Save Our Country

Yesterday Barack Obama set a two-week deadline to get a deal on healthcare reform completed. Some Democrats have expressed hopes and others have expressed doubts that it will get done by Easter. Of course, previously it was supposed to be done by last Labor Day and then by Thanksgiving and then by Christmas and then…well, you get the idea.

 

It has been a long and arduous process, full of sound and fury, signifying nothing, and so forth. There has been talk about the issue from every part of the political spectrum and from every water-cooler and kitchen table in America. Despite all the rhetoric, the facts, the falsities, the fury and the fantasies, the bottom line is that the only definitive result is that private health insurance companies will be out of business in the fairly near future.

 

That may seem like a ridiculous assertion given how Obama and the Democrats have demagogued the health insurance companies recently as being greedy and making ‘obscene’ profits. Of course, given their net margins of around 2% on average, it is hard to say that their profits are really all that obscene. 

 

Obama and the Democrats had to start going after the health insurance companies, though, for two primary reasons.  First, they needed a way to deflect the spotlight away from their true goal which is to take over control of the U.S. healthcare industry. Initially the Democrats were touting their initiatives simply as healthcare reform. When that phrase led Americans to have visions of Dr. Obama and a bunch of bureaucratic stooges overseeing their healthcare choices, then the Democrats soon changed their terminology to healthcare insurance reform.

 

That was a good move by the Democrats for a second reason in that it gave them an enemy from which they could then claim to be protecting the American people. Just as in the movie ‘Scarface,’ the Democrats now had a group of companies that they could point their fingers at and say, “There’s the bad guy.” And to paraphrase Tony Montana from the same movie, it begs the question of “What does that make Obama and the Democrats – good???”

 

However, this article is not about the ridiculousness of the Democrats as that issue has been discussed ad nauseum over the past year or so. It is about the future of the private health insurance companies, or more accurately the lack of a future for them. As stated above, regardless of what happens with healthcare insurance reform, the private health insurance companies will be out of business soon. There are two possible paths which may start to emerge in the near future but the destination is the same for both of them.

 

In the first scenario, the Democrats somehow pass their healthcare reform plans. If that happens, then it will mean that the health insurers will be forced to take on millions of new members regardless of their medical history and/or ability to pay premiums. With millions of people suddenly finding themselves with insurance, they will in turn demand more medical products and services. Since the supply of products and services cannot adjust as quickly as the demand that will put even more upward pressure on healthcare prices. That is essentially right from an Economics 101 textbook.

 

As prices increase, the medical providers will send higher and higher bills to the health insurers to pay on behalf of their members. In the past that would have caused the insurers to have to increase premiums at rates high enough to cover the increased costs. However, here is the kicker for the insurers – the Democrats, especially in the latest Obama plan, have plans to limit the amount by which health insurers can increase their premiums. That will leave the insurers caught in a situation in which they cannot increase revenues at a rate fast enough to overcome their increases in costs. Their ‘obscene’ profits will fall and they will eventually begin to incur losses year after year until eventually they are out of business.

 

In the second scenario, the Democrats listen to the American people and do not pass their healthcare reform plans. The Democrats argue that this will leave all the power in the hands of the health insurers, but that is simply not true. As has been seen already, the health insurers are already beginning to struggle because fewer and fewer Americans have health insurance and those who still have it tend to be those who need and use their insurance regularly. That means that the cost per member is higher for the insurers and has left them in the position of having to dramatically increase their premium rates this year, such as the 39% average increases by Anthem Insurance in California.

 

Those huge premium increases, while necessary, also trigger a downward spiral for the insurers in which more and more companies will begin to drop coverage for their employees and/or more and more employees will opt out of accepting healthcare insurance coverage from their employers. That will further reduce the total number of members, decrease the size of the risk pool, increase the cost per member and lead to higher and higher premium rate increases. Eventually the market will not be able to absorb the increased premium rates and leave the health insurers with not enough members and revenues to overcome their costs. Their ‘obscene’ profits will fall and they will eventually begin to incur losses year after year until eventually they are out of business.

