Obama’s Unaffordable Care Act

The focus of political attention today is on the Affordable Care Act (ACA) and its trials and tribulations. Once again, the Republicans are trying to get it repealed.  With the failures of the web site, and the complaints from millions of Americans who have found that they cannot keep insurance policies that they liked because those policies did not meet the minimum coverage requirements specified in the Act, this Act seems to be more in jeopardy than ever before.
Questions began with the failure of the website to perform as promised and now it has become evident that fewer than 200,000 people have actually signed up even though close to a million have been able to access the website and discover what is available. This confirms the suspicion that millions will NOT sign up for this program, opting instead to pay the fine (tax penalty) specified rather than obtain insurance.
The first miscalculation by the Administration was that millions of young, healthy people who did not have insurance before would sign up for insurance at some lower cost. This group’s premiums would have subsidized the other millions of older, less healthy people who had been paying heavily for insurance, allowing the less healthy to obtain insurance at lower cost than before the Act was passed. The Administration failed to understand that these same younger, healthy, uninsured minions did not elect to have insurance before the Act because they did not see the value in any expenditure on insurance. They felt healthy and they live with the feeling that “It cannot happen to me!” Nothing in the Ac t incentivized them to change their thought process and to act any differently than they did before. The fine is a “big stick” negative incentive, but is not “big” enough to be effective. There is no “carrot”, or positive incentive to motivate this group in the Act.
The biggest miscalculation, however, comes from a basic misunderstanding of the health insurance industry. The basic governing principle of insurance is collecting more money than is paid out.  Insurance is in the business of managing money. The product is not important except that the payouts must be predictable. Health Insurance was the first industry in which the usual insurance model (collect many small amounts from the many, and payout infrequent large amounts to the few) did not work. It befuddled the actuaries for a long time as in this model (collect from the many and pay out daily amounts, sometimes large amounts, to many as well) the large size and frequent payouts were foreign to their knowledge and payouts were unpredictable. Insurance did not know how to get a handle on this until recently. Today, insurance premium rates increase with the demand for payouts, rates increase with the demand for more benefits, and increase as needed to protect profits. The expectation that open competition on the website would lead to significantly lower premiums was unrealistic when insurance companies are faced with the reality of expected annual payouts. Examination of the premiums when apples are compared to apples shows very little difference between companies participating in the exchanges. In addition, since the ACA has dictated the minimum acceptable insurance coverage that all must offer, and this was more than the minimum being offered before Obamacare, insurance responded by hiking premium rates to account for this increase in coverage which would lead to an increase in payouts. Requiring coverage for preexisting conditions, one of the ways that insurers had limited their exposure, also has led to an increase in premiums as it will predictably lead to higher payouts.

Now Obama has tossed to final curve ball. He suggested that insurers consider continuing to offer the lower cost lower coverage policies that had been deemed inadequate by the ACA. The insurance industry has rebelled, for reasons that they have not made evident, other than threatening a collapse of the insurance market if this is promulgated. I believe they have done much work to establish the premiums based upon the coverage required by the ACA, and now do not want to do the recalculation required by adding the substandard policies back into the mix.  In addition, buyers of these substandard policies will not contribute as much to the premium pool, but total payouts will still be highly influenced by the older, sicker higher risk population with less premium income to cover payout and profit.
One of the reasons behind Obamacare was the desire to get health insurance covering all Americans, thus reducing the cost to society paying for health care provided to these uninsured. This almost makes Health Insurance a necessity equal to the utilities Gas, Electricity, and Water. These utilities are run by private companies, regulated by civilian panels.  They are allowed to make a reasonable profit, but they are closely controlled. The alternative to control health care costs and delivery is total government management, and our Federal Government cannot be trusted to run such a system efficiently. The only other answer to this is treat health insurance like an utility, and regulate the premiums and the profit by bureaucratic dictate the same way is gas, electricity, and water are regulated today. The cost to society by the uninsured suggests that this may be the only cure to the present dilemma.