Making Care More Affordable, But Not Less Expensive

The big rate increases announced last week for health insurance policies sold by California’s version of the federal health reform are the latest evidence that the Affordable Care Act, despite its name, cannot do much to tame the rise of health care costs.

The government-run health insurance market is facing all the same cost pressures that the private market has confronted for years, plus more that have resulted from the dynamics of the federal law itself.

Covered California, the state insurance agency created to implement the federal law, announced last week that rates for insurance sold through the program will increase an average of 13.2 percent in 2017. The state’s two biggest insurers, Blue Shield and Anthem Inc., will increase rates by 19.9 percent and 17.2 percent.

Part of that increase is the perverse result of some good news: the law has cut in half the number of Californians without insurance. But many people who went for years without health insurance and now have it are suddenly taking care of problems that they ignored or lived with before. And that’s driving up the cost of the insurance designed to cover them.

During the first two years of the program, rates increased an average of only 4 percent per year in California. But now that insurance companies have experience with the new customer load, they have been able to see that the new patients are sicker than the insurers expected, and costing them more. So they are raising rates to reflect those costs, and the burden is shared by everyone who buys coverage through the system.

Another issue: the law is fairly lax about allowing people to move in and out of coverage. As a result, people may be delaying their purchase of insurance until they are sick, and then getting coverage. That means the insurance companies must cover their costs without having collected much, if any, premiums to help finance that care.

In the past, insurers avoided this problem by simply denying coverage to people who were already sick (or even likely to get sick). The new law requires insurance companies to cover everyone, regardless of their condition. That’s a great benefit to consumers. But it’s not free.

All of this is contributing to the large rate hikes planned for next year. But the biggest culprit may be the same as its always been: the underlying cost of health care.

Doctors, hospitals, and labs charge more every year, and insurance reflects those costs. Lately, prescription drugs, especially narrowly crafted specialty drugs, are getting more expensive.

The rate increases have renewed calls for the government to directly regulate health insurance prices. That might help if insurance companies were making big profits that regulators could squeeze from the system. But Covered California says the companies selling plans in its system have profits averaging less than 2 percent of the revenue they collect. They are mostly passing along the costs for the care they buy on behalf of their customers.

Ultimately, reformers might have to accept that short of directly controlling the price of doctors, hospitals and drugs, there is little the government can do to slow the growth in the cost of care.

Cushioning that cost for people who can’t afford it, without making things worse for everyone else, may be the most the government can hope to accomplish.

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