The Obamacare Fix – Do They Even Think before They Speak?

“Let me be exactly clear about what healthcare reform means to you. First of all, if you’ve got health insurance, you like your doctors, you like your plan, you can keep your doctor, you can keep your plan.  Nobody is talking about taking that away from you.” – President Obama, 2009

The nation has obviously now come to grips with what most rationally thinking people knew four years ago – Obamacare would necessarily change the landscape of the health insurance industry and force many people off their existing plans. It was and is mathematically impossible to cover more people for free, with more requirements on the nature of coverage, without impacting (dramatically) existing insurance plans. (The president may have had more success if he had just passed a law abolishing sickness.)

The political pain of it all is starting to mount, despite a number of fits and starts that actually helped cover the president (shocking). First there was Ted Cruz and the government shutdown, which took the steam out of the fantastically embarrassing roll out. Then there was the website failure itself, which has taken some of the steam out of the real story – the loss of insurance by millions and the dramatically higher prices they’ve been forced to pay. (A friend described the latter as raising the prices for sodas in the vending machine to $100, and then griping that the bill reader wasn’t calibrated correctly to accept $100 bills.)

So, the president recently came out and offered a “fix” for the situation – he would instruct Health and Human Services to allow existing plans to continue for another year even if they don’t comply with the new regulations. This non-solution is fraught with problems.

First, it is not a fix. The pain is still coming, just not now when it is politically damaging (mid-term elections are coming). The MD state legislature did something similar a few years ago, striking a deal to raise electricity rates significantly after the election, but keep them suppressed until then. None of this helps the consumer (long term it actually hurt, because we were tacitly forced to “borrow” money in order to cover the lower rates up front … it was a strange plan). But it did help the politicians. In the same way, the Obama fix does nothing to help the millions who will lose insurance under Obamacare, it just helps politicians who would face their wrath.

Second, the fix is likely to be logistically impossible. It takes time to put together insurance plans for a new year – typically 60 days minimum to vet with actuaries, employers, and then state regulators. We are past the time when plans for January 1 would need to start that process.

Finally, and most importantly I think, the president does not have the authority to implement his fix. He cannot simply enforce the portions of the law he wants. It reminds me of president Clinton’s desire for a “line item veto” back in the 90s. He wanted to take a bill and veto the parts he didn’t like. Congress balked at the idea. Compromise deals and Frankenstein bills were the way to get things done – everybody got something. If the president could just cut out  parts he didn’t like, Congress wouldn’t be in charge (and they are).

As for president Obama, imagine if he decided to enforce only certain portions of tax law, or immigration law (oh, wait). For that matter, imagine the hue and cry if a Republican president came in and decided to instruct the IRS not to enforce capital gains laws or any tax rate above 20%. Presidents do not legislate, we have a constitution.

Of course the real winners in all of this are and have always been large insurance companies. A bill written by insurance lobbyists that requires all people to buy insurance … wonder how that will work out. There is a new twist though, which again may pay huge dividends for the insurance companies.

Let’s relate it to life insurance for just a second. I have a life insurance policy that requires monthly premiums for 20 years and promises to pay a large sum to my wife and kids should I die in that time. I got the policy when I was 34 and healthy, so the premiums aren’t bad. If I live 20 years more I will have paid and received nothing. If I die between now and then, the insurance company will take a significant loss. They have to trust the actuaries to get it right.

If I had been seriously ill at the time I purchased the policy the premiums would have been significantly more. But, if I contract a severe illness before the end of my 20 year term, the insurance company cannot cancel my policy simply because my risk of death has increased. They had to account for all of that risk up front. If, however, I contract a severe illness, fail to make my payments (allowing them to cancel my policy), and then try to get my policy back for the same price – I’m out of luck. The insurance company is under no obligation to strike a new policy at the old rate, especially when significant risk to my health has already been realized. Indeed, they would be foolish to do so, as they would have to pass the burden of that risk to other customers, raising premiums (and reducing competitiveness) across the board.

The same holds in the health insurance industry. Insurance companies have a pool of insured people. The ones who don’t get sick are a profit maker for the company. Those that do get sick are a loss maker. They pay lots of money to teams of actuaries to account for the risks correctly. If somebody gets ill on a policy, the insurance company cannot simply cut them off and refuse to pay for the ongoing costs of treatment. That’s the deal.

If, however, the insurance company is given a once in a lifetime opportunity, say to cancel all policies at once and re-instantiate them tomorrow, they would jump at the chance. Healthy people could be brought back on, but sick people could be cut off, or given much higher rates. Even if the Obamacare “fix” gets placed, this damage has already been realized. Policies that were canceled because of the law, that covered people who had become ill, will not be reinstated. Indeed, the insurance company would be foolish to do so and realize unnecessary risk that they would have to pass on to the rest.

If you happened to be sick when the cancellations hit, well, you’re just out of luck. If you happened to have cancer when the cancellations hit, you’re on your own. That is, if the “keep your plan” bill goes through congress. If not, you’re a ward of the state … want to guess how that will work out?

This thing has been a disaster from the start and it could take decades to undo the damage (if ever). This is the legacy of Obama. Check that, this is the legacy of American democracy. We voted this mess on ourselves. When politicians promise something for nothing, they are lying by definition.

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2 Responses to The Obamacare Fix – Do They Even Think before They Speak?

  1. gtownescapee says:

    Correct me if I’m wrong, but doesn’t the act prevent carriers from denying coverage due to preexisting conditions? Is it that they can’t deny, but they can charge a much higher at? I’ve heard so many different versions of what the ACA “means to me” that I don’t know what to believe.

    • nomasir says:

      This reminds me of the choice between default based on refusal to pay, and default based on hyper-inflation. To the extent that the act prohibits denial due to pre-existing conditions, but DOES allow higher premiums, then it is denial by a different name. However, my point was the case where the restrictions of Obamacare go away (somewhat likely given the public outcry) and folks who have been kicked off their policies go back to reinstate them. They will have to pay insurance rates based on their current health status.

      I don’t view this as an immoral position by insurance companies. There is an “optimal” solution out there for what rates to charge what customers – and that optimal rate is determined by the current health state of the population. Policies are established based on a prediction of the future, but if one could readjust the prediction real-time as new information comes in (and adjust the solution based on that adjustment) they would have a much better solution. But, of course, I mean “better” in a purely cost/risk matching sense.

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