Government Watch

Obamacare Insurance Plans Will Be Bare Bones — And Expensive

By Scott Gottlieb – Real Clear Markets

There’s mounting evidence that come fall, the health plans sold through the Obamacare exchanges will be bare bones affairs – with narrow networks of providers to select from, and heavy co-insurance once patients go “out of network.”

In many ways these plans will be a throwback to insurance schemes of the late 1990s, when managed care was dominant and restrictive networks standard fare.

With one difference: The Obamacare plans won’t be cheap.

Quality of coverage is just one issue. Price is the other. There’s mounting evidence that even though the new health coverage will be austere, it’ll still be pricey.

Health plans have ample incentives to price the Obamacare coverage high, which is precisely what they’re likely to do.

For one thing, insurers will want to protect against the risk that individuals entering the exchanges are those who most need health insurance because of pre-existing illness. If this sort of “adverse selection” occurs, it will raise costs to insurers. To guard against this, insurers are likely to price the coverage at a premium.

Second, health plans want to reduce uncertainty around how all the risk-sharing provisions in Obamacare will eventually play out. The legislation puts in place mechanisms that forces Washington to share with health plans some of the cost of the covering the sickest beneficiaries. But the regulations outlining these parameters were only released last Friday. Nobody yet trusts how they’ll work.

To mitigate uncertainty, plans will price their products high. Insurers know that any excess profits they earn will have to be paid back to the government, anyway (owing to caps that Obamacare places on how much profit health plans can earn). Health plans are better off aiming high, and owing money back, then getting underwater.

After all, Washington takes away “excess” profits, but it doesn’t share in losses.

Third, health insurers will want to reduce the incentive for employers to drop coverage and dump employees into the exchanges. This is especially true when it comes to insurers’ lucrative small group and large group segments.

If insurers price the exchange products too low, they’ll give employers another inducement to do this sort of dropping. By pricing exchange products higher relative to the insurance offered in the private market, they reduce this incentive.

Finally, the providers that Obamacare plans must contract with are unlikely to offer significant price cuts to attract this volume. Since the Obamacare plans are likely to pay providers less than rates offered by standard private coverage (and maybe even less than Medicare rates) many doctors could also refuse to accept Obamacare, just like they refuse Medicaid. Or refuse to offer insurers discounts for these patients.

The architects of Obamacare designed the scheme without much thought to how its overlapping incentives would discourage competition on the price of the new coverage. Health plans will try to drive down costs by offering very narrow networks of providers that they can more easily control. It will be a race to the bottom to see which plan can offer the cheapest benefit, while still meeting minimum standards. But it won’t be a race to the bottom on price.

Plans have too many reasons to price their products cautiously, and not automatically pass along any cost savings to consumers.

If the Obamacare plans are priced higher than initial assumptions made by the Congressional Budget Office, it will burst the estimates placed on Obamacare’s total costs. It could also make these plans unappealing to consumers.

Economics turns on simple principles. They’ve evaded Obamacare’s architects.

American Enterprise Institute (AEI) Resident Scholar Scott Gottlieb, M.D. is a practicing physician.  He previously served in senior positions at the Food and Drug Administration (FDA) and the Centers for Medicare & Medicaid Services (CMS). By Scott Gottlieb – Real Clear Markets

If You Enjoy Articles Like This - Subscribe to the AMAC Daily Newsletter!

Sign Up Today
Notify of
Oldest Most Voted
Inline Feedbacks
View all comments
8 years ago

An intriguing discussion is worth comment. I feel that you simply should certainly write alot more on this topic, it could possibly not be a taboo subject but typically people are not enough to speak on such topics. To the next. Cheers

Michael Kors Bags

Larry Conner
8 years ago

From what I see here on the AMAC site they are modeled after AARP. They sell the same products as AARP. So why am I supposed to believe AMAC is any different than AARP? How can AMAC blame Insurance Companies for raising premiums and then ask it’s members to buy those policies? It seems to me AMAC is working for the same Insurance industry as AARP. Am I wrong, I really wish someone would explain to me just what the difference in the two is.

8 years ago

I agree with Gloria (03/09/2013) Almag(03/09/2013 and vesuvius1313. The three of you have summed it up perfitly.
Wake up America. Listen to Fox News and hear the truth. We are domed if the 47% ‘s mind can’t be changed.

