There is a split between what free-market policy analysts believe Obamacare will do to health insurers and what investors believe. Wonks tend to think that the regulatory burden imposed by Obamacareespecially increasing politicians power over health plans ability to set premiumswill demolish private health insurance. I wrote a lengthy analysis of this last July; and the case was recently made by Sally C. Pipes in her Forbes.com column.
But Wall Street sees it differently: The individual mandate that every American acquire health insurance has been understood as an overwhelming gift to the health insurers. Their premiums, although highly regulated, are about to become fairly risk-free. Perhaps they should be analyzed as utilities?
So, the Supreme Courts oral arguments on the constitutionality of Obamacare should have had a negative impact on health insurers shares. After three days of oral argument at the end of March, observers concluded that the law was on very shaky constitutional ground. Intrade, the online prediction market, has a contract predicting the Supreme Courts declaring Obamacares individual mandate unconstitutional this year. Before the oral arguments, the contract seldom pipped 50 percent, and tended to hover around a one third chance of repeal. Since the close of oral arguments, the contract has consistently traded above 60 percent.
Those three days of closely watched testimony resulted in the market almost doubling its estimate of the downfall of Obamacares critical ingredient. Strangely, the stock market responded by uprating the largest commercial health plans (as described by Forbes.com contributor Dan Munro). Something does not add up: If the insurers are going to lose the individual mandate, wont they be in a more fragile position?
I expect that the insurers will be in great shapeif Obamacare is fully defeated, both by the Supreme Court and the November election. Even better, I expect that they might finally be in a place to support the patient-centred reforms that will be debated in Congress as a replacement for the failed PPACA. Indeed, with their support, we might finally get somewhere.
First, the easy one: Premium support for Medicare, as advocated most effectively by Rep. Paul Ryan. During the Bush administration, reforms increased the number of seniors enjoying the benefits of Medicare Advantage plans. However, health plans also lost their status as carriers or intermediaries processing claims for the traditional Medicare Part A and Part B programs. These claims-management contracts were moved to a much smaller number of payment processors. It should be a no-brainer for health plans to get behind a reform that allows every senior (in a few years) the choice of his or her own private policy.
Second, eliminating the tax discrimination against individually owned health insurance: Often described as the original sin of American health policy, the tax code grants employers monopoly control of their employees health benefits. Could you imagine how frustrating your housing situation would be if the government removed the mortgage-interest tax deduction and instead made housing a non-taxable benefit, but only if your employer chose your house for you?
This crazy tax policy has persisted so long largely due to the lobbying of the health insurers, whose business model has been built around group benefits. Individual insurance was disparaged by the industry as the residual market. However, in anticipation of Obamacares Health Benefit Exchanges, into which millions and millions of Americans will be thrown from their employer-based benefits, health plans have been investing in new platforms to improve their ability to market to individuals.
Obamacares exchanges are grotesque bureaucracies. (Imagine having to buy your car and auto insurance from the DMV.) Nevertheless, once Obamacare is defeated, health insurers will be more likely to accept a real patient-centered reform: Giving an explicit tax credit or deduction to each individual to buy health insurance of his choice, which is portable from job to job and state to state. This is a feature of all alternative reforms on the table (other than single-payer, government monopoly).
Third, transparency: How often have you been able to figure out the price of a visit to the doctor or hospital before you got treated? This has long been a problem in U.S. health care and it became more painful with the rise of high-deductible, consumer-driven plans since 2004. Initially, both health plans and brokers were unenthusiastic.
Although major health plans executed defensive take-outs of consumer-driven plans that had started up in the 1990s (such as United HealthGroups 2004 acquisition of Definity Health), consumer-driven plans posed a big problem. By cutting premiums, these plans also cut brokers commissions. From the carriers perspective, the lower premiums reduced the earnings on their cash floats. ( A problem that the Blues solved by starting their own bank to attract Health Savings Accounts.)
But health insurers appear pretty confident that their consumer-driven plans are winners. CIGNA and AETNA even produce quasi-academic studies touting their benefits. And insurers seem to know that patients need more transparent prices if the benefits of consumer-driven plans are to be realized. CIGNA has promoted the claim that members can check prices of medical services online. At a recent Altarum Institute conference, a spokesman for AETNA demonstrated that insurers new consumer-focused website, which will show members how much theyll have to pay out of pocket for each service.
This is a significant achievement: Both insurers and providers profited from hiding their prices behind a cloak of invisibility. They resisted that which they increasingly embrace.
So, the end of Obamacare should be positive for health insurers as well as U.S. health policy. Freed from their old business models, they will finally be able to embrace real reforms that put patients first. This will be to their long-term benefit: Arguments for single-payer, government-monopoly health care will receed farther into the background, and health plans continued existence will be under no greater political threat than that of auto or property insurers.
But first we have to defeat Obamacare.
|John R. Graham is Senior Fellow at the Independent Institute.|