Health care reform financially self-defeating

Health reform: A good prescription for America?

| Staff Columnist

Liberals in Congress and their citizen base are celebrating the passage of a landmark health care reform bill that they claim will make insurance affordable for Americans. If that is what the bill were to do, it would be less of an anathema. In reality, the cost of health care will not come down, but rather skyrocket. Furthermore, health insurance plans won’t be much more accessible to the bulk of the middle class that does not qualify for Medicaid. All in all, the bill is a self-defeating fiasco.

Consider two changes to the system that take effect almost immediately: no lifetime coverage caps on plans and no denying coverage based on pre-existing conditions. According to Charles E. Phelps’ textbook “Health Economics,” insurance coverage is priced based on two factors: administrative markup and the expected payments by the insurance company for medical services. Markup is a flat percentage across all subscribers, so it’s relatively unimportant to the argument.

The expected payouts, however, are entirely dependent on the health of an individual. Riskier individuals who are expected to require more medical care will undoubtedly cost the insurance companies more. Insurers, in turn, charge them higher premiums, as the company’s expected costs for that individual are higher. Prior to the health bill, one way that companies controlled risk, and hence costs, was by capping the amount that could be paid out for an individual.

Instead of raising insurance costs to account for the possibility of extreme costs, premiums were kept relatively low by preventing the most financially damaging scenarios. Additionally, those who were already sick (i.e., demonstrably riskier) were refused coverage because they cost the system more money.

The effects of removing these financial safeguards ought to be obvious. The health care bill forces insurance companies to accept riskier customers into their coverage pools. The insured will be weighed down by increased fees from high-risk individuals’ policies. Financially speaking, the question becomes, why would this happen?

The previously uninsured, many of whom are the sickest Americans, must now receive coverage. To begin with, their premiums are going to be astronomical, almost to the point of making insurance not a worthwhile investment. This is because on an actuarial level the cost of buying insurance will be higher for individuals identifiably sick.

What about the rest of us in the pool? Since the risk (and costs thereof) must be spread around, our premiums will rise too. Naturally low-risk individuals will drop their plans since it’d no longer be advantageous to purchase insurance. Now what’s left for the rest of us hovering around an average level of risk? Higher costs. Perhaps nobody’s noticed, but higher costs are what preclude most of the lower-middle class from affording insurance in the first place.

It’s time people started looking past the idea that the health care bill will provide low-cost insurance for all. It will not. Instead, its most lauded provisions will serve only to exacerbate the problem of rising costs. Supporters of the bill need to start thinking logically. While it may seem good to have the sick be insured, adding these individuals to the insurance pools will only serve to drive up costs for the average American. Analyzing the latest health care reform is a question of weighing the needs of the many versus the needs of a few. The idea of throwing a bone to the few to the severe detriment of the many is just senseless.

Read the opposing view here.

  • Richard Jesse Markel

    I would encourage you to delve deeper into the issue than superficially claim that everyone will be forced to have insurance as a result of the bill. The health insurance mandate says you must EITHER have a qualifying health insurance plan or be faced with fines. You fail to recognize that a fine (up to 2.5% of income) for the poor and middle class who aren’t in poor health would be much more desirable than being forced into a wildly overpriced insurance scheme. The bill does NOT require anybody to have insurance. It merely penalizes those who do not already carry it. It’s all about weighing the penalties versus the benefits. If I were a healthy middle class american, I’d rather pay a few hundred dollars to not have insurance than ten thousand dollars to have it.

  • anonymous

    You must not have read portions of the bill. One way the bill attempts to mitigate the increased risk of the sicker people being insured/removing caps is by mandating all people get healthcare, a method of forcing the healthy into the system. I don’t know if that will 100% deal with the effect, but it is a significant factor nonetheless.

  • Sean

    I agree with Joel (and Richard). If only anyone had taken the time to think rationally about this whole thing. What they passed was not healthcare reform, it was health insurance reform, aimed squarely at punishing the insurance companies, not lowering healthcare costs. Obama takes on corporate America, and succeeds in screwing them over – screwing over the rest of America with them.

  • Joel

    Your article has one major flaw: that is that you try to appeal to sensible reason, that doesn’t fly with these people. There hasn’t been a president or a congressional majority that based any decisions on rational economics in a, well, very, very, long time.