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Thursday, July 31, 2014

Insurance Industry & the ACA

By Haiko Eichler

Fact: The Insurance Industry is the biggest licensed gambling casino in the World!

Let me explain:

Every time you pay any insurance premium you are placing a bet that something BAD is going to happen to you and the insurance company is accepting your bet in the belief that the odds are that nothing bad is going to happen to you. The Insurance Companies do NOT make any money on the premiums they collect. They make their profits investing your premiums in the money markets of a free economy, such as the stock market, real estate, cd’s etc.

The people that do the calculations relative to the risk the insurance Companie’s are taking are called Actuaries. Actuaries are the “bookies” for the insurance companies just like the bookies in Las Vegas that figure the odds on sports betting. Is there something wrong with that? Of course not – it’s a business! Sometimes they are right and sometimes they are wrong. As long as they are right more than 51% of the time, they are winners. Judging by the success of most of the Insurance Companies, their Actuaries are doing a good job.

Actuaries, just like “bookies” are very smart people when it comes to risk assessment. Insurance actuaries recalculate risks on an ongoing basis. Particularly, Life and Health Insurance risk assessment is a very dynamic science and is based on constantly changing metrics dealing with life expectancy, pharmaceutical research and general health care availability. That is why premiums constantly change and are being adjusted on a regular basis.

So, now let me apply this wisdom to our Healthcare debacle.

The Governments line to sell the Affordable Care Act to the American people was: There are too many people that would go bankrupt in the event of a catastrophic illness or accident, because they would not be able to pay for the medical costs. And that is absolutely true – but what are the odds that this will happen to a lot of people? Not very high! That is why the Insurance industry is offering health care plans with enormous maximum multimillion dollar upper limits but a very high deductible. Basically they are telling us, if you can afford to pay a high deductible we will offer you a plan for a rock bottom low monthly premium. A policy like that will take care of any catastrophic accident or terminal cancer diagnosis at a very low monthly cost but it will not pay for a doctor visit to alleviate the pain of a common cold. Again, the odds are that the insurance Company will not have to pay claims very often because they have the experience to know that.

But then there are the people that will run to their family doctor with the onset of a common cold that no doctor can cure. It will have to run its course, but they expect their insurance company to pay for the first penny of this doctor visit. Not only that, but with a zero deductible, they don’t really care how much the Doctor or the Hospital is charging for the service. There is absolutely NO incentive for a doctor or Hospital to be competitive. If you want a zero deductible, your monthly health insurance premium will go up! And those metrics are true for private insurance Companies as well as Government sponsored insurance- it is just a fact of life! The same holds true for the requirement to cover all pre-existing conditions. Should they be covered? The premiums for EVERYONE will go up to cover the additional risk. And again, the “bookies” of the insurance experts, the actuaries can give us the exact cost. Should the Government subsidize premiums for people with pre-existing conditions in the form of tax credits? Maybe that would be an answer without affecting EVERYONE and at a much lower cost to society/taxpayer.

No one in the World is more knowledgeable about Health Insurance than the very Companies that are in business to sell Health Insurance. Did the Administration consult with the health insurance industry before the rollout of the ACA and if not, why not? Maybe they would have discovered that the Insurance Companies could not afford to comply with the law AND stay in a profitable business!! HHS would have been aware of the fact that the Insurance Companies would have to cancel millions of policies in order not to lose a lot of money by complying with the law.

Here is my suggestion to solve the health insurance debacle in the USA:

Let’s treat it in the same way as we treat Medicare and Medicaid right now, except in reverse. In other words, have the Government help every working person to secure a health care policy to cover a catastrophic event and encourage the individual to cover the bulk of average, everyday medical expenses with an additional policy of their choice of deductible. With a nearly 100% participation, I bet the insurance industry would be eager to supply such a catastrophe policy at a bargain basement cost.

Let me briefly address the notion that Medicare is FREE to retired people. IT is NOT! Retired folks over the age of 64 right now are eligible for Medicare and Medicaid. But they still only get 80% health care coverage, which, incidentally is not exactly FREE. Medicare eligible folks pay about $104 per month out of their SS check for that 80% health care coverage and they still have to purchase a supplemental policy to cover the other 20% of their health care cost. That premium typically runs from $150 to $200 per month for a combined total of about $300 per month per person and that is a pretty good chunk out of their $1000/month social security check (30%). Very wealthy individuals do not even need to purchase such a supplemental policy if they believe they can handle the 20% that is not covered by Medicare out of pocket.

We could apply the same logic to universal healthcare or the ACA but in reverse:

A catastrophic health care insurance policy would be required for every citizen of the USA and would be deducted from the paycheck, just like income tax or FICA. And as mentioned above, with a nearly 100% participation, such a policy would be available to everyone at a very low cost, either paid at his or her expense or by an employer. The policy would have a relatively high deductible but an upper limit high enough to cover the most catastrophic hospitalization expenses. As mentioned before, the Health Insurance Industry knows from experience that the odds of catastrophic illnesses or accidents are low, therefore those policies are relatively inexpensive with their high deductibles. In the rare event of a catastrophic illness or accident, the Government would cover the high deductible as part of societies cost to finance such a program and the insurance will cover the balance. That would take care of the notion that a citizen would have to go bankrupt because of a catastrophic illness or accident. If an individual wants to have more than catastrophic coverage, there are a multitude of health care policies on the market with moderate to no deductibles that can be purchased by the individual or their employer to fit anyone’s budget. With this plan, irresponsible abuse of health insurance coverage would be eliminated or at least only perpetrated at the insured’s expense.

Another aspect of lowering health care costs is the amount of money that can be sued for, AKA Tort Reform.

Folks, life is a gamble! Let’s play smart in the Mega Casino of Health Insurance!

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