The Emperor Still Has No Clothes (or Why Obamacare Misses the Mark)

In my previous post, I juxtapose the enactment of the Affordable Care Act (“ACA” or “Obamacare”) against the backdrop of Hans Christian Andersen’s “The Emperor’s New Clothes.”  This article will take this analysis a bit further.

You may recall that when the emperor was parading through his city, he recognized that he was naked.  In fact, he “shivered, for he suspected they were right.”  Still, he reasoned that the parade had to go on.  “So he walked more proudly than ever, as his noblemen held high the train that wasn’t there at all.”

It is truly amazing how closely this story parallels with how President Obama and the Democrats are reacting to the utter catastrophe that is the ACA.

In some respects, it is patently obvious that the President understands that the Titanic is sinking.  Still, at other times its almost as if “Captain” Obama is directing the ship’s orchestra to continue playing their songs while everyone else jumps into the icy North Atlantic waters.

First, let’s go back to September 27, 2013.  Just a few days before Healthcare.gov began operations, the White House issued a video presentation explaining the essential bullet points of the ACA.  I have linked to it here.

Let’s go to the tape….  (Boy that dates me, doesn’t it?)

Ten seconds into the presentation, the voice-over actress (who sounds like Janeane Garofalo, minus about 20 years of cigarette smoking) promises:

Obamacare means you get a host of new benefits and protections.  For example, insurance companies are now required to cover women’s wellness visits, mammograms, birth control for women, immunizations for kids — all without charging you a penny more.  That means no extra co-pays or fees.  Young adults can now stay on their parents’ plan until they turn 26.  Insurance companies can’t limit the amount of care they’ll cover over your lifetime.  Also, if your insurance company spends more than 20% of your premium dollars on overhead — stuff like CEO salaries, marketing, or administrative costs — they have to send you a refund for the difference.

In January [2014] that list of benefits gets even longer.  It will be illegal to charge you higher premiums or refuse coverage because you get sick or have been in the past.  Charging women more than men for the exact same coverage — also illegal.  No more deciphering page after page of jargony paperwork from your insurance company to determine what they will or won’t cover.  Instead, you will get a short, plain language summary of your benefits and coverage.  Easy right?  …

Let’s stop right here and examine this line-by-line….

Obamacare means you get a host of new benefits and protections.

Right off the bat, the White House is putting its best foot forward.  (After all, who doesn’t want new benefits or protections?)  Moreover, since this sentence uses the word you without restriction or modification, one can safely assume that you means any person eligible for insurance under the ACA.  As such, this sentence necessarily implies that every U.S. citizen — all 313 million of us — are going to enjoy a host of new benefits and protections.

That’s a lot of benefits.  That’s a whole bunch of protections.  But how does the government provide all these goodies to all these people?  (Oh, but I am jumping ahead!)

Next line …

For example, insurance companies are now required to cover women’s wellness visits, mammograms, birth control for women, immunizations for kids — all without charging you a penny more.  That means no extra co-pays or fees.

In a complete vacuum, all of us want women to have wellness visits and mammograms. Although I recognize that many people — particularly Catholics — have moral objections to birth control, I suspect that most Americans use some form of contraceptive planning; thus, I suspect that most Americans would be thrilled to have birth control covered on insurance.  As for immunizations, many Americans are opposed to them out of concern for possible side effects (such as autism), but again, I suspect that most Americans believe immunizations are good things.  Thus, from a purely political standpoint, these promises are like chocolate cake being offered to a herd of hypoglycemic 6-year-olds.  They are “goodies” that almost everybody wants.

Moving back to the text … To say that “insurance companies are now required” to provide these services implies that insurance companies were not required to provide these services before the ACA was enacted.  (Does this not make sense?  Why mandate something that everyone is already doing?)  Thus, it is apparent that insurance companies are now going to provide certain new — and rather expensive — services to women and children.

Unfortunately for insurance companies, they must now provide these services without “charging  you one penny more.”

Deficits are created when more money goes out than what comes in.  When insurance companies have deficits, they lose cash reserves.  When insurance companies lose cash reserves, they lose their insurance ratings, (e.g., A++, A+, etc., etc.).  When insurance companies get downgraded, oftentimes the state insurance regulators appoint receivers to handle their finances.  If a company doesn’t survive receivership, it goes under.

Of course, let’s get real…  Mammograms and birth control pills are not going to put Blue Cross/Blue Shield out of business.  Certainly, Aetna can afford to pay for little Tommy’s measles shot without having to file for Chapter 11 bankruptcy protection.  Right?

Let’s move on …

Young adults can now stay on their parents’ plan until they turn 26.  Insurance companies can’t limit the amount of care they’ll cover over your lifetime.  Also, if your insurance company spends more than 20% of your premium dollars on overhead — stuff like CEO salaries, marketing, or administrative costs — they have to send you a refund for the difference.

Putting aside the question of whether it is befitting young adults to stay on their parents’ health insurance plans, let’s look at the implication.  Why would any 26-year-old want to still be on his parents’ plan?  If it’s not any cheaper, then there would be no benefit.  Thus, for this to be a benefit, it must save the young adult money.  Of course, if the young adult saves money, is this not at the expense of the insurance company’s bottom line?

The same goes with the abandonment of lifetime limits for treatment.  Obviously no one wants to have his health insurance dropped because the insurance company has spent too much money on him.  That certainly appears to be a benefit to the consumer.  However, with these limits thrown out, the ability for insurance companies to reduce their losses is greatly diminished.  So again, even though the consumer is getting a good deal, the insurance company is taking a big hit with this.

