Healthcare Arithmetic - 12/23/2009

Senator Franken (D - MN) was on CSPAN tonight talking about how good the Healthcare bill is going to be when it becomes law. One of the provisions he pointed out was a provision that will force insurance companies to spend 85% of their revenues on healthcare claims. That sounds great! Now let's do some math. It is easier to comprehend when taken to a small element...

Year 1 - insurance revenues total $100 / insurance pays $85 / profit: $15
Year 2 - insurance revenues total $150 / insurance pays $128 / profit: $22
Year 3 - insurance revenues total $200/ insurance pays $170 / profit: $30
Year 4 - contract renewal time. Healthcare costs have fallen due to savings from the 2010 Healthcare bill. The doctors' group offers an actual cut in reimbursement charges to the insurance company; isn't that a switch!
Still Year 4 - insurance revenues total $150 / insurance pays $128 / profit: $22
Is that a likely scenario? I don't think so! Not only would an insurance company fight tooth-and-nail to keep the doctor group from reducing their charges, they would fight to have the group increase charges as much as possible, because with the 15% maximum profit, cost savings creates lower profit! Look at the numbers; higher costs = higher profit.

Now if lil 'ol me can figure that out, don't you think them big guys will?

The moral of this story is one I've said before; when the federal government 'fixes' something, 'makes it better' or 'more fair', there are always unintended consequences. For instance, in the '70's, the Nixon administration 'fixed' healthcare by allowing the creation of HMO's, and we know the horror stories following that. So they incrementally 'fixed' all that with more and more regulations.

During WWII, Roosevelt 'fixed' wages (literally) and companies had to come up with ways to recruit good employees. One way was to offer health insurance. That did not end when the war ended, it was encouraged and expanded with:

• tax breaks for companies who sponsored health plans
• tax breaks for employees who enrolled in company sponsored insurance
• the creation of risk pools because of company sponsored health insurance, which is an advantage to the big corporations because they have bigger pools
• reduction of risk to the insurance company because most of the sick people don't have jobs
• none of the above for individuals and self-employed who try to buy insurance on their own

Ever since then, insurance has been tied to employment, so if a person loses a job for whatever reason, they lose their health insurance.

Then there's the Commerce Clause in the Constitution that Congress constantly perverts so they can pass unconstitutional laws (more about that in The Wedge below). Insurance is a valid instance where the government could use that clause for good. Instead of telling the states to allow interstate commerce as the Interstate Commerce Clause intends, they do the reverse! Health insurance cannot be bought from another state! I live in Arkansas and I buy my auto insurance from a company in Texas. I choose this company because of their rock-solid customer service. I don't even know if I'm getting the best rates, but I don't plan to change because I like the company and I trust them (USAA). It is my choice how much of a premium I place on customer service, rates, and all the other factors that influence my purchasing decisions. When I lost my job I didn't lose my auto insurance. It's not tied to my employment or my state.

When government 'fixes' something, it causes irreparable damage most of the time. Based on this blog post, I could fix healthcare with a ten page bill. Heaven only knows what that 2000 page bill is going to do. 2000 pages holds a lot of places to try to hide things. I better close this post now instead of waiting 'till my head is empty, otherwise this might be a 2000 page blog, then there will be no chance that the people in Congress will read it!