Why I’m Supporting a Health Insurance Industry Bailout

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The signs are everywhere: “No Insurance Industry Bailout.”  Just today on Twitter a guy I admire a great deal said this: “Health Insurers Now Fighting To Save ObamaCare …  I HOPE THESE PIGS GET BUTCHERED FOR THIS SCAM.”  In this post I’ll explain why I’m supporting a health insurance industry bailout — and why you should, too.

Be careful what you wish for.  The alternative to bailing out these companies is single-payer.  That’s right — if we don’t bail out the private health insurance companies, we will end up with what the left has wanted all along: government-run healthcare.  Is that really what you want?

Revenge is a Dish Best Served Cold

I’m as disgusted as anyone with these companies.  Most were complicit in Obamacare.  Apparently their executives could only see the forecasted vast quantity of new enrollees.  They never bothered to read the fine print.  This puts them in roughly the same intelligence group as airline executives (Southwest and the newer startups excluded).  “Room temperature IQ” is too kind a description.

But would you rather have a bunch of bureaucrats running the system?  With the pre-Obamacare system at least you could vote with your feet.  If you didn’t like your current plan you didn’t have to keep it.[1]

I understand the desire for revenge.  Please don’t let your emotions override your good judgment.  This is important. There will be time for revenge after 2016.  Or we will be able to write off the once-great U.S. economy.

Obamacare Economics

Many of us pointed out at the time that the economics of Obamacare would most likely lead to single-payer.  Insurers are faced with the following requirements:

  1. An 80% payout rate, leaving 20% to cover costs.
  2. A long list of newly-mandated services which has caused premiums to rise, the quality of insurance products offered to decrease (higher annual deductibles, fewer doctors available under your plan), and fewer plans available.[2]
  3. No ability to price discriminate based on age, gender, pre-existing conditions, or much of anything else.

Under these circumstances, any economist worthy of the name could have described the outcome with one phrase: moral hazard and adverse selection.  In this case, the phrase simply means those who are most likely to need healthcare are the most likely to sign up for ACA care as soon as they can.  Those who are young and healthy are being offered a terrible deal.  The expected benefit from any ACA plan being offered to them is far less than they will pay in premiums.  Rationally, many are saying no to this offer.

And they should.  They are being asked to subsidize the care of older, sicker people.  The cruel irony is that the president who relentlessly rants about income inequality has, in his name, enacted a program that transfers income to the young and relatively poor to the old and relatively wealthy.  Obamacare, as designed, will make income and wealth even less equal.[3]

Conclusion

This is a terrible post to write.  We are faced with two horrible choices.  I vote for keeping the private sector in business as long as possible.  My hope is that the 2014 and 2016 elections will wrest control of the government from the far left Democrats (including Nancy Pelosi, Harry Reid, and Barack Obama).  If that happy day arrives, I’d like to have the private sector companies around to get the system back to where it was in 2008.  Right now, there are probably more uninsured Americans than there were two years ago.  This is the direct consequence of Obamacare.  Under the previous system, 85% of people surveyed were happy with their coverage.  I doubt you can get even half that figure today.



[1] Yes, I know this is far from universal.  One example is those with pre-existing conditions who sometimes find themselves basically tied to their current employer for life.  This is not good.  But government-run healthcare would be worse.  “All the efficiency of the DMV” is what I used to say.  Now all I have to say is, “All the efficiency, care, and competence of Healthcare.gov.”

[2] In fact, there are only four plans offered: bronze, silver, gold, and platinum.  Compared to the rich, diverse offerings in this market before, any claim that the ACA gives consumers greater choice is laughable.

[3] In a future post I hope to point out several other ways in which the government redistributes income from the poor to the rich.  For now, consider those who are recipients of “green” government subsidies.  It’s no coincidence that the city with the highest per-capital ownership of Teslas is Atherton, California, near Palo Alto.  Atherton is also one of the wealthiest cities in the U.S.

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.