The continuing pull out of health care companies from the individual insurance market is reducing health care coverage across the country. In some areas, the individual marketplaces may be left with no insurers offering plans. If this continues to happen, will the individual marketplace fail completely, and what will this mean for people who rely on the individual marketplace for their health insurance?
How Insurance Is Supposed to Work
Insurance is supposed to be a way for individuals to manage risk and hedge against the liability of some uncertain or unforeseen negative event occurring in the future. For health insurance, that means that individuals want to protect against the possibility of a catastrophic illness or accident that might be too expensive to pay for out of pocket. In the case of more comprehensive health care coverage, it would cover the cost of regular medical care.
Insurance companies charge people accordingly based on how much they anticipate having to pay out on insurance claims. A 40-year old minivan-driving housewife with 20 years of a clean driving record will be charged a lower premium than a 19-year old man who drives a Mustang. The chance that the young man will crash his car is much higher than the housewife, so because the insurance company expects a higher likelihood of having to pay out on his claims, the young man is charged more for the same amount of insurance.
How Obamacare Messed Up Health Insurance
Obamacare sought to extend health care coverage to all Americans, including those who couldn’t afford health insurance. But in requiring health care coverage to be extended to everyone, it massively drove up the cost of health insurance. That’s because many of the people who were now covered by Obamacare suffered from pre-existing conditions that would have been prohibitively expensive to treat, and thus would have required health insurance premiums that they would never have been able to afford.
Now, under Obamacare, health insurance companies are required to offer insurance to those people, and they may no longer charge different rates based on health conditions, only on age. Because those people are so expensive to insure, insurance companies are forced to recoup their costs by raising premiums on everyone. Double digit annual increases are not uncommon, but companies have to petition the government to raise those rates. If they can’t raise their rates or otherwise recover the cost of insuring very expensive patients, their only recourse is to stop offering coverage.
What Is Happening Now
That is exactly what many companies are doing, pulling out of various health care marketplaces, leaving tens of thousands of people scrambling to find health insurance. This may be exacerbated if the Trump Administration decides not to enforce the individual mandate which requires everyone to purchase health insurance. Young, healthy people are subsidizing the insurance of the elderly, the chronically ill, and those with pre-existing conditions. If those young people stop purchasing health insurance, those lost premiums will require rates to rise even more. Whether this is the “death spiral” that many have predicted about Obamacare remains to be seen, but in any case there are thousands of Americans who are now left wondering whether they will still have health insurance in the coming years.