The promise of Obamacare has been to bring the increasing cost of healthcare in-line with the rate of inflation. Currently, healthcare costs rise annually at 12% which means every six years the cost of healthcare will double. So how will Obamacare affect healthcare and more specifically the supplemental Medicare insurance cost that millions of retirees depend on? Here are some of the relevant factors that will impact premiums.
The Community Living Assistance Services (CLASS) Act
The Community Living Assistance Services (CLASS) Act was Obamacare's answer to long-term care insurance which is a vital optional insurance that covers the care individuals require when they are unable to perform at least two of the assisted daily living activities on their own: dressing, eating, ambulating, toileting and hygiene. Neither Medicare nor supplemental Medicare policies offer this. CLASS had to rely solely on premiums from participants to provide a limited long-term care benefit and it did so without any underwriting requirement. The end result is that within one year of the plan going into effect the Obama administration abandoned its own plan because it was unsustainable: only people due to health reasons couldn't get private insurance long-term care policies signed up. The cost was 4x what it would be under a private plan and provided only 25% of the coverage of a private plan.
Cuts in Medicare Advantage
Obamacare reduces tax subsidies that private insurers receive to offer Medicare Advantage plans. Medicare Advantage is the chief competitor with supplemental Medicare plans. In fact, a Medicare beneficiary can only buy a Medigap or supplemental Medicare plan if they elect for coverage under traditional Medicare. Over the past eight years, the number seniors electing for Medicare Advantage has increased from 5.3M to 13.1M. Every one of those retirees is one less person that can purchase a Medicare supplemental plan (which premium costs are substantially higher than Medicare Advantage plans). If private insurers are forced out of participation in Medicare Advantage there will be an increased change a retirees may purchase a Medicare supplemental plan. When the Clinton Administration reduced subsidies to private insurers of these plans in the year 2000, 23% of insurers dropped their plans over the next three years.
There isn't a good track record for Obamacare's cost saving mechanisms and if the CLASS example replicates itself in supplemental Medicare plans, premiums will increase. If the heavy-handed treatment of Medicare Advantage forces retirees to return to traditional Medicare, increased enrollment in supplemental plans may result and that should help keep premiums at their current levels. How this will impact your supplemental Medicare insurance cost is uncertain.