8 years ago
Reply to  Joan

Hi Joan,

The question is why would the 47 percent change their minds? It is a serious question. They apparently like being on the receiving end of all these government handouts. For them, life is good or at least “good enough” from their perspective. We on the other hand get nothing from the deal other than paying their bills in addition to our own.

8 years ago

We are so lucky that the idiot’s that voted Obama into office the first time were still around to do it again last fall. Of course, it was part of his plan when he asked/demanded that more people go on the government dole. That was part of his plans in the first place.

Everyone in the country that has a brain that works above an IQ of 10 should have seen the Movie 2016. That spelled out what he wanted/wants to do. He also told us some of it when he ran for election the first time. He indicated that he wanted to get us to be equal to a third World County in the way we lived and our wealth. He also stated that he wanted our military to be equal to the level of any third world Arab/Muslim country.

There are MANY people in this country that need assistance. However, when they quit being a working person and a tax payer, so that they can get food stamps and other hand outs from those of us that are paying taxes, a line in the “CONCRETE” needs to be drawn.

I am retired and still pay taxes. My income is less than what some people claim they are getting from the government dole. I pay income taxes to the Federal and State governments.

I do not want to get food stamps or anything else from the government. I just want to be able to take care of my wife and myself until we die. With everything that this President has done to tax people and take money from people, I am not certain that I can care for my wife and myself until we die.

We are on Medicare and pay for the Medigap insurance and I do not know how Obamacare is going to affect us. I do not know if we can find Doctors or hospitals that will take us. We live in a rural area and I have no desire to move into a city. Medical personnel and Hospitals that will take us in the future may be very few. This is not something that I worked the last 55 years for and expected to happen.

8 years ago

Government is known to keep making the mistakes until they find a solution as long as they have our money to bang into the wall they could care less..this has to stop, I am damn tired of paying good money to idiots who come up with horrible solutions and can’t find their own butts…

This HC scam ought to be used to send the left side of the asile to jail and fire a pot load of RINO’s, they closed the doors to pass it and they couldn’t even read it before or after they passed it thru the bowels of the senate, it is bad medicine, snakeoil and a medicine show act with the horses kept hitched to the wagon…If you like socialism and the communist brethern, then you need to find another country that accomodates special kinds of stupid…

8 years ago

Just another of the elements of a Marxist form of government, along with housing, auto manufacturing, transportation, health care. All of Obama’s activities fit exactly into the academic definitions of Socialism or Communism. Maybe suspension of 22nd Amendment by some type of executive order, in order to get the job done.

8 years ago

Just another way for Obama and his cronies to get more money and taxes out of the people.

legal conservative
8 years ago

Anyone ever think of the number of un=employed if all the insurance companies went broke?
My son works for one, and is head actuary, of course with all that math getting another job wouldn’t be hard.
But bet your bottom dollar we will be shelling out more of our dollars to pony up for all the illegal aliens on their “pathway to citizenship” that Obama has insisted will happen, hope they talk that out on the Senate floor like they did last week.

This will make the dollar amount SKYROCKET, because most of the illegal aliens don’t have high paying jobs, so we will also have to be subsidizing their health care.

I don’t see where the popularity of Obama comes from.

I don’t know where obama is going to get all the Doctors from, because they can’t FORCE them to take Medicaid, or Medicare now, so who is going to be covered under the un-affordable care act???

8 years ago

You’ve got it exactly right. The insurance companies are squeezed from both ends with the government mandating coverage for virtually everything and consumers realistically limited to what they can afford to spend on health insurance. Most people don’t understand that when their premiums go up, most of it is because either the state or the federal government has mandated new coverage models. The insurance industry is already heavily regulated and price controlled to a large degree. Obamacare simply makes it much worse.

I agree, once the 11 to 20 million illegals are given permanent residency status, much less citizenship,they will flood every federal program they can sign up for. The media is trying to spin a phony narrative that these folks are computer engineers or other highly skilled workers, when the reality is that most have limited education and marginal employment opportunities. Most will qualify for financial aid, which we will be footing the bill for. This will also help to increase the cost of health care insurance premiums and will of lead them to skyrocket even more.

The doctor issue is something no one apparently wants to address on either side. It is the most glaring flaw in the whole plan, but the Republicans don’t seem to want to emphasize it. Not that Obamacare is supposed to actually work anyway. I can tell you that as of January of this year, I’ve seen a lot more emphasis on the use of nurse practitioners to substitute for doctors as the first line of medical treatment.

