There is No Hope - This Country is DONE!
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
I've sadly come to the conclusion that our country is done, over, kaput! I finally came to this conclusion over the weekend as we were circulating petitions to put a Constitutional Amendment on the November ballot in Ohio to stop Obamacare. As you know, I live in Ohio and in a somewhat rural area. This should be prime territory for conservatives. I was SHOCKED at the number of people that wanted Obamacare and many of these people should have known better. I heard comments like "now my son will have free insurance". It was absolutely apparent that these people think that Obamacare is free and comes from Obama's magical stash. They are too STUPID to understand that someone must pay for this stuff and there are a LOT of these people.
Therefore, I'm sorry to report that the USA as we've know it is OVER!
While I am not a fan of government subsidies, I do need to point out that pre-existing conditions are not analagous to getting car insurance after an accident.
Insurance is designed to transfer the risk of uncertainty in return for a fee - the premium. Once you have a car accident, there is little uncertainty over its costs (unless it is one of those rare accidents that results in a large lawsuit). It is therefore not insurable in the economic sense of the word.
Pre-existing conditions are different in a couple of ways. First, everyone is going to have some health condition at some point in their lives that would become "pre-existing" from that point onwards and therefore is not like an avoidable accident. Second, even after you have a health condition, there is a wide range of expenses that you can incur related to it. (For example, you could have hypertension and die of something else with no unusual expense related to your hypertension.) Therefore, pre-existing conditions do make sense for insurance coverage.
The reason why insurance companies have traditionally avoided covering pre-existing conditions is not related to their inappropriateness for coverage but to something called "adverse selection." This refers to the risk of the first insurance company that covers a particular risk ending up with all the people who have that condition, thus driving up its costs and premiums, and then losing all its healthy patients due to the high premiums, consequently necessitating it to raise premiums again, etc. This vicious cycle can continue until the insurance company goes out of business.
That's why insurance companies try to have a "healthier" patient base than their competitors and this also, unfortunately, creates a cycle of each company trying to have a healthier base than its competitors, thereby making insurance harder and harder to get for everyone. That's the situation we were in and a simple solution to eliminate the race to the bottom AND the problem of adverse selection is to pass a law preventing insurance companies from denying someone based on a prre-existing condition.
Insurance companies are actually quite happy with the rule that does not allow them to deny patients based on pre-existing conditions because it increases their revenues and profits. It makes perfect actuarial sense to them. The problem that I have with Obama's health care plan is that it does not do much to address the primary health care problem in this country, which is that costs have gone out of control due to a variety of market distortions.
There's no need to argue about what I had stated earlier. It is fairly basic insurance economics. You may wish to google "adverse selection" and read up on it. I believe there is even a Wikipedia article on the subject.
When the government passes a law that states that insurance companies cannot deny health insurance based on pre-existing conditions, and also passes a law that everyone should have health insurance, it accomplishes two things:
a. Insurance companies will not have a relative cost disadvantage with respect to their competitors because everyone is going to have to cover pre-existing conditions and all their costs go up at about the same rate, which they then pass on as higher premiums. It is important to note that companies are much more worried about costs going up relative to competitors than about costs going up industry-wide if they can pass it on to their customers. (Health insurance is fairly price-inelastic.)
b. The mandatory insurance law will ensure that a lot of new customers will get coverage and the total demand for insurance will go up.
The net effect is that the insurance industry, on the whole, will become bigger as the consequence of these two rule changes.
In any event, a lot of this stuff is well-known and there should be numerous online resources for you to educate yourself on the subject if you wish to do further research.
Hey Josh! Where's my cut of Bigger Pockets advertising revenue? You don't want to take in profit and be anti-entrepreneur do you? :lol:
Vikram,
I need some rest before I give you a full reply but your follow up post is digging your further into the wrong side. The argument you are presenting is the same argument that credited no doc loans with the "success" of the subprime mortgage industry. What you believe is an insurance salesman's dream and an underwriter/adjuster's nightmare. Sadly there's enough people like you who didn't learn the lesson of the subprime crisis and are now applying what you refuse to learn to other financial industries.
Tim
I also see another flaw in this health care bill. It opens itself to manipulation from political parties. For example, if someone doesn't like Blue Cross Blue Shield, one political party can say "hey, everyone with cancer should get insured through BCBS". A form of buycott that could kill a company.
Vikram, do you stand by your statement that allowing anti-selection is more profitable for the insurance companies? If so, you should provide evidence to back this up as this is not basic insurance economics. In fact, it goes against everything that is basic insurance economics.
J Scott, since you will not debate opinions, then I will assume that you do not wish to participate in this conversation. Clearly Vikram's statement is an opinion because it cannot be supported with any fact.
According to this article, http://www.insurancerate.com/americans-to-pay-penalty-if-lacking-health-coverage.php and many others that I have read...the average fine for not obtaining a government approved health insurance policy is around $1000.
