Obamacare: Lingering uncertainty will prove costly in 2015

Generally, markets in any industry do not like uncertainty and ambiguity. The general human reaction to vague circumstances is to protect against possible downsides.

So it is with Obamacare. We are in a period of high uncertainty and ambiguity. This ambiguity will be further fueled by the political season all the way through November. The pundits and political ads from both parties will provide inaccurate or incomplete information adding to the confusion.

It is unlikely that there will be a serious discussion about fixing the shortcomings of Obamacare until after the November elections, at the earliest in the first quarter of 2015. This uncertainty and ambiguity will drive insurance premiums higher. On average, insurers expect we will see rate increases of 20-40% throughout the country which, for those struggling to pay for coverage and for Obamacare is bad news.

So what has created the uncertainty and ambiguity?

  • More than 40 significant rule changes or delays to implementation of the law have been made in recent months, including 22 that the Obama Administration made unilaterally.
  • The first open enrollment deadline of March 31st was extended to mid-April leaving insurers very little time to accumulate accurate enrollment data and calculate sound conclusions about their proposed rates for 2015 due to state regulators in May or June.
  • The delay in the individual mandate requiring all Americans to have health insurance or pay a penalty will likely result in generally older and sicker individuals participating in Obamacare, while more younger and healthier individuals will opt out of coverage for the time being.
  • The Administration’s policy of allowing old health plans which were to expire in 2014 to be extended for another three years will negatively affect the total insurance pool.

For these and other reasons the actuaries who set insurance premiums will err on the side of higher rates given the cataclysmic consequences of rates being insufficient to cover costs.

Uncertainty and ambiguity are unavoidable given the political conditions in our country. Therefore, the premiums will certainly rise. Elections, as we have heard, “have consequences”. The political make-up of the Country following November will be the primary determinant of whether we turn our attention to solving Obamacare’s problems in early 2015 or press on with uncertainty and ambiguity and the draconian economic effects it will produce.