I find this very interesting (from the CNN article)....
"Total out-of-pocket expenses would be limited, and insurance companies would be prevented from denying coverage for pre-existing conditions. Insurers would be barred from charging higher premiums based on a person's gender or medical history."
I'm with you. Not only would the amount insurance companies would be able to charge consumers in co-payments would be limited under the new law, but price differentiations based upon risk would also be limited. Added with an individual mandate, these outcomes are a recipe for drastically increased insurance costs.
Insurance companies primary business is collecting more premiums than they pay out. To do this, they calcualte the amount they expect to pay out for an average consumer in a particular risk group. They then price premiums at an amount where the insurance company expects to be greater than the amount they anticpate paying out (they are generally pretty accurate at these calculations). Because these regulations would not allow the insurance company to differentiate as it would normally based upon risk, the premiums may decrease for high risk individuals but will rise for low risk individuals. To illustrate, suppose you have only two consumers A and B. A is a person of average risk. The insurance company expects A to incur 100K in expenses over a lifetime. Based on this figure, the insurance company estimates that it must charge $20 per month to A to remain profitable. On the other hand, you have B, a person with a history of extreme expenses - some his fault, some just bad luck. The insurance company may find that this person is simply too risky to insure because they cannot anticipate future expenses. For arguments sake, however, suppose that based on actuarial values the average expenses over a lifetime for someone like B would be 1 million dollars. Based on this determination, the insurance company needs to charge an $880 per month premium to attain the desired profit. Now suppose we have an individual mandate with the added restriction that costs cannot fluctuate between high and low risk groups by more than a factor of 4. Despite these regulations, the insurance company must collect $900 per month to stay profitable while insuring A and B. Therefore, the insurance company must increase the premiums it charges A to at least $180 so it can charge B $720 (180x4) to collect the total amount needed of $900. As you can see, B is now insured where the otherwise would not have been, but A has - in effect - shouldered the burden.
Another function of the regulations that may seem ideal on its face, but that would create negative long-term consequences is the limitation on the amount of out of pocket costs the consumer can pay. Sure, who wouldn't want to pay less out of pocket. What could be better? Unfortuantely, a lot. Low cost sharing encourages consumers to over-consume a good (because they do not feel they are paying anything for it). Suppose you purchased insurance that covered all expenses you incur in your automobile (catastropic coverage and regular maintenance). If you pay nothing out of pocket, there is very little stopping you from getting your 60K service every 20K miles. This is why they say insurance creates a moral hazard - if you do not foot the bill, you have less incentive to keep from running up the bill. The problem of moral hazard may not increase the cost you pay at the point of sale, but it does increase two costs. First, it may increase the costs the mechanic charges because he knows you won't care and the insurance cannot renegotiate the contract after the fact. Second, and more importantly, this increases the costs on the company insuring you - forcing them to need more income in the form of premiums to compensate. As a result, rates will increase.
I just don't see how anyone thinks this is feasible. Or at least, can argue it is desirable with a straight face.