If I am a healthy person, and choose to be penalized instead of purchasing insurance...the fine only costs about $83/month. I'd be hard pressed to find an insurance plan for less than that. So, I would choose to be fined, until my health changes. Then I would go get insurance because I cannot be denied.
Ok, here's the pop quiz of the day. Does anyone see a problem with this?
Also, I would like you to provide evidence that my argument (that you referenced) is hypothetical.
The IRS is charged with the responsibility to collect the fines or penalties. There is no provision in Obamacare to re-distribute the fines to the Insurance companies, or any other entity, based on any criteria, including J. Scott's admittedly unfounded speculation. If anyone can provide documentation of such a provision, then prove me wrong. Therefore, unless I am proven wrong, or until there is a change in current policy, the Government is keeping it.
Ok, now to go into Vikram's first long and well intentioned but grossly misinformed post.
"I do need to point out that pre-existing conditions are not analagous to getting car insurance after an accident."
Yes they are. In health insurance a condition is a "loss" to the insuring company - i.e. it is a financial liability. An accident is a loss to the insuring car company - i.e. the financial liability. Allowing a pre-existing condition to obtain coverage is the insurance company instantly incurring a loss before collecting any premiums to contribute to their reserves. The pre-existing condition is going to be underwritten by the reserves of everyone else without a pre-existing condition who has been paying in premiums while not creating a loss.
"Insurance is designed to transfer the risk of uncertainty in return for a fee - the premium."
No. You're wrong. Insurance is designed to transfer part or all of the FUTURE risk of loss. You cannot insure past loss; that is asinine. You cannot insure present loss because the instant it has happened, it becomes past loss once coverage is obtained. You can only insure FUTURE losses.
"Pre-existing conditions are different in a couple of ways."
No they're not. There's enough empirical data for actuaries to predict with a great degree of accuracy what will happen over the course of an individual's life. They are then able to analyze that data to see if that individual's condition represents a numerical value for that individual's risk of loss and the corresponding premium to be applied to their conditions or if their conditions. This was my first job out of college, putting reports together for Casualty Actuarial Society Fellows and writing up their actuarial triangles. I went on into a career in claims because I didn't feel like doing the 10 years of testing these people go through to become Fellows but I know their data and they know what is statistically likely to happen based on pre-existing conditions. That data is then analyzed by the underwriters and they determine what will be insured and what won't be.
The extension/withholding/determination of premium is based on the construction of your body and what is going wrong with it in the same way as how the premium for car insurance varies on certain types of vehicles based on their safety records and crash history.
"First...."
Your first point doesn't matter because you are using future risk which is not a pre-existing condition
"Second....."
Your second point doesn't matter because now you're talking about the future effects of a past loss. Insurance doesn't insure against past losses.
"Therefore, pre-existing conditions do make sense for insurance coverage."
Therefore, no. They make sense for politicians who don't need a reserve in order to pay claims and can just borrow/tax/subsidize long enough to get re-elected. For the rest of the real world this is a disaster waiting to happen.
"The reason why insurance companies have traditionally avoided covering pre-existing conditions is not related to their inappropriateness for coverage but to something called "adverse selection.""
No. They avoided it before because it would be insuring past losses which is a disservice to their share holders in a stock insurance company and the other policy holders in a mutual group insurance company. It is the same thing as giving money to people who walk into a store, rather than selling to them. In the real world, you get fired for things like that.
"That's why insurance companies try to have a "healthier" patient base than their competitors....."
No. That's why insurance companies hold several different types of insurance companies that have several different levels of acceptable risk and the appropriate underwriting and reinsurance to accompany that variation in risk.
"Insurance companies are actually quite happy with the rule that does not allow them to deny patients based on pre-existing conditions because it increases their revenues and profits."
No they're not. The sales divisions know they're going to see a temporary boost in commissions. The rest of the company knows what's going to happen to the reserves. You're going to see claims get paid out with IOU's like in the Depression again while insurance companies start petitioning the Federal government for bailouts the same way that banks did after they felt the ill effect of being legislated into giving loans to people with pre-existing credit conditions.
"It makes perfect actuarial sense to them."
Here's an article written in the Actuarial Review, which is a publication of the Casualty Actuarial Society. I suggest you learn what words like "actuarial" mean before using them. http://www.casact.org/newsletter/index.cfm?fa=viewart&id=5988
"which is that costs have gone out of control due to a variety of market distortions."
Tort reform.
I love how people are always quick to provide personal information that supports their arguments, but as soon as someone wants to poke holes in the argument, suddenly it's N.O.Y.F.B.
It's funny...I'm pretty sure that in most people's opinion, the information about the fact that he's in his 50's, has high blood pressure and pays $200 or so in monthly insurance costs would be a lot more personal than the specifics of the deductible and the the riders... :roll:
Rich,
I didn't go into adverse selection because it was improperly listed as a motivation but I'm glad you addressed the subject. This business of requiring the acceptance of pre-existing conditions is going to create a level of federally required adverse selection the likes of which we've never seen.
Glad to see someone else here with real experience in this field beyond wikipedia.
Tim