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Health insurance reform means ever-rising costs

A battle is breaking out between health insurers and the Obama administration over who is to blame for rising health insurance costs.

Insurers say rates are increasing, some into double digits, due to rising medical costs and new services and benefits the health overhaul law requires.

Insurers must add extra benefits to insurance policies starting next year, such as preventive care at no cost to patients, allowing parents to add their 26-year-old "children" to their policies, and no yearly or lifetime limits on insurance payouts.

These may be good things, but they are not free.

The health overhaul law is making health insurance more expensive — a fact that is angering voters who were promised repeatedly by President Barack Obama that health reform would save families $2,500 a year by 2013.

Yet independent studies, such as those conducted by the Congressional Budget Office, show that health costs will continue their unrelenting climb. The CBO says families buying their own insurance will pay $2,100 a year more for coverage by 2016 because of Obamacare.

While some academic studies have shown the new added benefits add only a percentage point or two to premiums, actuaries for insurers must analyze the expected costs of specific policies for their clientele.

If policies already include some of the new benefits, premium hikes will be less. But small businesses that buy more economical coverage will see the biggest jump -- and they won't have the option of buying a policy without the new features.

This has caused a brouhaha between insurers and government officials. Health and Human Services Secretary Kathleen Sebelius sent a letter to insurers threatening to ban them from participating in the new government-run health insurance exchanges if they explaining that the new mandated benefits will contribute to higher premiums.

It is far from clear whether she has that authority, but the battle lines are drawn.

Do the added benefits contribute to rising costs?

Let's say that government wanted to keep car prices low. But it also wanted to make sure everyone had the best cars. So Congress passed a law requiring auto makers to add GPS systems and satellite radios to cars.

Auto manufacturers would need to raise the price to cover the new features. But government officials, determined to keep car prices down, would threaten to deny them access to markets if the sticker price increased.

A similar dynamic is playing out in Massachusetts where a form of Obamacare already is in place. All four major insurers in the state say they are losing money, and several may fail or exit the market.

Many factors influence health costs, from increased use of medical services and diagnostics, to new technologies and mandates.

These costs cannot be wished away any more than the cost of a GPS system or satellite radio.

Obamacare got it wrong because of a complete misunderstanding of how markets work. That's why voters and politicians on both sides of the political aisle are now calling for repeal of legislation that independent studies show is not solving the central problem of health costs and, in fact, is making it worse.

Turner is president of the Galen Institute which studies market-based solutions to health reform. E-mail her at galen@galen.org.

McCLATCHY-TRIBUNE

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