Of course, the pièce de résistance is that insurance companies cannot spend more than 20% of their income on overhead.  On paper, this looks great, does it not?  The government is telling insurance companies that if they spend more money than they really need to operate — and, of course, the government knows exactly what insurance companies really need to operate — they are going to have to refund the difference to you and me.

In fairness to the government, it has been argued that Medicare spends only 1% – 6% of its budget on administrative costs.  Perhaps this explains why the Medicare Secondary Payer Recovery Center, in particular, is the worst run agency in Washington.  (Nota bene:  The MSPRC is responsible for placing liens on personal injury claims involving  Medicare recipients.  In order for the Medicare recipient to receive compensation, the MSPRC must first calculate how much the government is entitled to collect from the proceeds.  I once had a client who had to wait 5 months for the MSPRC to calculate a $400.00 lien.  I had to call MSPRC at least once a week, and wait on hold for at least an hour each time.  It wasn’t until I threatened to call my Congressman that they gave me a straight answer.)

The fact remains that all of these benefits — and I suppose the cap on overhead would be considered a “protection” — are going to cost insurance companies a prodigious amount of money.  Not only are they required to provide more services — they are going to have to provide these services using less resources for overhead.

And we haven’t even gotten to the requirements that went into effect on January 1, 2014.

In January [2014] that list of benefits gets even longer.  It will be illegal to charge you higher premiums or refuse coverage because you get sick or have been in the past.  Charging women more than men for the exact same coverage — also illegal.  No more deciphering page after page of jargony paperwork from your insurance company to determine what they will or won’t cover.  Instead, you will get a short, plain language summary of your benefits and coverage.  Easy right?  …

On top of all that we have already discussed, the insurance company cannot charge you more because you are — or have been — sick.

So think about this.  A person with no health insurance becomes diagnosed with cancer.  Treatments are going to cost tens of thousands of dollars, if not hundreds of thousands of dollars.  So what does the patient do?  He purchases health insurance — while he is sick — in order to pass the large bill along to the rich insurance company.  So everyone who is sick is going to be purchasing health insurance because the premium will invariably be less than the cost of treatment.  (Even President Obama agrees.)

Nobody wants to spend money on health insurance until they get sick.

Yet again, the insurance company gets soaked.

As one who suffered from a life-threatening illness as a child, I can sympathize with anyone who is unable to pay his medical bills.  I know my sickness set my parents back a princely sum.  But the fact remains that insurance companies can only take so much burden before it must pass the costs back to the consumer.

Medicare may be a charity.  Blue Cross/Blue Shield isn’t.

At any rate, anybody with a 5th grade education should have realized that one cannot get a host of benefits and protections for free.  Even a child could have noticed that these clothes don’t dress.  Yet, Americans were surprised — outraged — when they learned that their insurance premiums were going to jump by several hundred percent.

Despite this, like the emperor from the story of old, President Obama is lifting his head up, walking down the street naked, while Nancy Pelosi and other liberal Democrats are holding his train.  Listen to what the President said to Zach Galifianakis just last week.   (Start at 3:58.)

… that you can get affordable health care.  And most young Americans, right now, they are not covered.  And the truth is that they can get coverage all for all that costs you to pay your cellphone bill.

The President knows that for the ACA to work, young Americans are going to have to pump hundreds of millions of dollars into the exchanges to support everyone else.  But the President also knows that young people aren’t going to buy health insurance until they get sick.  (And why should they if they are going to stay on their parents’ coverage?)  So, the President is in pickle.

Fortunately for the President — and everyone else — this will become someone else’s problem on January 20, 2017.

But in the meantime, if you see a scantily-clad chief executive bandying about the streets of Washington trying to sell over-priced health insurance, you will understand why.

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3 thoughts on “The Emperor Still Has No Clothes (or Why Obamacare Misses the Mark)

  1. I’d really like to see you comment more on the content of the actual plans that are offered on the Healthcare.gov site as they’re a great example of “missing clothes”. Most people hear “you can get covered” on the Obamacare ads and think they’re talking about coverage comparable to the employer based HMO and PPO plans of the past…. Say $300-$400/month for a family and the only variable cost will be any copays that come up for doctor visits, emergency room visits or medications, or in other words a top yearly cost of around $6000.

    At least in my area, the Obamacare plans for a family of four start at the low end with $600/month for a “Bronze” plan that does absolutely nothing other than the wellness visits until a $6000 deductible is met then covers only 70% of the remaining cost . “Breaking Bad’s” Walter White’s $90,000 cancer treatment & premiums would cost him $38,000 of his $40,000 salary for the year on this plan. If you move to the high end in my area, you can get a $1200/month plan that actually has copays for regular visits, emergency room and medications. These “Gold” plans have a much lower deductible of $2000 before they cover 80% of the remaining bill. With a high end plan like this, Walt would have a much lower cost of $34,000 for the year.. That’s a savings of almost $4000 that he can use for his bankruptcy filing! Granted, either option is better than simply paying a $90,000 chemotherapy bill, but neither could be considered “Affordable” by a reasonable person.

    I wish this would get more coverage but the fact of the matter is that all the plans are terrible. For a healthy family they’re a donation of $7200 a year to the insurance company with nothing in return but the happy feeling that you contributed to that company’s bottom line. A “Bronze Plan” family pays full price for doctor’s visit, medication and (God forbid) emergency care. For an unhealthy family, the best they can hope for is that, after forking over $16,000 in premiums and deductibles for the “Gold Plan”, the 80% coverage does enough to keep them out of bankruptcy..

    I cringe every time I hear one of their radio ads for the Healthcare.gov website ads. Yes, anyone can sign up and be “covered” but “covered” doesn’t mean what it used to.

    Like

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