As for Obama’s popularity. Think Santa Obama. He gives away a lot of “free stuff” to the base of the Democrat Party. Free cell phones, food stamps, section 8 housing vouchers, welfare without work, endless job training programs that never seem to lead to jobs, a myriad of community out-reach programs, etc. Of course nothing is really free. Someone has to pay for all this “free stuff”. That’s where we come in. That’s why he needs more revenue (taxes) and lots of it. It’s expensive being Santa.

8 years ago

What does the mandate to purchase insurance coverage mean for people sixty years of age who are living on the gains made from the sale of their homes, or the homes of their parents, and who cannot find jobs in this economy. Does that mean the government can raid their bank accounts to cover the cost of health insurance until they’ve gone broke and can no longer support themselves?

8 years ago

..thoughts on economic principals..

1. Resources are scarce.
2. An economy consists of product and services that people want and use.
3. Demand-side economics doesn’t work; and are exclusively the tools of a central government. The Federal Government policy is to create demand with “easy money.” However, money is never central to an economy because people will only buy products and services they want. Money is a commodity and the more of it there is, the less it is worth relative the the desired goods and services. That is why the printing press destroys an economy by inflation.
4. Supply-side economics always works because it promotes growth by creating incentives in the private sector to produce goods and services that are useful. The printing press plays no part in the transaction.

8 years ago
Reply to  pete

Nicely done.

8 years ago
Reply to  pete

Well said just wish everyone would use common sense in their political thoughts. Three quarters of the population does not know who their state senator and congressman are. They don’t know what the thee branches of the federal government are and what their purpose is. Ignorance and free handouts rule over common sense. The rest are liberals that are so close minded and educated by socialist they can’t think for themselves.

8 years ago

Also contributing to the increase in insurance cost will be the provision eliminating a persons yearly and lifetime cap on healthcare expenditure by insurance companies. Many ihealthcra insurance policies have a yrarly cap of $75,000, to $100,000.00 which will eliminated in 2014 with the ACA. A company providing coverage now at a cost of $300.00 per month per employee will skyrocket to 2X or 3X the current cost. This will contribute to employer dropping coverage and paying the annual penalty of $2,200.00.

Chuck Rose
8 years ago
Reply to  DennisP

The feds have an ace up their sleeve to control costs – the IPAB – which will ration services, probably according to a formula used by the U.K. The amount of money an individual may spend, out of pocket, will also be limited.

8 years ago
Reply to  Chuck Rose

The IPAB will indeed ration services, but at the end of the day would you rather be able to pay to get urgently needed medical treatment or die to save the government a few bucks? That is the equation behind most rationing models. Simply deny medical care and either the patient suffers or dies. Both of which result in a cost savings to the government. Doesn’t work out too well for the patient though.

Jim J
8 years ago

Simple principles. There is a great thought.

My simple principle is that if there are a substantial number of steady participants, then they are ALL making too damn much money!

Simple principle — Single Payer — now that is a simple principle.

Makes all of those insurance guys CRINGE.

8 years ago
Reply to  Jim J

Single payer is the nightmare in the wings that Democrats want and are back-dooring through ObamaCare. If you think we have problems in the health care system now, just wait until it’s single payer and that payer is the government.

Government control is not the answer to a better health care system. The “insurance guys” were trapped in a system where most people get insurance through their employers and no one is able to shop plans. Why can I buy auto insurance anywhere in the nation but my health plan choices are restricted to my State of residence?

If health insurance had truly been an open market place, we would have incredible coverage options.

8 years ago
Reply to  Jim J

Single Payer makes me Cringe! Lets examine your this idea for a second — What government program works really efficiently and well? None! (if you think the military might be run well – they waste $50 billion a year and cost over-runs are continuous). Medicare – well its about to go broke. Medicaid – its going broke too. Social Security – the politicians have raided the Trust fund and it too will go broke. Nothing the government does on a large scale is efficient. Only the private sector and competition will make you lean and competitive and efficient. Think about “Apple” – they have over $100 billion in Cash on hand — thats more than our entire Federal Govt who is almost $17 Trillion in the Tank. Tell you want – you get your insurance from the Government and i’ll get mine from an insurance company.

8 years ago

So the way I understand this: someone without health insurance, like my son, will have to pick one of these bare bone plans for health ins. If he does not buy a plan then it will be taken out of his income tax refund. Those people who do not file a return probably won’t get the insurance or have to pay for it either. Do I have that right!!

