Obamacare Exchange Scheme Could Destroy Insurance Marketplace

Published September 16, 2011

The state and federal health insurance exchanges to be created under President Obama’s health care law were originally characterized as marketplaces where people not covered through their employers can shop for health insurance at competitive rates, with subsidies for lower- and middle-income individuals and families. But in practice they are delivery mechanisms for bureaucracy and could spur a public takeover of the health care system, according to analysts contacted by Health Care News.

“Two important characteristics of the health exchanges are they will all have guaranteed issue and community rating. Guaranteed issue means that no one can be turned down for a health insurance policy, and community rating means that the states can’t charge different rates for healthy people and a higher rate for higher-risk patients, for instance someone who is overweight and has diabetes,” said Devon Herrick, a senior fellow at the National Center for Policy Analysis.. “All rates must be averaged throughout the community so that the costs for premiums are similar.”

Exchanges will be highly regulated, with policies required to pay a predetermined amount for health care, no lifetime cap on benefits, and every policy sold must contain benefits prescribed by the federal government as essential. Taken as a whole, Herrick says, the exchanges could lead to a fully realized national takeover of the health care system.

“Over the long term, the law does nothing to prevent people from gaming the system. It requires a set of costly benefits that will most certainly cause costs for premiums to rise, making it harder and harder for consumers to afford. As more and more people clamor for relief from the rising costs, they may call upon the government for a solution, which would be something like taking over health care entirely and putting everyone in Medicare,” says Herrick.


No Such Thing as a State Exchange

Dr. Hal Scherz, a pediatric urological surgeon on the faculty of Emory University Medical School and president and cofounder of Docs4PatientCare, says the exchanges will undoubtedly destabilize private insurance.

“The health care exchanges will disrupt private insurance markets by compelling private insurers to offer costly mandated benefits,” Scherz said. “Private insurance companies are already exiting from the stage because they’ve seen the writing on the wall and determined that there is no future for them against the federal plans and regulations. Only a few very large private companies may survive.”

Scherz notes Obama’s law “gives limitless power to the Secretary of Health and Human Services” to mandate changes to the state-level entities—effectively making every exchange a federal-run exchange.

“The Secretary of HHS has enormous discretion under the law, wielding tremendous power to create policy on the fly wherever she deems it is appropriate,” says Scherz.

Path to Total Control

Roger Stark, a physician and health care policy analyst at the Washington Policy Center, says the exchanges set the country on a path toward insurers becoming public utilities.

“Private insurers will not be able to mitigate risk in response to these mandates. Many of us believe private insurers will simply become public utilities or close their doors altogether,” Scherz says.

Scherz says employers will dump employees into the subsidized marketplace until the exchanges are the only option available for most Americans.

“Preliminary research shows that 111 million people today would qualify for health insurance in the exchange,” Scherz says. “Ultimately, there will not be any other option but the government program. With the government controlling pricing and benefit mandates in the exchange, it’s clear Obamacare is a terrific first step toward single payer and total control of our health care system by the government.”