Health care reform financially self-defeating
Health reform: A good prescription for America?
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.