The cat is out of the bag. ObamaCare wasn’t designed to fix health care costs, it was designed to “nudge” America into a Euro-Socialist government provided system.
Harry Reid admitted what many of us already knew:
In just about seven weeks, people will be able to start buying Obamacare-approved insurance plans through the new health care exchanges.
But already, Senate Majority Leader Harry Reid is predicting those plans, and the whole system of distributing them, will eventually be moot.
Reid said he thinks the country has to “work our way past” insurance-based health care during a Friday night appearance on Vegas PBS’ program “Nevada Week in Review.”
“What we’ve done with Obamacare is have a step in the right direction, but we’re far from having something that’s going to work forever,” Reid said.
When then asked by panelist Steve Sebelius whether he meant ultimately the country would have to have a health care system that abandoned insurance as the means of accessing it, Reid said: “Yes, yes. Absolutely, yes.”
The idea of introducing a single-payer national health care system to the United States, or even just a public option, sent lawmakers into a tizzy back in 2009, when Reid was negotiating the health care bill.
“We had a real good run at the public option … don’t think we didn’t have a tremendous number of people who wanted a single-payer system,” Reid said on the PBS program, recalling how then-Sen. Joe Lieberman’s opposition to the idea of a public option made them abandon the notion and start from scratch.
One way or another, we all get health care. And if you can’t afford it, no one is denied. They write off the costs and these are eventually passed along to those that can pay in the form of higher insurance costs. So the system we now have actually is universal health care coverage, we just refuse to admit it.
And the more affluent already subsidize health care for the poor. As do the middle class.
And the system we have is expensive, but it is the best care in the world. That is why people with money that are forced to live under what the left considers the panacea of all medical systems, single payer systems, come to America for anything more serious than a hangnail. We have the absolute best medical treatment money can buy, and we all have access to it no matter our income.
So no, we do not have single payer medical care. What we have – had – is far better and more evolved.
To understand how ObamaCare will lead to a single payer system you must first understand how our system works.
It’s all about the insurance
Insurance is the cornerstone of our health care system. And insurance is not cheap because the best possible health care is not cheap. Innovation in treatment and care come with a price and profit is the motivator. But the profit is often tempered with true compassion behind the advances.
And the truth is, while insurance coverage is expensive and rising every year, most of the cost is the result of “defensive” medicine that includes batteries of unnecessary tests and procedures designed not for the care of the patient, but to prevent lawsuits. It is hard to say exactly how much of what we pay is unnecessary because the self-protection is completely intertwined with the legitimate care and treatment.
But suffice it to say it is a significant part of every health care bill.
Comparing the Insurance Business Model with Retail and Manufacturing Business Models
In 2002 I was caught in the Dot Com bubble burst. After spending most of my career in computers, telecommunications and high tech endeavors, the tech sector completely collapsed and I was forced to retool and develop new skills. One opportunity that presented itself was the insurance business. So I opened an Independent Insurance Agency. I am appointed as an agent for multiple insurance companies and I work on commission. That is a pretty simple business model. As such, I have no control over the price of a policy, I just have to sell enough to keep the doors open and make a living.
The Retail and Manufacturing Business Model
A number of years ago I worked for a company that sold office equipment. The owner was in Washington DC and had a store there, I ran the Richmond, Va store. Every week I had to travel to DC and spend time learning from a successful businessman. We bought things like paper shredders, bill counters, time clocks, etc. at wholesale prices and sold them at retail prices. According to my mentor the markup golden rule was 40%. That 40% paid the overhead including labor costs and a bit of profit to hold you in slow times. My mentor believed this percentage to be both reasonable and fair. And the retail price was within the range that the market would accept.
Now that was in the early 1980’s and things change. These days, some items may be marked up 100% – 200% or more, while others are sold at or below cost. There has been a lot of research into the psychology of marketing and the rules are no longer simple, but overall, a business needs to average somewhere around the 40% average to stay in business. How this number is achieved is not important. But there is a magic number that sustains a business.
And most people assume that insurance works the same way. They believe that insurance companies make their money by charging more in premiums than they pay out in claims. And that insurance companies charge a lot more than they pay out and make huge profits and pay huge salaries to executives by gouging the consumers. Most believe that insurance companies charge exorbitant amounts for insurance and then fight every claim to make money.
And if you believe that, you are completely wrong.
But don’t feel bad. I believed it too.
That is why I was absolutely shocked and astonished to find out that:
Insurance Companies Pay Out More in Claims than the Charge in Premiums!
Read that sentence again. It will turn everything you though you knew about insurance upside down.
How is this possible? If you owned a store and sold everything for less than you paid you would be out of business very quickly. It is a completely unsustainable business model and insane to even contemplate such a thing.
So how can insurance companies do this? Why don’t they go out of business? How can they pay millions to their top executives? It is mathematically impossible.
No. It is not impossible.
You would also be wrong if you guessed that insurance companies made money by the simple fact that some people do not make any claims but pay their premiums and, essentially, receive nothing. One of the statements I hear most often concerning auto insurance is “Why is my insurance so high? I haven’t had an accident in 5 years and I pay a lot in insurance!” Well, when you consider that 5 years ago the accident you had cost the insurance company $100,000 and you pay $1,000 a year for insurance, it doesn’t take a genius to figure out that it will take 100 years for the insurance company to recover the $100K they paid on your behalf. You are making out quite well!
So how do insurance companies make money?
Simple. In a word, float.
