Obamacare Sticker Shock, Part 2: Counting the Cost of the Individual Mandate

In the first part of this series, I discussed, in part, why Ohioans’ health insurance premiums are going to rise about 80-88% in the coming year. However, I did not discuss the entire picture. There are several legs to the Affordable Care Act (ACA) stool, but the primary ones are guaranteed issue, community ratings mandates, the individual mandate, and nationwide implementation. In the first post I discussed community ratings and guaranteed issue, which were the early efforts in eight states. Here I will discuss efforts to make those ideas work: the individual mandate and nationwide implementation.

Allow me one digression as I point out something you may have already figured out from reading Part 1.  For decades, state health policy has been like playing whack-a-mole—every time they patch one hole, a mole pops out of another. As President Reagan famously said, “the more the plans fail, the more the planners plan.” States have had (at least before the ACA) primary control over regulating health insurance. In the 1960’s, an economist wrote an article that argued that health insurance and healthcare should not be treated like a market commodity. Avik Roy provides a great critique of it here. That article has been a pretext for government control since that time. Every policy that has sprung from this article has had major holes that undermine its purpose. Policymakers in many states have thought themselves very forward-looking because they sought to patch-up these programs. They have never considered that their devotion to patching-up has failed and that antiquated academic theories are actually backward looking. (I will dive deeper into this issue in a later post in this series).

That being said, in the eight states that tried to patch their holes with guaranteed issue and community ratings, the results were basically bad, as I discussed in Part 1 (also see Part 1 for links to references). Every problem in these eight states exacerbated itself, and every time they plugged a hole, another hole seemed to pop up. With guaranteed issue at play, people in those states (mainly young and healthy) simply waited till they needed health care, then either enrolled for health insurance or sought emergency care mandated by federal law. Taxpayers and healthy people with coverage had to bear the burden of the unhealthy, with little contributions from them. Insurance companies understandably fled those states—which itself further exacerbated the problem.

The individual mandate is supposedly the solution to this problem. The answer to whether the individual mandate will be effective may lie in looking at the only state that attempted an individual mandate in 2006 as solution to this problem: Massachusetts, under Governor Mitt Romney. In Massachusetts, the results from this mix of laws (guaranteed issue, community rating, and individual mandate) are ugly. First, average premiums increased 40% in the individual market. Then, the state’s spending on health care swallowed the state’s budget–the state spends far more on health care per capita than any other state. Today, Massachusetts has the most expensive premiums in the country for both employer and individual coverage. Its hospital expenses rank fourth highest in the nation.

To be fair, Massachusetts has another unique problem, which is a hospital monopoly that developed years ago as a result of a hospital merger. There is no way to tell how significant that variable is, except to say that it definitely caused premiums to rise; we just do not know how much. This problem is also a threat in Ohio, as the same thing almost happened in Toledo, before the Federal Trade Commission (FTC) filed a complaint.

So would the ACA’s proponents argue that Massachusetts is not a good case study because of the monopoly? They cannot, because the ACA actually makes this problem much worse in two ways. First, as FTC Chairman Thomas Rosch said publicly, the ACA’s focus toward “accountable care organizations” “will cause higher costs and lower quality care” by encouraging hospital monopolization. Secondly, the ACA also restricts the construction of physician-owned hospitals, which will reduce competition even further.

The authors of the ACA felt that Massachusetts’ problem was that it couldn’t be implemented on a nationwide scale. As long as insurance companies had other states to flee to, they would. In the post-ACA world, they have nowhere to hide from these requirements—something many progressives proclaim with pride. The ACA is based on the premise that insurance companies and hospitals will harness their intellects to make this failed system work once they can no longer flee it.

Has a system with each of these elements ever worked anywhere? Yes. In Switzerland such a system actually works quite well, but there are two important differences between the U.S. and Switzerland. First, Switzerland is a small country that relies largely on the U.S. for innovation and major operations. One might chalk up this difference to size, although I think it is more symptomatic of the government-managed system.

The second (and far more important) distinction is that Switzerland operates completely on private insurance—there is no equivalent to programs like Medicaid, Medicare, SCHIP, and Tri-Care. There, those in need get premium supports to purchase their own coverage, with all the ACA elements discussed above in play. Ironically, proponents of the ACA tend to label those who would favor a premium support system (such as President Bush and House Republicans) as extremists. They should be instructed that the only conditions under which the ACA framework has ever been successfully tested is in an environment with only private insurance available. That leads one to question whether the ACA can function as intended with so much government coverage available.

Progressive Commentators Agree

Progressive commentators have begun to cede that the ACA will increase premiums and overall costs. Despite the costs, proponents point out that Massachusetts accomplished a 98% coverage rate, up from 94% before its mandate. Here’s the interesting part: they qualify their concession by arguing that the value is worth it—that under the ACA, the new coverage is so good, it is a bargain.  I will discuss this argument in more detail in Part 3 of this series. In short, however, based on the Scott Brown election, apparently Massachusetts’ voters did not think their deal was such a great bargain.  In 2011’s Issue 3 vote, Ohioans showed they do not seem to think so either. I will discuss this issue is more detail in a future article in this series about the philosophical differences between conservatives and progressives on health insurance and care.

So the next hole that will need fixing is the escalation of costs. As I said in Part 1, many commentators thought this was the primary problem to start with.  The Obama administration, however, thought that lack of universal coverage was the problem. To be fair, it implemented several measures to attempt to control costs. However, as this series explains, that simply is not adding up at this point. In my view, the argument that the ACA would keep health costs down was intellectually dishonest to start with. The honest argument was always that it was worth the value in their opinion. But that debate is one they did not want to have until after the bill was passed.


Featured-Columnist---DoneJosh Brown, Esq. is a lawyer who work in Columbus, Ohio and concentrates on Ohio municipal issues, law and economics, constitutional law, and healthcare issues.

 All opinions expressed belong solely to their authors and may not be construed as the opinions of other writers or of OCR staff.


  • How the Medicaid expansion will exacerbate the increases in premiums.

  • Philosophical differences between conservatives and liberals in health policy that have led to these premium increases and serious conservative solutions.

  • Critiquing the ACA’s “value” proposition.

Related on OCR: “Obamacare Sticker Shock, Part 1: Ohio Premiums Expected to Rise 88%”

Related on OCR: “Healthy Tax Reform, Harmful Medicaid Expansion”

Related on OCR: “Medicaid and Modern Medieval Churches”

Related on OCR: “Cherry-Picking Obamacare”

Related on OCR: “Is Medicaid Expansion a Legal Trap for Ohioans?”



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