Why Obamacare Cannot Succeed

By Bruce Bialosky

Sunday, January 05, 2014

Now that Obamacare has actually been unleashed on the unsuspecting American public, there is mass speculation about whether it will succeed as a program. Each political side presents its arguments with many former supporters caught in the middle. But if you understand how insurance works, it is basic that the program cannot work without even more coercion than is in the law as presently constituted.

Prior to the passing of this massive law, there was a basic pattern how health insurance matters worked in most states, which is where these decisions were made. The state had an insurance commissioner to oversee insurance companies. The state legislatures would establish laws regarding health insurance policies which were far more extensive than for auto or homeowners’ insurance. The legislature would be lobbied by either a special interest group or by a few “suffering” souls, and new mandatory benefits like chiropractors or maternity care would be included in each policy. Basic policies were larded up with so much that affordability became difficult for families or businesses. Choice became limited as rules became dictated and basic catastrophic policies became limited in their availability.

With all that being said, the insurance companies never breached certain taboos which they knew would break the bank and make policies soar beyond any reasonable economic sense. It was not because the insurance companies were just cold, heartless corporate animals. These benefits were not part of policies because the people who operate insurance companies knew through sophisticated mathematical analysis they would have to charge such outlandish fees that the average person would be overwhelmed financially.

In step the Democrats of Washington who had a guiding light – equality. Everyone should bear the burden equally for the minority who cannot instead of addressing those individuals in a different manner.

There are many “benefits” that were mandated by Obamacare, but three were particularly financially unsustainable or corrupting:

1. The lifting of lifetime caps on benefits: The insurance companies never did this because they cannot calculate what their potential outlays would be in the future to be able to estimate what should be properly charged to policy holders. They are shooting at an unknown and moving target. They now have no choice but to jack up premiums to cover the potential costs.

2. Pre-existing conditions: The insurance companies limited their exposure from new policyholders to highly-expensive illnesses because they would have needed to either charge exorbitant rates to limited individuals to cover the risks or massively increased the rates of others not afflicted with the same ailments.

One might ask that since employer-sponsored plans do not exclude people for pre-existing conditions now why this will be such a problem. That is because the insurance companies are able to amortize their costs over the members of the policy.

In this new situation they will just being throwing people into an insurance group without any actuarial analysis. There is a program that does that now – it is called Medicare. That is a large reason expenditures for Medicare are out of control.

3. Equal charges for the two sex – Feminists never liked that insurance companies charged more for health insurance for women than for men. But you did not hear them arguing about auto insurance premiums that were higher for young males than for young females? The reason those rates were higher was because young males drove more and had more accidents. In California, in an attempt at equality, Proposition 103 eliminated different charges for males and females, so young girls were stuck with higher insurance bills to cover their boyfriends’ errant behavior.

In the same manner, insurance companies were not charging women more because the people who operated the companies hated their mothers. It was because women use medical services more frequently than men and therefore incur higher costs. They were charging the people who used the services for what they were using.

All of these new policies as part of Obamacare are wonderful in a make-believe world. But insurance is based on mathematical calculations. Actuaries study pools of policy holders and then calculate based on historical data what the projected outlays will be, then figure overhead and profit above that. That is how they come up with a monthly fee for members of their group.

Obamacare threw that all out the window. They figured on a group of young people obtaining insurance at rates above what their medical care experience would warrant. They have caused people to have significantly increased premiums, most with much higher deductibles. That is all with what for the most part are much smaller pools of providers (doctors and hospitals).

There are some winners, but most people are financial losers. That was never explained to Americans, but now that it is hitting them personally they are revolting. That is why there are so many penalties in the law. This is not sustainable on its own without threats and coercion. You could surmise that the writers of the bill new it would be hated. That is why crafters of the legislation wrote so many penalties into the plan. If the plan is so hotsy totsy people should be running to get it -- not running away?

One of two things will happen. The program will fail on the weight of its outrageously expensive requirements, or it will remain in place but only with the addition of much higher penalties and more threats of actions against those who won’t willingly overpay for their health insurance. We don’t believe the latter will be tolerated by the American people so we are left with the former.