RANCHO SANTA FE, Ca., November 19, 2013 – Political ignorance is a communicable disease that has reached epidemic proportions. It is an airborne virus that puts people at risk every time an infected politician or Party sycophant opens his or her mouth. Unfortunately, the Affordable Care Act not only doesn’t cover it, it appears to be responsible for the most recent outbreak.
Common symptoms include elevated voices and blood pressure, the recitation of petty bullet points any time a television camera is present or someone attempts to discuss an issue intelligently, an endless stream of e-mail solicitations for donations to spread the disorder, and the development of chronic blindness to reason.
Let’s examine the Affordable Care Act and insurance in general to see if this plague can be contained.
First of all, if “truth in advertising” laws applied to the naming conventions of public acts, the ACA would have been called the Attempt to Expand Health Care Insurance to More People at Any Cost Act. Had it been so named, perhaps there wouldn’t be as much confusion over its purpose.
As was discussed in last week’s article, the ACA has little to do with the affordability or quality of health care. It doesn’t even concentrate on providing access to actual health care. It has far more to do with expanding access to health care insurance with a lower cost to some and a higher cost to others. (See Is Obamacare the landmark legislation and political lesson of our time? – November 11, 2013.)
Since the ACA’s fundamental focus is to increase access to health care insurance, it’s important to understand how insurance functions.
Insurance is a socially approved form of gambling. It generally allows you to place a bet in which the payoff could be huge, but the odds are not in your favor.
For example, most of us have residential fire insurance even though few of us will ever suffer such a loss. In fact, in any given year, you have less than 0.5 percent chance of experiencing such a loss. Still, the potential scale of any such loss is significant enough to merit coverage and residential lenders will even demand it to secure their investment.
Next, let’s consider automobile insurance since most of us have experience with that as well. If you are a “good” driver based on your record, you will enjoy a lower rate than a reckless driver, a driver with DUIs, or someone whose record is similar to yours but who happens to be a member of a higher-risk demographic (e.g., a teenage boy).
The reason automobile insurance is relevant to our discussion is that the ACA asks us to ignore a fundamental truth that we just acknowledged; specifically, that experience allows us to accurately assess risk on a statistical basis (i.e., teenage boys are a higher insurable risk than teenage girls, etc. when it comes to driving). In fact, the insurance industry is predicated upon the use of actuarial tables that allow insurance companies to be the “house” in our gambling analogy.
Just as casinos would not exist if the odds of winning and losing were equal, the same is true of insurance companies. They must collect more money than the actuarial tables suggest they are statistically likely to have to pay during any given period, or they will go out of business.
The Government used to understand this.
Consider Social Security, which is being used as an example of how the ACA may become widely embraced over time. Social Security has risen to the status of becoming an “entitlement.” However, it is important to understand how the program was originally constructed.
Citizens would pay into the Social Security system throughout their entire work lives until they reached what was determined to be “retirement age” (i.e., 65 years old). While they could opt into the program at the earlier age of 62, they would have to accept a reduced monthly payment that would continue at the lower rate for the remainder of their lives. This reduction in payment dissuaded most individuals from taking advantage of the early option.
Additionally, the standard “retirement age” was based upon actuarial tables that showed that the average life expectancy of males in our country was 65 years (note: males were the dominant demographic in the workforce at the time). Essentially, the program was designed to collect funds from the entire work population for decades while only beginning to repay those who were lucky enough to outlive their life expectancy … and only for as long as they continued to “beat the odds.”
Social Security is currently facing bankruptcy because three things changed: the life expectancy of men dramatically improved; a far greater percentage of women, whose life expectancy is longer than that of men, entered the workforce; and our elected officials invaded the fund and used it for other purposes (something that would constitute embezzlement in the private sector).
While the Government used to understand the “game,” this no longer appears to be the case. Actuarial tables have been replaced by political correctness in an effort to pander to constituencies and procure money and votes.
To standardize coverage and premiums so that everyone can be treated as “equals,” the ACA dictates that statistically significant differences and even absolute certitudes be ignored. Men and women of the same age will now pay the same amount for the same coverage. It’s about time. Fred can finally schedule that annual OB-GYN exam he’s always wanted, and Wanda can get her PSA tested on a regular basis.
Clearly, access to health care insurance isn’t the same as access to health care. If it can’t be customized to meet your needs, you will either pay for more coverage than you need, or you will be left with an untenable level of economic exposure.