This site gives a good definition of “Float”:
In the insurance industry, “other people’s money” is known as float. In a shareholder letter, Warren Buffett once said that float “has cost us nothing, and in fact has made us money. Therein lies an accounting irony: Though our float is shown on our balance sheet as a liability, it has had a value to Berkshire greater than an equal amount of net worth would have had.” Translation: Float is good.
When you pay the premium on your automobile insurance, those premiums help cover operating expenses and go toward paying automobile claims from customers who get into accidents. The great thing about premiums is that the insurer collects the money up front but doesn’t have to pay out claims until later down the road. In the meantime, the company “floats” these unpaid premiums. This float is invested in stocks, bonds, and other securities, and the insurance company pockets the profit.
Float is such a valuable form of capital because not only does the insurance company get to keep the investment income, but also the company’s cost of capital is often low or even positive.
So, essentially insurance companies take in your money, invest it, make more money, and pay your claims when you need it. So they can charge you less than they actually pay out (on average) and still pay thousands of employees, provide good benefits for them, pay executives a lot of money to make them money and still make a profit.
Insurance Company Profits DO NOT come from Gouging Customers
It is actually a pretty cool arrangement. Customers pay less in premiums than the company pays out in claims on their behalf. (This is called an underwriting loss.) So they are subsidizing the cost of providing healthcare to you in the best system in the world. They are overpaying for those that they cover because doctors and hospitals charge more than they should to make up for those without insurance that are unable to pay.
So when ObamaCare came out and we read it to find out what was in it, clearly the target was the insurance companies. One thing that makes insurance companies so good at taking in less than their costs and paying out more is their ability to predict costs. Capping a policy with lifetime limits, maximum payouts and other things targeted by ObamaCare allows the insurers to predict their costs and control them. A few “unlimited” claims could upset the business model for everyone. Same with co-pays and other items. ObamaCare removes co-pays and deductibles for some items, forces insurers to pay for others purely for political reasons (as opposed to medical reasons) and the icing on the cake – they actually limit the amount of money insurance companies can invest.
When is the last time you heard of an insurance company check bouncing?
The answer is never. States regulate insurers with a heavy hand. They are required to have a specific amount of liquid capital in the bank for claims. There is no danger of a company not being able to pay claims. If things get financially shaky, the state is on top of it to manage the recovery, or even the demise of the insurance company. It happens, but it is rare.
We don’t need ObamaCare to step in.
So why limit the amounts insurers can invest?
Well, the goal of ObamaCare is to drive insurance companies out of business so the people will all cry for single payer. Forcing coverage for more items for free, eliminating deductibles, removing caps and all the other things we saw once we passed and then read the bill will serve to bankrupt insurance companies, drive up the cost of insurance and “nudge” Americans into exchanges, and eventually, as the insurance companies collapse, into single payer.
The Federal Reserve and Money Pumping
So what happens to insurance premiums when the Fed stops pumping money into the stock market and the market implodes – which is what most expect to happen?
If insurance companies cannot make money in the market, they will be forced to raise premiums – which are already skyrocketing due to the provisions of ObamaCare already mentioned. And as premiums rise, so will the calls for government action.
Insurance companies are on the edge and it is not going to take a lot to push them over. Many of the delays are designed to slow the death spiral of health insurance companies until they are ready to replace them with a government provided single payer system, something that ObamaCare is already busy implementing.
But the push back by the states, law suits and outright defiance have taken a toll on the poorly designed plan to implement social medicine in America. There is now a real danger that the insurance companies will fall over the cliff before the government is ready. And if that happens, what can we do?
Nothing, really. Except allow the government to come in and run things.
When the Fed stops pumping (printing) money, the stock market will crash. Just threatening to stop, or taper off, caused a market panic and a 200 point drop in 2 hours in June. Right now, the Fed is pumping about $85 Billion per month – over $1 trillion a year – into the market. Insurance premiums are rising due to ObamaCare, but the market is doing well because we are printing money. This is allowing the insurance companies business model to remain in a functional state. But when the pumping draws down, the market will drop like a rock.
And when that happens, insurance companies will be forced to slow or stop investing in a market in rapid decline. That, in turn, will further damage a dropping market.
And when the insurance companies can no longer make money in the market and we can no longer afford to buy insurance, single payer will be all we have left. Government provided health insurance.
And when that happens, the markets will not be getting the influx of cash from insurance companies and I shutter to think what will become of Wall Street.
And when we have single payer healthcare, rest assured that the premiums will not be subsidized by wise investing and there will be absolutely no investing in the market by the government. And every dime spent on healthcare will have to come from us – the taxpayer. And the “float” that once provided the means to pay the workers, the executives and most of the claims will be gone.
Our costs will rise, the money paid to doctors, hospitals, drug companies and everyone that makes a living directly or indirectly from healthcare will see revenues shrink to almost nothing. Healthcare innovations will cease because money drives innovation. Massive cutbacks in nurses, doctors and other services will be required. Healthcare rationing, like we see in every country that has tried it, will be the rule.
And it will be far worse here. Single payer is exponentially worse the larger the population. The United Kingdom is bad enough, but will be infinitely better than what we will have. Americans will flee to Canada and Canadians will have no place to go when they get sick.
And we will fondly remember the days when we had the best healthcare system in the world and reminisce on how we got so much more than we paid for – and we will die laughing at how we complained and demanded that the government fix that system.
And Obama will blame Bush.