ObamaCare Preview - Part 2,364

The ongoing health care debacle in the Commonwealth of Massachusetts has been an object lesson for those opposed to ObamaCare as it exists now, showing the nation how not to do health care reform. Unfortunately ObamaCare is based heavily MassCare, using many of the same 'economics' and mandates. As we've been seeing over the past year or so, MassCare is coming apart. Between much higher than projected costs, lower than projected revenues, and health insurance companies taking a hit – higher payouts and rate hikes denied by the state – forcing them to stop accepting new policyholders. Of course Governor Deval Patrick has retaliated, taking the insurance companies to court.

Insurance companies are now claiming that the rejected rate increases mean they won't be able to operate at a profit, and arguing that no actuary would approve the sort of rates that state insurance regulators say they expect. Actuary sign-off is not only important for fiscal stability—it's a legal requirement in the state. (emphasis added)

Is this just insurance company posturing? It's entirely possible. Industries, entirely understandably, are bound to put up a fight when told they can't set their own prices. That means making the toughest claims they think they can get away with. But it's not unbelievable that the combination of rate caps and increased regulatory burdens is imposing what amounts to an impossible strain on private insurers.

One commenter to the linked piece has proven again that far too many people don't understand economics, and particularly the economics of health care and health insurance.

The answer is easy. Make all health insurance companies non-profit by law. They they'll be tripping over each other to provide us all with free health care, once that pesky profit motive is out of the way.

This comment shows complete ignorance of how insurance works and the razor thin margins health insurance companies have. Health insurance companies have a less than a 2% profit margin (even non-profits have to make money). As another commenter noted, just because an insurance company is non-profit doesn't mean they won't lose money if payouts are higher than the premiums they take in. Between state mandates and state control of rate hikes, insurance companies are being squeezed between a rock and a hard place. And like ObamaCare, Massachusetts health care does not allow insurance companies to deny coverage to those with pre-existing conditions, meaning the amount they'll pay out for medical claims will go up disproportionately to the number of new policyholders they'll gain. Unless premiums go up to compensate for the higher claim payouts, the insurance company will lose money and, under the worst circumstances, fail.

In order to help those of you out there who are economics knowledge-challenged to understand what I just said, here's a simple equation that explains it all:

Claims Paid + Overhead* ≤ Premiums Received

* personnel salary/benefits, utilities, rent/mortgage, office equipment, taxes, loan payments, etc.

Translation: the claims paid plus the costs of running the business must be equal to or less than the amount of money received for premiums paid by the policyholders. If the amount of money received from premiums is consistently less than claims paid and overhead, the insurance company goes broke, closes, and its policyholders will be left with no insurance. This is the direction MassCare is forcing the health insurance companies there to take. ObamaCare won't be any different, except that it will cause this problem nationwide.

Neither MassCare or ObamaCare have addressed the real issues with rising health care costs, nor are they likely to do so. Neither was designed to do so.