Additionally, most people don’t understand how to differentiate between healthcare policies, and the Federal Government is politicizing rather than clarifying the issue. So, let’s try to bridge that gap with an example.
Consider two plans:
- Plan #1 costs $200 per month and provides an 80 percent co-pay (in-network), 70 co-pay (out-of-network), and carries a $9,600 out-of-pocket deductible.
- Plan #2 costs $1,000 per month and provides 100 percent coverage (in-network), 80 co-pay (out-of-network), and carries a $1,000 out-of-pocket deductible.
Now, let’s assume your preferred doctor (who charges $100 per visit) is out-of-network under Plan #1 but in-network under Plan #2. So, under Plan #1, you will be paying $30 per doctor’s visit (which will also be charged against your deductible), but those same visits will be absolutely free under Plan #2.
Most people “clearly” see that Plan #2 provides better coverage (i.e., no co-pay and a much lower deductible).
However, your annual premiums would be $12,000 for Plan #2, while they’d only be $2,400 for Plan #1 (a $9,600 annual difference). So, you’d have to go to your preferred doctor 320 times each year (at $30 dollars per visit) to recapture the difference. By the way, you’d also have met your deductible under Plan #1, so the Plans would be identical at that point.
Most people fail to recognize that health care insurance, like fire insurance, is a bet they are placing against an unlikely circumstance. Premiums represent a prepayment of healthcare expenses that may not be incurred. Barring a pre-existing condition, a known genetic predisposition toward a serious illness, or a lifestyle choice that renders someone more prone to incur a significant health risk, a catastrophic plan may well offer the best overall protection in both the short and long-term.
This is particularly important since proponents of the ACA have recently coined a new technical term to describe catastrophic health care insurance. It is now popularly called “crappy insurance.”
In the example above, “crappy insurance” represented the better value even though it appeared to offer far less coverage on the surface. In addition, its economic advantage would grow dramatically over time.
Interestingly enough, the President is now attempting to grant a one-year reprieve to those “crappy” insurance policies in order to save his Party from a 2014 election cycle that might be reminiscent of Custer’s last stand.
Unfortunately, reinstating the terminated policies in the real world isn’t as easy as signing an Executive Order. It changes the economics of the policy portfolio. It requires a transition program to communicate the availability of the reinstated policies, as well as the submittal, review and approval of new applications. Electronic media would have to be changed. Forms inventory would have to be changed, and potential obsolescence would present a problem. Training and support might also have to be revised.
The insurance companies might determine that it’s not worth the time and money to resurrect these policies for whatever period of a year might remain. However, they will be vilified if they refuse to cover the Administration’s mistake. Then again, there’s a provision in the ACA that suggests that we, the taxpayers, will indemnify the insurance companies against any abnormal losses they might suffer as a result of the ACA, so at least they have insurance.
It’s too bad that our two major Parties continue to suffer from such an acute case of political ignorance. Otherwise, we could have an intelligent discussion about true healthcare reform.
Our Republican leadership can’t seem to make it past “provide for the common Defence (sic)” in Article I, Section 8 of the Constitution. If they could, they’d see that it also directs us to “provide for… the general Welfare of the United States;” a phrase that supports the concept of true healthcare reform.
Correspondingly, our Democratic leadership has approached health care reform as if it were the subject of a theoretical term paper. Its utter disregard for the practical consequence of its reckless experiment has put one-sixth of the United States economy at risk.
However, there is one positive consequence. The President is no longer referring to the ACA as “Obamacare” as even he tries to distance himself from his landmark legislation.
Putting political ignorance aside:
- What if we were to consider a form of universal catastrophic health care coverage that was singularly offered by private sector companies?
- What if the only major regulatory requirement would be that insurance companies share the risk of the managed pool on a comparative revenue (or other) basis?
- What if we were to offer Health Care Savings accounts (HSAs) to reward responsible behavior?
- What if we preserved choice by allowing the insurance companies to compete for elective coverage offered in the form of riders?
There are many solutions that could be explored if our Nation wasn’t crippled by political ignorance. Hopefully, we finally find a cure. In the interim, try to stay healthy.
T.J. O’Hara is an internationally recognized author, speaker, and strategic consultant in the private and public sectors. In 2012, he emerged as the leading independent candidate for the Office of President of the United States and the first nominee of the Whig Party in over 150 years.
This article first appeared in T.J. O’Hara’s recurring column, A Civil Assessment, in the Communities section of The Washington Times.