The Mandate Raises Prices, It Doesn't Reduce Them

Why do we believe the individual mandate is necessary to pay for “universal” health care?

The Administration has told us repeatedly that the mandate is necessary to help hold down the cost of health insurance. Nobody has objected yet; we should have.

The mandate is supposed to hold down costs by forcing everybody to buy health insurance whether they want to or not. Supposedly, fifty million (or ten or twenty or thirty or forty million) additional people added to the books of various insurance companies will carry a significant part of the health cost burden for the rest of “us,” but it really can’t work that way.

First, let’s consider what makes health insurance expensive.

It’s primarily the health care it pays for (a Homer Simpson moment there). In fact, the government has decreed that 80% to 85% of each premium dollar must be paid out in benefits. And of course health care itself is expensive because of all the facilities, time, equipment, education, training, research, and expertise it requires. That leaves 15% to 20% available to the insurance company for its fixed and variable costs, and for profit. (And don’t forget that the more covered benefits that are included in the insurance policy, the more it costs.)

Then consider the ten to fifty million people who will be forced to buy insurance.

Those who are healthy, strong, perhaps young, those people will definitely be helping to pay our bills. But how “fair” is that? Someone who doesn’t really need something is being forced to pay for it, just so our cost will be lowered. The obvious bet is that enough healthy people will be added to the rolls to significantly reduce the total cost of underwriting both them and the rest of us. There are about 255,000,000 of us who are already insured, and about 51 million more who are in the pool and considered to be “uninsured.”

That 51 million breaks down this way: About 4 million are the above referenced “young and healthy.” Seven million are “temporarily  uninsured,” that is, uninsured for less than a year, most likely between jobs. Another 10 million are non-citizens, and 17 million are already eligible for government sponsored insurance but have chosen to refuse it.

Who will be subsidized?

That leaves only about 13 million who are truly Americans in need of help buying health insurance. We are told that they want to buy insurance but can’t afford it or are uninsurable. They’ll be subsidized. So actually, their premiums will be paid by us, as taxes or as premium increases or surcharges, indirectly adding to our health care costs, and offsetting some or all of the savings provided by the “healthy” insured. While we’re at it, we might as well add the 10 million uninsured non-citizens back into this number, because it’s reasonable to expect that almost all of them will also be subsidized. So we will end up subsidizing or outright paying for the insurance of 23 million people, while forcing another 28 million to buy insurance they don’t want and maybe don’t really need.

Who will pay?

Looking at those groups a bit differently, we have only four million who will actually help reduce insurance premium net benefit costs, because they’re the only ones who are likely to use a below-average amount of health care resources. All the rest can be reasonably expected to access health care at average or above-average frequencies and quantities, so we are apparently expected to believe that by forcing four million healthy people who presently self-insure to buy insurance, we will make insurance rates significantly lower for the other 302 million. It isn’t possible. (I say significantly because one doesn’t go through an upheaval like ObamaDon’tCare for a trivial improvement.)

As a prominent cable news network host likes to say, “Let’s look at the numbers” for the answer. For simplicity, let’s say that the average health insurance plan premiums will be $100 per year, even though we know it will be many times this amount; it’s just a way to make it easier to state as a percentage at the end. Now let’s assume that the four million healthy people who will be insured actually have only 10% of the risk that the rest of us have, meaning that their actuarially true premium should be $10, yet they will be paying $100. That leaves about $90 from each one of them to apply to our premiums.  So $90 times 4 million equals $360 million. Divide that by $100 (average premium cost), and that is enough money to pay for the insurance of 3.6 million others. From above, we need to subsidize or fully pay for insurance for 23 million people. That means we have to find the money for 19.4 million someplace else, and that means higher taxes or higher insurance premiums or surcharges for the rest of us.  That’s right.  We will all pay. I’ll show you. I’ll even suggest how much more it will be.

Putting taxes aside for a moment, a bill for $100 times 19.4 million is $1.94 billion. Divide that by everybody else, and it means $1,940,000,000 divided by (306,000,000-23,000,000), or $1,940 divided by 286, or $6.78 per person. Put another way, insurance premiums would have to go up about 7%, not down at all. (This is a rough approximation, of course, because it leaves out several factors that would add even more expenses, and it doesn’t adjust for those in the group who could pay for part or all of their own premiums.) And if we try to use taxes to pay the additional cost instead of putting a surcharge on each premium, it’s even more for each taxpayer because there are fewer taxpayers to share the total cost, which itself wouldn’t change.

So the mandate does not, in fact, make the Unaffordable Health Insurance Act affordable.

