My Thursday column represents my latest offering in the ongoing debate over the “rate shock” expected next year as President Obama’s health care law goes into effect. But it’s important to keep in mind that comparisons between current insurance rates and rates anticipated under Obamacare understates the degree to which government policy drives up the cost of insurance.
To recap, several provisions of Obamacare work together to raise the base price of insurance. Most significantly, the law forces insurers to cover those with pre-existing conditions, dictates that policies cover a certain array of benefits, and institutes a tax on health insurance. If the law works as intended, these provisions will make it easier and cheaper for poorer and sicker Americans to obtain insurance than possible in the current system. But the hitch is that insurance rates for other Americans — especially the young and healthy — will have to go up, in some cases, dramatically.
What often gets lost in the debate about how large this “rate shock” will be is the fact that as things stand, America does not have a free market for health insurance. Under existing law, states already impose many mandates on insurers requiring them to cover certain benefits. In 2012, there were 2,271 benefit mandates nationwide, according to the Council for Affordable Health Insurance, up from 850 in 1992. CAHI estimated that, “mandated benefits currently increase the cost of basic health coverage from slightly less than 10 percent to more than 50 percent, depending on the state, specific legislative language, and type of health insurance policy.”
That means that any article you read discussing the anticipated percentage increase of premiums under Obamacare, isn’t reflecting the full differential that would exist if America had a truly free market. In fact, this is the reason why we’re likely to see the least variability in rates in states that already have very highly regulated insurance markets. As an example, Reason’s Peter Suderman wrote about how rates may actually end up lower in New York, which has among the most onerous regulations under the current system.
It’s also worth keeping in mind that the current tax code discriminates against individuals purchasing insurance on their own to the benefit of those obtaining it through their employers. If the tax status were equalized for individuals, it would also make insurance cheaper for them on the open market. Alternatively, if the beneficial tax status were eliminated altogether, businesses that choose not to provide insurance to their employers would be able to offer higher salaries, giving individuals more disposable income to purchase insurance policies of their choosing in a free market.