PPACA’s coverage mandate unlikely to forestall health insurance crisis
Los Angeles Times business columnist David Lazarus wrote last week about one of the biggest challenges to making medical care more accessible and affordable: rampant medical cost inflation. It will stoutly challenge the “affordable” part of the Patient Protection and Affordable Care Act (PPACA). Lazurus writes:
It’s a problem that affects all of us. As hospitals jack up prices to get more money from insurance companies, insurers in turn hike premiums for all members to cover their rising expenses. It’s a vicious cycle that exacerbates the unaffordability and inaccessibility of treatment in the United States.
It’s also a phenom that’s not responsive to competitive market forces to hold down the price of medical care and prescription drugs. A competitive market has two elements. One, many buyers and sellers. Two, competitive markets afford ample opportunity for buyers to shop around for the best deal. Most markets for medical care and medications have the first attribute but not the second. People who are sick or injured or facing conditions that threaten the quality of their lives and life itself aren’t inclined to question the cost. Especially when insurers and managed care plans are picking up most of the tab. As prices increase, payers pass through the higher costs to their insureds and plan members.
Of course, that can only go on for so long before premiums become so high they precipitate adverse selection, with healthier people dropping coverage and leaving payers covering sicker, costlier individuals. By requiring everyone to have some form of public or private health coverage, the PPACA hopes to stave off adverse selection and put more dollars in the coffers of insurers and managed care plans to cover those increasing medical and drug costs. However, without some mechanism to hold down the rising price of medical utilization — lowering demand through healthier lifestyles, for example — the PPACA’s insurance mandate may only buy a little time before we’re facing a more widespread health insurance crisis.
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