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May 16 2012

ObamaCare Fans Suddenly Concerned for Big, Bad Insurance Companies

Hadley Heath

Washington DC has its own language.  In government, when lawmakers say they are going to make "cuts" to this or that program, often they mean, "In the future, we are going to spend less on this program than we originally planned to spend."  It's not a real cut.

It seems like Washington Post writer Sarah Kliff fell for a similar gimmick when she wrote that, "Next month, America’s health insurance plans may lose $1 trillion in revenue."

You see, ObamaCare included a huge giveaway to insurance companies: the individual mandate.  Unfortunately for them, this is also the provision in the law under Constitutional scrutiny.  Sarah Kliff is right that, if the Supreme Court overturns just the individual mandate, insurance companies will be up a serious creek.  They could be stuck with ObamaCare's other insurance regulations (like guaranteed issue, community rating, limit bans, medical loss ratios, pre-existing conditions, and the age-26 rule), but without the deal-sweetener of millions of new (however unwilling) customers.

But it wouldn't be ObamaCare "repeal" that would be causing the insurers' nightmare.  It would be ObamaCare itself.  Without the key (unconstitutional?) individual mandate, ObamaCare simply encourages a downward spiral.  Who would ever pay for insurance when they were healthy?  You know you could get it as soon as you got sick.  After all, insurers would have to sell it to you.  This adverse selection problem would make insurance more and more expensive as the pool of the insured became only sick people.  

Now, if the entire ObamaCare law were to be overturned or repealed, that would be a different story.  Insurers would still have to adjust their projections for next year and assume that not all 16 million uninsured new customers would come buy insurance.  But they could also forget about those rebates they're being forced to send out this summer, and they could think of the MLR requirement as just a bad dream, and they could move forward using annual and lifetime limits again, and they could price someone's insurance according to her risk, and not according to a set of government regulations).

It's important to note that, even if the whole law stands, the estimates for the individual mandate's costs/revenues are sketchy.  Some people will still choose not to buy insurance, but to pay the penalty instead.  We can count that as revenue for the government, but we can't could that as revenue for the insurance company.  Unless you double count the money (oh, like, remember those cuts to Medicare??)

And some particularly bold individuals may not do either; they may refuse to buy insurance and also avoid the penalty.  So what?  The individual mandate is going to be tough for the IRS to enforce.  

It's particularly funny that now ObamaCare's repeal could cost $1 trillion... but advocates of the law failed to mention this $1 trillion giveaway to insurance companies when the law was being passed.  It's either neither, or both.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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