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Will ObamaCare produce cascade of insolvent Colorado insurers?

From the Pacific Research Institute:

A new research study released by the Pacific Research Institute (PRI), a California-based free-market think tank, shows how ObamaCare [HR 3590] threatens the solvency of private health plans, which will significantly reduce consumer choice and increase costs. The ultimate result will likely be either a massive taxpayer bailout of private health plans or continued momentum toward a single-payer government-monopoly system.

“Bust or Bailout? The Future of Private Health Plans Under Obamacare” was authored by PRI director of Health Care Studies, John R. Graham. Noting that the 1996 federal Health Insurance Portability & Accountability Act (HIPAA) also lead to consolidation of health plans, Graham concludes that “Repealing ObamaCare and replacing it with reforms that put the American people, instead of government, in charge of health dollars, is the recommended way to avoid either outcome. ”

Graham examines the recent history of Massachusetts, where a 2006 law created an unprecedented level of government control over insurance premiums. In 2010, the state’s Insurance Commissioner mandated a rollback of insurance premiums. However, because the 2006 reform increased health costs, this resulted in increasing losses and looming insolvency. Graham’s analysis concludes that Massachusetts’ largest health plan is likely to be insolvent by 2015 or 2016, in the absence of reform.

Replicating this analysis for Colorado, where one large health plan has already announced plans to leave the state, Graham’s analysis demonstrates a “cascade” of insolvency, whereby only five of the ten largest plans in 2009 will be operating in 2017.

According to Mr. Graham, “The current solvency of health insurers is well regulated and responsibly monitored, but ObamaCare injects awkward incentives into the regulation of health plans. ”

Through the distribution of federal grants to states, ObamaCare encourages states to enact laws to increase their Insurance Departments’ power to dictate imprudent, artificially low premiums. Mr. Graham reports, “There is no evidence that such power reduces the growth of premiums below those observed in states where Insurance Departments have no such power. But it does give perverse incentives to politicians to blame private health plans, rather than government interference, for increasing health costs. ”

Graham adds that his estimates are likely conservative: “ObamaCare introduces numerous critical uncertainties – ranging from the establishment of Accountable Care Organizations (ACOs) to Health Benefits Exchanges — that make it difficult to estimate future medical costs accurately. ObamaCare, consequently, will be much more disruptive to health insurance than the Administration has advertised.”

Read more: Bust or Bailout? The Future of Private Health Plans Under ObamaCare.

(via FIRM)