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The Healthy Will Pay More As a Result of Health Care Reform

The healthy and vibrant will carry much of the national health care burden. Awesome.

Not only will transfer payments redistribute some wealth to subsidize health care reform, but expect to pay more for your future health expenditures if you’re healthy. In a gross understatement, it is unfair that healthy Americans will pay more for their own health care, and national health costs, as a result of health care reform. First off, did you know that? It’s fairly intuitive in some ways. An insurance scheme, by definition, can only apply to a rare event. In other words, most people paying premiums will not have an encounter, like a heart attack, while only a few will. The healthy in general, and at that given point in time, cover the costs of the triple bypass. Unfortunately, health insurance doesn’t typically cover only rare events. It is utilized for a range of issues, many of which are not rare at all. Most people do not hit their coverage limits, and the cost of an additional doctor visit is always the same. This is the marginal cost, usually in the form of a co-pay or co-insurance. If it always costs $20 for someone to go to the doctor, visits that actually cost hundreds or thousands of dollars, there isn’t much of a barrier. That is good from the standpoint of access to medical care, but not so good for an “insurance scheme” or for the massive health care expenditures (much of which are unnecessary) in the US. Health insurance, as we know it, is more of a “pay-for-everything-other-than-Nyquil” plan.

Health care reform is something few understand. The costs and benefits to various members of society has not been well articulated, as we saw through the embarrassing theater of the health care debate. This is where SwiftEconomics will assist the government in some of the gaping holes left in public understanding.

Yes, not only will those making more than $250,000 pay more via payroll taxes, but those that are healthier will also carry the burden of the unhealthy. And why? As we learned in DC, health care is a right. Says it right in the Constitution. Did you miss it? We all have the right to life, liberty, and the pursuit of happiness. Even Will Smith says so. Clearly access to health care is encompassed in the “life” and “pursuit of happiness” clauses of the Constitution, right? Well, I tend to doubt it. Something tells me the Founding Fathers had something else in mind. Particularly the right to be alive, free, and take whatever advantages or disadvantages you have and make the most of them. Many of the Founding Fathers, like Washington and Jefferson, abhorred the thought of public debt for any purpose.

The health care reform vision is complex, but in its simplest form, tens of millions of Americans will be brought into the health insurance system. This will occur either through state organized “exchanges”, or clusters of states, as well as through private insurance, who will no longer be able to deny coverage for pre-existing conditions beginning in 2014.

One part of the paternal nature of health care reform makes perfect sense: we need to bring health care costs down, therefore, people need to be insured. Without health insurance, any serious medical issue will bankrupt the average American, passing the costs directly to the hospital and Medicare/Medicaid (aka the taxpayer). Some people will choose not to be insured. Further, some of those people will get sick. Theoretically, bringing them into the health insurance system will increase competition, lower premiums, and protect them from back-breaking medical bills in the process. But the government has to force their hand. A hand that typically belongs to younger, healthier people. They will do this in 2014 by penalizing those who are uninsured through the tax code…because, apparently, the tax code isn’t long enough as it is.

Adults who go uninsured by 2014 will be penalized $95 or 1 percent of income. Not too bad. In 2016, you’ll be fined $695, and up to $2,085 per household, or 2.5 percent of income, whichever is greater. Much worse. The definition of “uninsured” is those that go without health insurance for more than three months of the year. And the main culprit you can thank for these provisions are the health insurance companies themselves. They fought hard for them because of a phenomenon called the death spiral. They will be forced to except everybody on their rolls: those that pose a high risk for high medical costs as well as those who pose a low risk. If the low risk stay out, many of whom are 18-30 years old, the insurance pool is skewed unfavorably for these companies. More expensive policy holders increase the costs of premiums for everyone else, causing even more of the healthy to drop out, and so on. Thus the death spiral. Penalizing the healthy for being uninsured is the actuary kings’ hedge against risk. While health insurance industry profits were roughly only 3.3% last year, the 86th most profitable industry in America, they aren’t necessarily “looking out” for you.

