Race to the bottom in the ObamaCare exchanges
Townhall – John C. Goodman – 9/28/2013
Attracting the healthy, avoiding the sick. In most states today insurers are allowed to charge individuals premiums that reflect their expected health care costs. This practice is no different than it is in life insurance, casualty insurance or most any other kind of insurance. In a free market, you expect to pay premiums that are actuarially fair.
The Affordable Care Act will end this practice. Instead, insurers will be required to practice a form of community rating, under which the healthy and the sick will all be charged the same rate.
If the healthy are overcharged so that the sick can be undercharged, then insurance companies can expect to make profits on the healthy and losses on the sick. This means that it is in the self-interest of every insurer to attract the healthy and avoid the sick.
As a result, we are getting a race to the bottom on access ? with private plans in the exchanges looking increasingly like Medicaid, just as they do in Massachusetts.
The Obama administration doesn't seem to be bothered by this development. In fact they have been touting the fact that the premiums have been lower than expected, even though the reason is that the networks are narrower and skimpier than expected.