Obamacare Economics

Andrea Mitchell was on Meet The Press this weekend and managed to speak a bit of truth with this quote:

“They need the healthy people to be enrolled in order for the economics of it to work”

So…take a pool of 100 healthy single 23 year old men.  If you are an actuary….what is the expected medical costs for this pool over the next 12 months? We know there won’t be any pregnancies, and there probably won’t be any cancer, arthritis, or osteoporosis. Maybe one guy will have a serious ATV accident, a few colds, and a handful of STD’s. With a moderate deductible, lets just say the expected insurable costs add up to $75k, plus $15k profit/admin cost for $90k total…or $75 per month per guy….to insure against being bankrupted should something terrible happen….like a car crash, cancer ect…

The entire premise of Obamacare is to attempt to slip…into this pool of young and healthy….the really sick. So now we take 10 guys out of our population and replace them with 10 chronically ill people, each requiring $50k per year of medical services. So now, instead of being able to insure himself against unlikely, but catastrophic events for $75 per month….our 90 young men have to pay $500 per month instead. Now…for the 10 chronically ill people…this is a really good deal. They can go it alone and pay $4200 per month….or sign up for Obamacare and pay $500…or less. But as you can see…this is a screw-job for our young males…..who are being forced by law to subsidize the sick population.

And that’s how the game works….just like social security and medicare…..the old and powerful using the legislative process to benefit themselves and screw over the young. The fear is….that only sick people will sign up for Obamacare…which is why there is a penalty…to attempt to force the young and healthy…who would otherwise look at the $500 per month payment and decide…correctly….that the insurance risk/reward simply didn’t pencil out for them and decline. However….at least in the first year, the penalties are minimal…as low as $95, and grow to$695 by 2016. So what is likely to happen…especially in year one is rather than getting a pool of 90 23 year old healthy males and 10 sick folks…you get almost all sick folks. In that case….somebody, either the insurance company, or probably the federal government ends up losing a ton of money, and in year two….rates go up accordingly.

I have a better idea….personal responsibility. First…we take down all of the medical monopolies that allow Dr. McDreamy to jack up his prices 500%. This should collapse prices down to a point where you can afford to pay cash for essentially all of your routine care. Sure….it will mean no more Lamborghinis for McDreamy, and he’ll have to get rid of 90% of the hot secretaries he keeps on the payroll, but I’m ok with that.  You will still have a catastrophic insurance policy that will cover car crashes and other random events you have little personal control over. But…50 and need a $2M heart transplant because you weigh 450 lbs….tough crap. You can sell your BMW and offer McDreamy $50k cash…take it or leave it….I suspect he’ll take it. Dying of cancer because you smoked 3 packs of cigarettes per day for the last 3 decades??….That sucks, but sorry….you can’t force society…or your insurance pool to pay for the consequences of your personal decisions.

The entire medical establishment has gotten fat and rich by offering services at outrageous prices nobody would voluntarily pay. They have managed to pull it off by working with government, big business, and the insurance industry to create and promote the screwed up system we currently have…. Obamacare just builds onto and solidifies an already screwed up system….it solves nothing and attempts to screw over the young in the process. The only thing that will work is to destroy the current system, and make people responsible for their own decisions. I’m willing to bet….as a result…they start making better decisions. I think it will work….that’s how much faith I have in mankind….