So,
the government has officially “shut down” over the impasse between Republicans
(who want to see Obamacare dismantled) and the Democrats (who don’t). Don’t know about you, but I didn’t notice
much change in my world today. Even now,
the President is holding press conferences blaming the GOP for the shutdown,
while touting just how many “millions” have “access to affordable
coverage”. Rubbish. The sad part is, many Americans will believe
him. The GOP missed an opportunity…the
opportunity to allow Obamacare to fail on it’s own. And fail it will…although now, the President
can blame it on the Republicans. To
understand my certainty that Obamacare is a failure waiting to happen requires
some background and basic knowledge. You
can’t understand the reasons for its eventual failing if you don’t understand
the moving parts and how they operate.
First
off, we need to stop calling it “Health” Reform…it may have been that in the
very beginnings in 2008 and 2009, but that went out the window in summer of
2009…when the government realized just how powerful the pharmaceutical lobbies
and the trial lawyer lobbies were. So,
they set their sights on the industry that everyone loves to hate…(unless they
need it that is) – the insurance industry.
What Obamacare did was rewrite the way insurance companies conduct
business…and in the process, went against every principle of insurance theory
known to man. Read any book about
insurance theory, and you will come across the concept of Risk. Risk (as opposed to Certainty) is the chance
of something happening. If the chance of
something happening is 100%, it then becomes a certainty. The whole concept of insurance is threefold:
1) the transferring (not eliminating) of the risk of a large loss (say, a heart
attack) to someone else for a relatively small certainty (monthly insurance
premium) in return, 2) the pooling of a large, diverse group of people’s
premiums, sufficient enough to pay the claims of those who have a large loss
(like that heart attack mentioned before), and 3) having more people who
contribute than those that take.
Insurance companies have been helping out those less fortunate for
hundreds of years, allowing those beset by misfortune not to lose
everything. (It actually had its
beginnings back in ancient history when sailing ships would contribute a
portion of their cargo to a communal “pot” to be used when a ship lost their
cargo due to storm or other event).
Today,
insurance pays for about 96% of medical costs in the United States. Without it, care would be reserved for those
who could pay for the actual cost of care, not a miniscule (by comparison) premium
amount. The infrastructures necessary
for an insurance company to operate are immense; besides the “normal”
expenditures of paying those people who work for the company (Americans are
weird that way…they want to get paid for the work they do) and the “owners” of
the company (i.e. shareholders) wanting some payment back for their investment,
the amount of regulation (reserves, premium taxes to name just two) prior to
Obamacare was staggering. Now…it’s
nightmarish. Funny thing about “profit”:
If you look at the profit margins of all industries in the U.S., “Health Plans”
ranks #86 with a 3.3% average profit margin.
Pharmaceuticals ranked #7 at 16.5%.
Number 1 ? “Beverages-Brewers” at
25.9% average profit margin. Good to
know where our priorities are.
So,
what did Obamacare do and why is it going to spell the demise of the health insurance
industry ? First, a quick observation: with over 2700 pages of law and over
20,000 pages of subsequent regulations, there is absolutely no possible way
that I can cover every single thing. So,
I’m just hitting a few highlights to make my point. The first thing Obamacare did was eliminate
lifetime insurance caps…Hooray ! Oh,
wait, let’s think about this for a moment.
If insurance companies are simply a way to spread the risk over a large
group of people, (ultimately it’s the “people” who are paying it) it stands to
reason that a cap would need to be in place to properly assess the risk (and
the subsequent “share” of that risk paid for by an individual, i.e. insurance
premium). I mean, think about it. What’s easier to plan for, $1,000,000 in
bills or infinity ? If we now have to
plan on at least some people exceeding the previous caps, my individual share
has to go up to account for that.
Now,
while scary, in reality, the lifting of these caps didn’t really do much in the
way of higher premiums…the reason being that most insurance companies had $5
million or more in lifetime caps and the likelihood of someone exceeding that
is small when you consider the total number of people in the system. But here’s what killed it: They messed with the risk profile. The new law compresses the age-bands and
provides for unisex rates—which will lead to a “death-spiral”. I can hear it now, “You lost me”… Allow me to
explain;
If
insurance is based upon risk (of an illness, of a loss at sea, etc.), not
everyone is created “equal” so to speak…older ships, ships that haven’t been
maintained, ships made out of inferior materials, that had incompetent crew,
etc. had less likelihood of successfully reaching their port and fulfilling
their mission. Similarly, people tend to
have more health issues as they age, not the other way around. So, a 22 year old has less risk of having
expensive medical problems than a 64-year old does. Put another way, we typically don’t get in
better health as we age. That’s why you
see people in their 60’s paying $800 a month for health insurance—and 22 year
old guys paying $50. It reflects their
likely usage. Remember the 3rd
insurance principle outlined above ?