8 years ago
Reply to  Karen

Everyone will have to have insurance or pay a fine. The IRS will audit every tax return for proof that the person filing the return has a government approved health policy. HHS is defining what constitutes a government approved policy as we speak. The IRS is staffing up at least an additional 16,000 agents to carry out this task. The IRS is very good at collecting money that it is owed.

8 years ago

Nobody seems to be able to answer my primary question: I have Medicare Part A, but have not signed up for Medicare Part B or the pharmaceutical program. Will I be forced to do so under Obamacare?

What’s going to happen is probably not what those analyzing the insurance industry are predicting. (Don’t forget….AMAC sells insurance). Of course, the policies will be as expensive as the insurance companies can make them with the highese co-pays possible. And they will escalate immensely almost immediately as those who’ve had unadressed medical problems “pile on” to their new insurance.

What I think will happen is that they wealthy will pay the penalty to opt out of ObamaCare. Then they’ll have an elite health care network….with the medical personnel, care facilities, therapies that can afford to go off the grid and only serve those who don’t use Obamacare.

It’s already happened with dental care. Those of us who don’t have dental insurance don’t end up paying much more, once those who have dental insurance have paid their deductables on the most expensive treatments the insurance will cover and paid for the dental insurance itself. Also, many dentists offer a discount if you pay time-of-service cash or check.

What we’ll have is the middle class being brought down to poverty because of the insurance and getting continually worse and more expensive medical care from providers not accountable to those patients. Our economy might “benefit” from this, but expenditure will be shifted from the consumer purchases we make now to the cost of medical care. And the rich and the insurance companies and big pharm will do just fine…..

8 years ago

“Third, health insurers will want to reduce the incentive for employers to drop coverage and dump employees into the exchanges. This is especially true when it comes to insurers’ lucrative small group and large group segments.

If insurers price the exchange products too low, they’ll give employers another inducement to do this sort of dropping. By pricing exchange products higher relative to the insurance offered in the private market, they reduce this incentive.”

Wouldn’t an employer make the decision to drop coverage — or not — based on the cost to the employer? i.e. If the cost to cover an employee is greater than the penalty they’ll pay to not cover an employee, the employer could decide to drop coverage and “dump” employees into the exchange, regardless of the what the exchange changes for coverage.

Also, if the exchanges price their plans very high, wouldn’t that just increase the income-based federal subsidies paid to people that must be covered by the exchange? (I thought that’s how it worked.) The exchanges could then be under pressure by the federal government to keep their charges relatively “low” or their increases “contained” just as insurance companies are today.

8 years ago
Reply to  DebbieJ

“Wouldn’t an employer make the decision to drop coverage — or not — based on the cost to the employer? i.e. If the cost to cover an employee is greater than the penalty they’ll pay to not cover an employee, the employer could decide to drop coverage and “dump” employees into the exchange, regardless of the what the exchange changes for coverage.”

This is exactly the plan of Obamacare, Debbie. My small company will almost certainly chose to pay the penalty as we would probably go bankrupt paying the new rates. We don’t want to abandon our employees, but we also want to stay in business…

Many, many companies such as ours will be in this same place and this is how the single-payer plan will be produced as more and more people are driven into the exchanges because they are dropped by their employers. When Obama stared into the cameras and told Americans if they like their current plans they could keep them, he was lying through his teeth and he knew it.

Karm Halpenny
8 years ago
Reply to  Stugee1

Now people are beginning to understand we have a pathological liar for a president. Any means to an end.

8 years ago
Reply to  DebbieJ

Is not just Republicans that call the Health Care Law, Obama-care. While Bill Clinton was in office Hillary tried to have a naloinatized Health Care system, it was nicknamed Hillary-care. this Obama-care nickname is just the same continuation of the same idea.When Social Security was created it had a nickname. Anytime a politician purposes a law they run the risk of it being oh wait the laws are always named after those that pose it.

8 years ago

With all the new mandated coverage HHS is dictating that “conforming health plans MUST include”, I don’t think the plans that will be offered by the exchanges, or for that matter what any of us will be allowed to own once Obamacare goes into effect, will be what you call bare bones. If anything, they are likely to be extremely bloated, with all kinds of mandated coverage criteria that most people would have no use for. Of course we will be paying for the inclusion of all these mandates as part of the standard conforming health insurance plans, so part of your article would be correct. The insurance plans offer through either the exchanges or for that matter anywhere else, will be incredibly expensive.

