More big (and ignored) problems with CA version of Obamacare

June 13, 2013

By Chris Reed

California’s mainstream media is for the most part promoting Covered California’s spin that its implementation of Obamacare come Jan. 1 is going splendidly, and that insurance rates will be less than expected. Thankfully, smart blogger-experts have torn this myth to shreds. Rates will in fact soar for many groups of people, with the hardest hit going to be male non-smokers 40 and under.

Now David Hogberg, a health care policy analyst for the National Center for Public Policy Research, has detailed another big, related problem with an analysis headlined “California’s Coming Health Insurance Death Spiral.” Hogberg’s focus is on the likelihood that many young people skip purchasing health insurance because the fine for not having insurance is relatively small and the premium subsidies for the less affluent won’t help much in getting the young to buy coverage.

How Obamacare’s incentives will create an insurance ‘death spiral’

Death Spiral

“The two most important regulations regarding whether younger and healthier people will participate are known as community rating and guaranteed issue.

“In its strictest form, community rating means that insurers must charge everyone the same premium, regardless of factors such as health status and age. ObamaCare uses a modified form that doesn’t allow insurers to vary rates based on health status.  …

“Guaranteed issue, in its strictest form, means that an insurer must sell a policy to a consumer anytime. …

“Both of these rules give young and healthy people big incentives to forgo insurance coverage altogether. Community rating means young people have a reduced incentive to buy insurance since they will pay a premium that is above the market rate. Guaranteed issue gives them even less incentive to buy insurance while they are healthy because when they get sick an insurer will have to sell them a policy.

“A handful of states tried to reform their individual markets this way in the early 1990s. Of course, many young and healthy people did drop out of those markets as a result. That meant that those who remained in the insurance pools were older and sicker, a factor that drove up the rate of premiums. As premiums rose, even more young and healthy people dropped their insurance. Insurance pools got even sicker and older, and rates continued to rise. The phenomenon became known as the ‘death spiral,’ and was chronicled in the late Conrad Meier’s monograph ‘Destroying Insurance Markets.‘”

Some of sickest Californians in for sticker shock as well

Hogberg also focuses on a grim detail of Covered California’s plans that hasn’t gotten the attention it deserves.


“California officials treated some of their constituents less equally than others. People who need specialty drugs — high-cost drugs engineered to treat complex, chronic conditions — got the shaft. According to the Associated Press, ‘Such “specialty drugs” can cost thousands of dollars a month, and in California, patients would pay up to 30 percent of the cost. For one widely used cancer drug, Gleevec, the patient could pay more than $2,000 for a month’s supply, says the Leukemia & Lymphoma Society.’

“In response, Dana Howard, a spokesperson for Covered California, said ‘We are trying to keep the insurance affordable across the board. This is just part of trying to manage the overall risk of the pool.

“As a list of specialty drugs from Express Scripts shows, those who need specialty drugs are some of the sickest of the sick, including (but not limited to) transplant recipients and those with blood cell deficiency, cancer, immune deficiencies, and multiple sclerosis.

“Presumably, these are the types of people for whom ObamaCare is supposed to provide the most protection against major health-care costs. So why did California officials — those generous, compassionate, concerned-only-with-the-best-interests-of-their-constituents officials — permit insurers to charge huge co-pays to very sick enrollees in order to keep premiums low?”

The frail and the medically ravaged won’t form picket lines

Hogberg suspects it’s because they’re unlikely to be much of a political headache to the politicians in Sacramento.

“… only about one in 100 users of commercial insurance need these expensive specialty drugs. … Most politicians will have little to worry about from people who take specialty drugs and who are looking to hold someone responsible for the shabby deal they get through Covered California.

“Furthermore, people on specialty drugs are probably too sick to engage in the sorts of activities necessary to make changes in policy –- activities such as get-out-the-vote drives, protests and lobbying. Thus, California’s officials probably don’t have to worry much about specialty-drug consumers stirring up trouble.

“There will undoubtedly be more examples of this inequity as ObamaCare unfolds, because, as government expands more and more into a health care system, the health care available is determined less by need and more by political clout. In general, the sicker one becomes, the less political clout one has. Few people get seriously ill each year, meaning that they are not a substantial number of voters. And most are in no physical condition to be actively engaged in politics.

“So when it comes time to cut costs, guess who is going to feel the brunt of it? Covered California just provided a prime example.”

At least it will deeply undermine faith in big government

The coming disaster that is Obamacare is going to do even more than the IRS and the spying-on-the-public scandals to undermine faith in big government. That will be a welcome development. But the price is going to be immense: costly chaos in health care.

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