Mises Daily Articles
Why Are Obamacare Exchange Policies So Bad?
As millions of people began to lose their old medical insurance policies, President Obama and other Obamacare supporters replied that the new exchange policies were better. This was another lie.
Obamacare exchange medical insurance policies are much worse than previous private policies. They not only restrict access to hospitals and doctors more severely than ever before. They also pay doctors much less, in some cases 50 percent less.
In the past, private insurance companies paid doctors more than Medicare, and Medicare more than Medicaid. No longer. Now private Obamacare policies will pay barely more than Medicaid. Consumers should avoid these new exchange policies if at all possible.
Imagine yourself needing a new doctor because your old doctor is not in the approved network. But no doctor will take you because your policy does not pay enough. This happens to people on Medicaid all the time. Now it will happen to Obamacare exchange policy holders.
The rate that your policy pays a doctor is crucial information in choosing a policy. But insurers will not give you this information. To make it even more complicated, insurers may pay doctors different rates for the same service, depending on how much they think they need them in their network, and they may change the rates at any time.
Why are the new exchange policies often paying doctors barely more than Medicaid rates? Top medical policy analyst John Goodman explains that Obamacare has put limits on what can be charged older and sicker insurance customers. The natural response by insurers to these price controls is to try to sign up younger and healthier customers and discourage others.
How to attract younger and healthier customers? Insurance companies know that younger and healthier customers tend to shop on price. Why wouldn’t they? They do not expect to use the insurance, so they are less likely to look closely at the quality of the policy and more likely to buy the cheapest.
But all the Obamacare mandates are driving up the cost of the policy. If doctors are paid as they have been in traditional private insurance policies, younger customers would find the price of their policy soaring, which would lead them to drop insurance entirely and pay the penalty. The penalty is not big enough to deter them.
Insurance companies respond to this dilemma in the only way they think they can. They squeeze the doctors fees and gamble that enough of them will go along to take care of the policy holders. Will this gamble pay off? It is doubtful.
Many doctors, doctor networks, and hospitals are already refusing to go along, so the policy holder will be stuck with insurance that is useless because no doctor will take it. Expect to see hospital emergency rooms flooded with even more patients under Obamacare, and expect to see the waits get even longer.
Older and sicker insurance customers may think they like the idea of price controls that work in their favor. But will they like insurance companies taking every available legal means to discourage their buying a policy or staying on that policy? Would you want to be covered by a company that does not want your business?
With Medicaid enrollees swelled by Obamacare, and much private insurance turned into what John Goodman calls “Medicaid Lite,” what will happen to medicine? The most likely result will be large numbers of doctors taking early retirement and fewer talented young people entering the field. The supply of medicine will shrink while the demand, fueled by government subsidies, increases.
The result will be even more sharply rising prices, no matter what additional price controls are imposed. There is already a back-up price control board included in Obamacare, but using it will just make things worse. It will also not help when additional Medicare price controls on payments to doctors included in Obamacare also take effect.
We have seen too many tragic examples in history of what happens when government price controls shrink supply while increasing demand. We do not need another lesson. History students are taught that Queen Marie Antoinette of 18th century France, when told the peasants lacked bread, said: “Let them eat cake.”
Why did the peasants lack bread? It was because the French government had price controlled wheat, with the result that farmers were losing money on their crops, and simply stopped planting. The result was soaring bread prices, starving peasants, in time the French Revolution, and, of course, Marie Antoinette losing her head on the guillotine.
The only way to provide good medical services at a reasonable cost is to bring back market pricing. We need the market not only to get supply and demand back into balance, but also to decide what exactly will be supplied. When was the last time that anyone saw a normal market price in medicine?
Starting with Medicare almost a half century ago, and then Medicaid, the government began systematically eliminating market pricing. Today Medicare sets prices on 7,500 tasks, varied by location, whether paid to a hospital, and other factors. This means that at least six billion transactions are price controlled at any one time. Insurance companies (which actually run Medicare) then adjust these price controls for their own use. Obamacare has made all these existing price controls even more complicated and dysfunctional.
A doctor who calls up Medicare to ask whether a procedure can be reimbursed and at what price may get completely different answers, depending on the office or person reached. But getting an answer from Medicare does not limit liability for getting it wrong. A doctor who gets it wrong may even be charged with fraud and sent to jail. Who would want to be a doctor these days?
In the meantime, people need to be warned to look beyond the price of the new Obamacare exchange policies. They are often barely better than Medicaid and should be avoided if at all possible.