Having more contributors than takers. The
other way around (having more takers than contributors) is called a “death
spiral”…eventually you don’t have enough money coming in to pay the costs going
out. The key of course, for an insurance
company, is to have more young, healthy people than old, sick people. Which was actually in the government’s
brilliant plan. But they didn’t figure
in the realities of human behavior. More
on that in a moment.
Still,
some may say that those most vulnerable (older people) should have access to
health insurance and should not be priced out of the market. To them, I say it already exists…I mean
wouldn’t it make sense for an insurance company to target, say just the young
males ?
But they can’t…insurance is state run (some exceptions) and each state has
created an upper cap on what older people could pay, which is expressed as a
ratio. In states like my state, that
ratio is 7.5-1. What that means is that
a 64-year old guy can’t pay more than 7 and a half times what a 22 year old guy
pays for the same insurance. (I know the
example above doesn’t reflect that, but there are other factors: A healthy 64
year old shouldn’t have to pay the same rate as a very sick 64 year old—so,
insurance companies are (were) allowed to “rate-up” or charge a higher rate for
the sicker person who would be using it more- but only a specified amount by
law). The new law changes that to a 3-1
ratio AND does away with charging a sicker person more. So, a guy who was paying $800 a month for
health insurance was already being charged the maximum that an insurance
company was allowed, even though they were using many times that monthly amount
in medical services (which the insurance company was paying). The insurance company certainly isn’t going
to reduce the sick guy’s premium…they’re already losing money on him. So now,
the healthy 64-year old will be paying $800, but that’s not the worst of it…the
22 year old guy’s premium jumps to $267 a month, or a third of the $800. So,
the 22 year old (who used to balk at paying $50 a month -22-year olds aren’t particularly
known for buying health insurance when a frosty beverage looks so much more
appetizing) is going to rush right out and buy a $267 a month policy because
the law says that he has to have it…or face a $95 first YEAR penalty…let’s see,
pay $95 a year for something they never use or pay $2200 a year for something
they don’t use. I think I know what
choice the majority will make. (Even if
they get a $200 a month subsidy, if they didn’t pay $50 a month before, they’re
not going to pay $67).
Also
along these lines is the subject of unisex rates. Let’s face it, a young 22 year old guy is
more concerned with drinking beer on the weekend and finding a lady to share
some quality time with, so to speak.
It’s a fact that guys can’t get pregnant; women of course can. It wasn’t so long ago that pregnancy and
childbirth were one of the most risky endeavors one could undertake. Countless scores of both mother and baby didn’t
survive the actual pregnancy or birth.
Medical advancements have changed a large part of that…but it’s not
free. And pregnancy complications and
premature babies are still some of the most expensive medical costs around,
routinely running into the millions of dollars. Now, some might see the unisex
rating as some sort of warped justice for irresponsible male youth…to which I
say, that’s why there are deadbeat dad laws, but I digress.
“But
that’s the 22-year old kids, Dan and they can remain on their parents policy
until they’re 26”… which is true, assuming the parents have a group plan. However, there is a wrinkle in the law that
is having employers a) cut back on hours to avoid the heavy costs associated
with Obamacare and b) drop dependent coverages because that can inadvertently
penalize the employees’ family. It’s all
connected people.
Throw
in the Government limiting the insurance companies’ profit margin (a private
entity), the exclusions for governmental plans, guaranteed issue, etc. etc.
etc. and it is a nightmare of epic proportions (all 23,000 pages and counting)
of it.
I
could go on for months on end outlining all the pitfalls and ramifications of
this nightmare of a law…but I’ve got to pay some bills, too. Another provision of Obamacare was directly
responsible for slashing my (and the 100,000’s of small business-owners like me)
income stream by 50%, stretching back 20 years, my lifetime’s work.
But
hey, we’re the industry people love to hate.
For those that voted for this law, I say, you get what you deserve. But it’s just a shame the rest of us have to
suffer too.
