Obamacare Motivates Insurers to Shun the Sickest Patients

A patient with HIV/AIDS can expect to pay over $1,000 out of pocket per month for medicines if he or she buys a policy on the Obamacare health-insurance exchange in Florida.

“Affordable”? Surely not. This perceived injustice has caused legal activists to file a lawsuit alleging discrimination against four insurers that offer plans in the Florida exchange.

Readers of this blog know that we have long warned that Obamacare creates incentives for insurers to avoid covering the sickest patients. Insurers are not allowed to charge premiums appropriate for applicants’ expected medical claims. This is somewhat mitigated by a limited open-enrolment period. However, if applicants have chronic diseases, the rate-restriction provision gives insurers little protection.

Although Obamacare has three methods for transferring money to insurers that over-enroll sick patients, none eliminates the incentives for insurers to design plans that are unattractive to the very sick. This flaw results in a death spiral of antiselection.

An Obamacare Silver policy must pay 70 percent of expected medical costs while covering 100 percent of “preventive care” (as defined by the federal government). However, the plan is designed for the average patient. So, it is easy for a health plan to design a policy that imposes very high medical maintenance costs on very sick, chronically ill people. High co-payments or co-insurance for prescriptions is one obvious method.

Our prediction: There will be many more such lawsuits.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.