It makes health insurance more expensive. What else does it do? It guarantees health insurance companies 50 million new customers, and each of them will add to a company’s profits. Now, I am not an anti-business person, not even an anti-insurance person (as long as the customer is not forced to purchase), so don’t take this that way. I am a free market person, the freer the better, and I believe in profits. Even I can see that the mandate, rather than being a vehicle installed to eliminate “free riders” and make them pay their “fair share,” was in fact a vehicle to get the insurance companies on board with UHIA and convince them to forgo their Harry and Louise advertisements, the ones that demolished HillaryCare twenty years ago, by guaranteeing them more profits through more customers.

Other considerations in the UHIA.

We are told it eliminates the “free rider” problem–folks who use emergency services in place of standard palliative or preventive care. But we aren’t told how much that costs every year. Using the low numbers I used to estimate above, it would have to cost  (and be therefore available to be saved) 51 million times $100, or $5.1 billion for the new plan to be a net saving for the country as a whole, and my estimating number is probably only 10% or less of the real number.  So we’re really faced with the need for a present cost of $51 billion before ObamaDon’tCare even deserves consideration.

We are told, “everyone will be insured.” Only they won’t. There will still be those who self-insure but can’t pay for their own care, and there will still be those who just won’t participate. Even in Massachusetts, where almost everybody was already insured before the advent of MassCare, that has proven to be true. In the end, we’ve turned our health care system on its head to insure about 20 million more people, some of whom don’t even want it. Is the goal to insure those people, or to make their necessary health care affordable? Whichever it is, there are much better and less expensive ways to accomplish it than what we’ve done so far.

The new system is full of incentives for employers to terminate employee health insurance plans–high expenses on the horizon and a low penalty for non-compliance. Top-end plans are mandated; no low-budget plans are available because everybody must have the same coverage that the richest of us can pay for. This is a recipe for destruction of the private health insurance market, leading directly to a Medicare-like government controlled plan in which, eventually, little care is available. And it has already eliminated some customer-friendly, low-cost, Medicare Advantage plans in states like Arizona.

Built-in provider (doctor) reimbursement restrictions are counter-productive as well.  They tend to reduce the number of providers, yet universal coverage increases the need for more providers.

One type of health insurance that is true insurance, “Major Medical,” is severely restricted in the UHIA (I believe–I haven’t read the thing, either). Instead, we will be forced to buy what is really a health maintenance plan, which is sure to increase usage and demand, therefore putting even more strain on the system.

If the program were as good as the Administration claims, businesses would be petitioning to get into it, rather than get out of it.

What happened?

Even though the data behind this analysis weren’t available at the time, we knew all this before Obama was elected, anyway. When he said we could add 40 million people to the insurance rolls without paying “a single dime” more in premiums, we knew he wasn’t being truthful. At least, those of us who don’t believe in the Tooth Fairy Free Lunch Delivery Service knew it. Some closed their eyes to what they knew was wrong as they “hoped” it would magically become right. We the people made our decision based on several false premises that we chose not to examine closely.  We voted for hope but we got hype instead.

Congress failed to represent all the people in its effort to give special attention to some of the people. And the criticism for lack of curiosity and skepticism that I accuse the press of below doubly applies to the Republicans and honest Democrats in Congress in 2009 and 2010.

The free press failed to notice that it was being fed a fanciful story and was simply regurgitating it on the people instead of doing any real analysis. Or it intentionally withheld facts from the public in order to help Barack Obama win his election. I’m not an expert in the health care field by any means, and I was able to write this article within the span of less than a week, in my spare time. More than a few paid reporters should have conducted this same exercise (only with much more exacting research and in much more stringent detail) while ObamaDon’tCare was being debated, whether my conclusions are right or wrong. It’s a Constitutionally protected professional industry and has no reason to be in the pocket of any administration or party. It simply wasn’t done; the press became PR flacks for the Democrat President. The fact that the research still hasn’t been conducted is disgraceful.

What can be done?

No matter what the Supreme Court rules in June, the Obama Administration  and the Democrat Congress needs to be replaced in November, and the UHIA must be fully repealed. It does nothing that it claimed to do, and it gives the government power over many things that will be harmful in both the long and the short run. To leave any part of it in place would be a mistake.

Then, with calm deliberation and without hysterical claims that women and minorities will die in the streets if something isn’t passed NOW!, some changes to health care and health insurance law can be considered.  Multi-state policies can be expedited. Individual, stand-alone Major Medical policies can be authorized. Tort reform can be passed. Deregulation of what must and what simply may be covered by policies can be debated. Formation of groups to buy group insurance policies can be facilitated, similar to credit unions. Allow, but don’t mandate, extended coverage of adult children on parents’ policies with proper underwriting protocols. If coverage of pre-existing conditions is desired (although it isn’t really insurance, it’s welfare), provide a means whereby the insurance industry as a whole can cover the individual insurance company’s excess benefit costs that result, with government backup as a last resort if necessary.

Most importantly, any and all of these changes should be passed individually, in small, understandable laws, not as part of a gigantic tidal wave of health-related legislation that drowns the health care industry in red ink and paperwork and “must be passed in order to be read.”

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