If you are inclined to believe Barack Obama's claim that people losing their insurance are giving up skimpy coverage for much better benefits, read the editorial in Monday's Wall Street Journal. Then read it again, and again, and again.
Edie Sunby has a rare form of cancer that is almost always fatal. Yet she is alive, thanks to the efforts of doctors in San Diego, at Stanford University and in Texas. Over the past year, UnitedHealthcare has spent $1.2 million on her medical expenses. But she has just been informed that her insurance is being cancelled.
Worse, in the new California exchange, the only plan that will allow her to continue seeing her San Diego doctors will not pay for the doctors at Stanford or in Texas. There is no reimbursement for out-of-network services.
For Edie Sunby, ObamaCare is a potential death sentence. She is not alone.
Here is my prediction: the kind of coverage Edie Sunby had will never again be seen in the individual market in this country.
You don't need to be an economist to understand why. Think of a game of musical chairs. The health insurers are the chairs. And not a single one of them wants a patient who will spend $1.2 million of their money.
The circumstance under which insurance companies will find it in their self-interest to offer the kind of coverage UnitedHealthcare offered is a market that is free to price risk. Only if people are free to pay actuarially fair premiums can insurers offer the kind of coverage that will pay enormous sums of money to deal with illnesses that have a very low probability of occurring. In a community rated system, plans that are appealing to the sick will attract the sick, who will inevitably be paying premiums that are far below the cost of their care.
In the ObamaCare exchanges, health plans are free to select any premium they choose. But they must charge every entrant the same (community rated) premium, regardless of health status and they must accept all comers. Under these conditions, the plans will make a profit on the relatively healthy and incur losses on the relatively sick. Accordingly, they have an incentive to attract the healthy and avoid the sick.
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