The Basic Structure of “ObamaCare”
- Insurers are legally required to provide coverage to all applicants, regardless of medical history, with a partial “community rating” system for premiums, which means that insurers must set premiums based (mostly) on geography and age, rather than sex and (most) pre-existing conditions.
- Health insurance policies must meet minimum standards (called “essential health benefits”), including no caps on annual or lifetime payments from the insurance companies for an individual policy.
- Everyone is required to obtain health insurance, except for waivers granted for certain religious groups and those deemed to be unable to afford coverage. Government subsidies and state-based “health exchange markets” will be provided to assist individuals.
- An “employer mandate” penalizes firms with 50 or more employees if they do not offer coverage for their full-time employees, defined as those working 30 or more hours per week.
Otherwise, the health insurers could say, “Fair enough, President Obama, we will indeed give a policy to any applicant — even someone with brain cancer.
It’s just that the annual premium for people with brain cancer will be $2 million, and we will cap our total payment at $100 per year. Who wants to sign up? We’re more than happy to comply with the new mandate.”
Moving down the list, let’s consider the individual mandate, which requires that (just about) every American carries health insurance. The reason for this provision is to avoid what’s known as adverse selection. If health insurers were required to provide coverage to all applicants, with (partial) community rating, and if individuals retained the freedom to buy coverage or not, then the private health insurance companies would quickly go out of business. Healthy people could drop their coverage, saving on the hefty premiums each year, and then apply for health insurance whenever they got sick. This would be analogous to people buying car insurance only after they’d gotten in an accident; it clearly wouldn’t work for any firm to offer insurance in this environment. Finish reading>>