You should disregard the initial cost estimates for Obamacare, which were always pure fantasy, as the Congressional Budget Office (CBO) has increased the estimated costs from $900 billion over the first 10 years to now north of $2.8 trillion over the same period of time. In reality, the true costs of Obamacare in the first 10 years will probably be in the neighborhood of $4 trillion dollars. Government is famous for underestimating the real cost of any program it creates in order to win initial approval from the public.

Your conclusion was spot on. However, Obamacare was never intended to “work”. It is designed merely to be the stepping stone to what the socialists (progressives) want, which is the European style single payer system with government controlling all aspects of the health care system.

8 years ago
Reply to  PaulE

Your last paragraph says it all – it’s all about bringing the U.S. of A. under the dictatorship of socialism/communism. That was Obama’s goal (or whoever is pulling his puppet strings) from the get-go. He himself hates the United States, hates Christianity (thus, trying to destroy any type of moral conviction), hates Jews, and wants nothing more than to destroy our form of government. Sadly enough, people want somebody to ‘take care of them’ so like sheep they are blindly following the wolf instead of the Shepherd.

8 years ago
Reply to  Gloria

Amen and Amen!!! Obama is really more like Lenin, Stalin and Mao. He is a dictator. His change is to destroy capitalism and political parties so that he can name himself as King. America, we must wake up. Let’s get this worst president in the history of the United States OUT!

8 years ago
Reply to  PaulE

I think you are right. My private policy went up 16% this year. Mine is bare bones and just covers hospitalization and I have a $5000 deductible. The letter that accompanied the increase said men will have to carry pregnancy insurance under Obamacare – where’s the logic in that? I’m going to do what I can to stay out of the exchanges. I’ve wondered if there is a way to arrange services with our doctors and boycott the health exchanges altogether.

8 years ago
Reply to  Pam

Some doctors will take patients on for private pay, so there is a way to maintain access to quality healthcare. However, this is not an inexpensive option, so be prepared for the cost. By the way, this practice is also in existence in Europe, even though they have the “single payer option” the left is so in love with and what Obamacare is pushing us towards. The reality of single payer is that if you want prompt, competent medical care, you have to pay doctors under the table. The alternative, if you have a serious illness, is waiting weeks or even several months to see a doctor and then facing the likely prospect that your medical treatment would be turned down by the government board, if your medical costs were deemed “too high”.

As to whether this option would relieve you from the Obamacare mandate that ALL citizens carry health insurance and that the health insurance policy meets the “acceptable health care standards as decided by HHS”, the answer is NO. There is no provision that I’ve seen in Obamacare that removes this requirement.

Yes, insurance policies are now being loaded up with all sorts of things that are NOT applicable to the person being insured. HHS is going wild mandating that policies include all this stuff, even though in most cases, it makes no sense. Can anything be done to stop HHS? The answer is again NO. The way the law is written, the head of HHS has sole authority to mandate what should be in an acceptable health care policy.

The only way to have avoided this mess was to NOT HAVE RE-ELECTED OBAMA and the Democrats in the Senate. That was the last opportunity to stop Obamacare in its tracks. We lost and that option is now dead. Now the best that can be hoped for is some minor tinkering around the edges somewhere down the road, so prepare as best as you can for increased costs. Tens of thousands of new federal employees are being hired and dozens of new federal departments are being created to manage the incredibly bloated government infrastructure associated with Obamacare. I’ve seen the flow chart for Obamacare and it is massive.

8 years ago
Reply to  PaulE

You are right about the real goal of Obamacare; anyone that read the bill found out that it will push small businesses to give up their plans. People that think single payer is the way to go need to look at conditions in Canada, England, and other European countries. If you are someone with major health issues like I have with my spinal disease, you will find a lack of treatment. Single payer takes care of the every day doctor visits and routine care issues but major diseases are lacking adequate treatment as they are deemed too expensive.

Leave it to liberals to ignore the problem of health care and create a completely new system they haven’t worked out and think that they have improved life for the average person. I am sickened by what happened with this bill, the way it was designed, written, and passed behind closed doors and without one Republican vote. Too big a part of the democratic party are socialist or statist that look up to people like Castro and Chavez.

Would love your thoughts, please comment.x