Massachusetts tried this experiment once already. Their individual mandate under Governor Mitt Romney, which also fined Bay Staters for going uninsured, still saw 200,000 people opt to eat the penalty as opposed to obtain health insurance after three years.

What should we learn from the individual mandate? Some people will still choose to go without health insurance; it’s expensive, even with government subsidy help. For some it might pay to ignore the mandate altogether, and incur new tax penalties instead. No health care strategy will insure everybody. The penalties will get stiff enough, I’m sure, and the subsidy help generous enough, to eventually make it economically idiotic not to obtain insurance. However, Americans have been described as much worse.

So the healthy will carry the burden, along with those making $250,000 or more. As it stands now at least. The physically fit and genetically gifted will incur penalties for not participating in these “insurance schemes”. Once a part of them, they will no doubt have higher premiums over time as a result of our gluttonous society. It wasn’t enough to be stealing from the youth of America through decades of deficit spending, entitlement promises, and the printing press. I suppose I should be used to this by now.

I plead to you: if you’re chiseled out of granite, run for the hills while you still have a chance. Probably not to the Canadian hills, I’m not sure that helps the true cost of your health care. Perhaps retire to the fine beaches of Mexico. You know, while you’re at it, go big and set up shop in the Greek Isles. I hear they’re having some debt problems right now.

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(1) Carpe Diem – Health Insurance Companies Rank #86 By Industry Profit Margin, Earning $98 on Average Per Policy, mjperry.blogspot.com, retrieved April 26th, 2010, http://mjperry.blogspot.com/2009/10/health-insurance-companies-rank-86-by.html

(2) The truth about health care reform – CNNMoney.com, retrieved April 26th, 2010, http://money.cnn.com/2010/04/22/news/economy/health_care_reform.moneymag/index.htm

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2 thoughts on “The Healthy Will Pay More As a Result of Health Care Reform

  1. Hi Ryan.

    Thanks for the heads up on your site.

    Be careful when you use stats on profits as a way of gauging profitablity. It is not so simple. One attempt to gauge such is through the medical service to admin cost ratio.

    MA has first quality insurance companies and hospitals (ranked first as ins. companies Tufts and Blue Cross), but they repre go tsent different profit centers, and the combined groups have not found much common ground for cost control. MA has 97% coverage as of my last look.

    Overuse of medical procedures is a major problem, but who is gluttonous? The people in the last year of life who use heroicly expensive procedures? The over 55 group? Veterans? The doctors who prescribe procedures for economic advantage or ‘defensive’ style medicine? With no specifics and source materials linked to, no one else can check your opinion. I am sure that is not your intention.

    Insurance is shared risk, as you state. If you are fine but have an accident or contract a disease, will that be when you sign up for coverage? When you go to the ER (or do you use the student clinic) do you expect service? If so, I help pay for your service, unless you have money to pay. Of course, the bill is ten to one hundred times the cost of a ‘clinic’ that might take care of your less than life threatening aftercare or even first care, since many use the ER as a first line. Insurance helps.

    In the last paragraph you mention entitlements. If you are talking Social Security, as it stands, Social Security is in fine shape if you do the numbers from the Trustees report. If people keep their hands off and make minor adjustments in ten years if it proves necessary, Social Security will be there for you if fortune is only average for you later in life. It is workers paying in to fund a workers retirement at a base level to avoid starvation and no heat in the winter. While there has been steady pressure to amend SS, it is not because the numbers indicate trouble….the program is working as designed. Issues such as intergenerational fairness and worker to retiree ratios are fabrications that evaporate when you do the numbers as they exist, and not some Wall Street Journal prediction decades out.

    There is a General Fund issue that is not caused by SS. But that is also a long story.

    Dig deeper and keep writing.

    Dan
    Angry Bear

    Like

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