 

So there are the two scenarios that lead to the same result. The main difference is who ends up with control of healthcare in the end. In many ways, it is the battle which Al Gore proposed during the 2000 presidential campaign – the powerful versus the people. However, this time around the players are slightly different. In Gore’s version, the powerful was represented by big businesses like health insurers, oil producers, etc. In the new version, the powerful is represented by the federal government. The people are still just the people, though.

 

How does the powerful versus the people concept work? At the end of the first scenario, the federal government has setup a system of mandated health insurance, meaning that alternative products to health insurance as it is currently known would not be allowed into the marketplace. When the private health insurers begin to falter and millions of people are suddenly without insurance, without the opportunity for private-sector alternatives, then that will open the door for the Democrats to come along and propose that a ‘public option’ is needed to cover those people who have been left uninsured by the private marketplace. As each private insurer goes out of business, the government picks up more and more members until all Americans are covered by a government-run healthcare insurance plan.

 

That will, of course, lead to yet another inefficient government monopoly, such as the U.S. Postal Service. The costs will continue to skyrocket, the quality of care will continue to decline, taxes to pay for it will surely increase and eventually the government will attempt to control costs by rationing healthcare. To refute those who deny that rationing will be a part of the government-run plan, just look at the Postal Service, which is currently proposing that it begin rationing mail delivery by not providing service on Saturdays. This is the expected by allowing a system in which the powerful government eventually gains control of the nation’s healthcare industry.

 

As for the fall-out from the second scenario, it is very different. Without the government interfering in the marketplace any more than it already does, as the health insurers begin to falter then new companies, products, services and industries will begin to emerge. They are already out there in products such as health savings accounts and high-deductible insurance plans, which were so well described in a recent article by Indiana Governor Mitch Daniels in the Wall Street Journal.

 

Unlike a plan to simply provide health insurance to more people, those types of products actually address the issue of healthcare costs and help to reduce them by introducing free-market concepts back into the healthcare industry. HSAs and high-deductible plans also provide all the benefits that the Democrats claim that they want such as portability, coverage of pre-existing conditions and having healthcare decisions be made by patients and their doctors rather than by insurance company bureaucrats (or government bureaucrats). Patients can decide which products and services they want and they can shop around from provider to provider to find the best deals. It is the same kind of freedom that Americans enjoy when shopping for groceries, vehicles, houses and almost every other product or service that they buy. 

 

Of course, the reality is that the Democrats do not want those things for the American people at all. Giving the American people more freedom and control over their healthcare choices would by definition mean that they, as in the powerful federal government, would have less control over them. That is why many of them want a government-run insurance plan to cover all Americans. There is no greater control for a government than to have control over its citizens’ healthcare.

 

Even in the current healthcare system, few Americans have real freedom in their healthcare choices. Most Americans get their insurance coverage through their employers and it is the employers who decide which plan they are going to purchase rather than the employees. The choice for most Americans is not which healthcare plan they want but rather just a simple choice of whether they want one from their employers or not. Some companies offer multiple plans to their employees, but generally the differences are minor from one plan to the other and are almost always all from the same insurer. In a government-run plan those choices would be even more limited since there would be only one insurance provider and likely only one plan. Well, there would probably be two – one plan for Congress and one for the rest of Americans.

 

So while the future for health insurers is all but certain, the future for the healthcare industry and for how Americans participate in it is clearly not. This is a pivotal moment in time when Americans can and must decide their own future and make their voices heard. The choices could not be more obvious and the possible outcomes could not be more opposite. When the private health insurers begin going extinct and their control over the healthcare industry begins to wane, that control must get transferred elsewhere. What happens in the next few weeks will determine whether that control in the future will eventually rests with the powerful or with the people.

 

Rob Binsrick