part, by depriving individuals of the freedom to buy catastrophic insurance with very high deductibles.

That having been said, it's also true that many of the millions of Americans who are having their plans cancelled may end up in plans with higher deductibles because they want to limit their increase in premiums. Younger Americans, now forced to purchase insurance, may also opt for the cheapest plans available without paying attention to deductibles.

This is why, the Journal reported, "Hospitals, meantime, are bracing for a rise in unpaid bills from bronze-plan policyholders."

The article quoted Ashley Thompson, the American Hospital Association's deputy director for policy, as saying that the higher deductibles, "will likely lead to an increase in hospital bad debt."

This is significant, because throughout the health care debate, Obama tried to sell skeptics by arguing that expanding public insurance programs and forcing individuals to take responsibility by purchasing insurance would reap savings.

“Most people who can afford health insurance now have to take responsibility to buy health insurance, or pay a penalty,” Obama told the crowd in a Sept. 26 speech in Maryland. “Now, the reason we do that is, when uninsured people who can afford to get health insurance don't, and then they get sick or they get hit by a car, and they show up at the emergency room, who do you think pays for that? You do, in the form of higher premiums. Because the hospitals, they've got to get their money back somehow. So if they're treating somebody who doesn't have health insurance, they jack up premiums for everybody who does have health insurance. It's like a hidden tax of $1,000 per family every year who has got health insurance. So, we're saying that's not fair. If you can afford to get health insurance, don't dump the costs on us."

It's important to remember that the purpose of the individual mandate is not to solve the "free rider" problem, but to compel younger and healthier individuals into the insurance market to offset the cost of covering older and sicker Americans.

It should be noted that during the 2012 Republican presidential primaries, Mitt Romney also repeatedly tried to frame his support of an individual mandate in Massachusetts as rooted in the conservative principle of individual responsibility.

But at the time, I looked at what happened in Massachusetts in the years after his health care law went into effect, and found that while uncompensated care costs did decrease somewhat, the decrease was nowhere near the overall increase in health care spending driven by Romneycare.

My assumption was always that something similar would happen at the federal level — that uncompensated care costs would decline, but that those savings would nowhere near offset the cost of subsidizing the purchase of health insurance for millions of Americans.

If the Journal's reporting turns out to be accurate, Obamacare may not even meet that low standard. In reality, many Americans will be paying higher premiums, contributing more in taxes, and individuals may still be showing up at hospitals in large numbers without paying and dumping costs on everybody else.

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