Thursday, January 23, 2014

Obamacare – A Private-Public Hybrid That the Public Pays For

A lot has been said and written about Obamacare and there are strong feelings on both sides of the argument. With no resolution in sight, expect both sides to continue to fight. But a look at some of the figures involved and the way the system works will show that there is one big loser in the whole process – the American taxpayer. How will this happen? Here’s how –

The Funnel

As most people know, Obamacare will cost the country $1.07 trillion in the next ten years. This money will be funneled through Washington D.C. to the insurance companies who will use it cover their losses. This is bad enough, but the worst part is that the Administration is trying to coerce people into buying these same health insurance products that they are anyway paying for through their taxes. So the American citizen first subsidizes the loss that the insurance companies will make and then will go an buy these products. In other words, people will pay twice for the same product.

How does this happen? Obamacare contains a reinsurance program that caps the costs of big claim on insurers for individual plans. Health insurance claims of up to $45,000 are paid for by the insurance companies. Anything beyond that is borne by the taxpayer in the form of subsidy to the insurers. This cap will bring more insurance companies into the program because of the safety it offers them. In other words, the government is working hard to create a single player system and establish a government monopoly over health care. It looks like the alliance of big business and big government has finally reached a takeoff point.

It Doesn’t Stop There

While the reinsurance program is going cost taxpayers a huge amount, there is another safety net for the insurance industry that the government (i.e. the taxpayer once again) will be paying for. This is called the Risk Corridor Program that will limit any possible overall loss that an insurance company may suffer. How will this happen? It’s like this – an insurance company estimates that its costs for the year. Say the figure I 100. But the actual costs, for whatever reason, are 110. The insurance company will not have to bear the extra cost of 10 on its own, like other businesses have to. Instead, it will have to accept just 102.4 of the total cost ( an extra 2.4) and the government through the taxpayer will bear the rest.

Rates Will Stay The Same

Given that the insurance companies will receive so much in the way of subsidy and protection from losses, it would be fair to expect that at least insurance costs will drop. While it is too soon to say with any certainty what may occur in the course of the year, experts feel that this will not happen. To be fair to the insurance companies, there is a reason for this. Obamacare is expected to attract more older and sick people into the health insurance pool and this will cost the insurance companies more in terms of claim payouts. In fact, it is even possible that over the next two years, rates may stay stable without the normal increases that could be expected. This will offer a good PR opportunity to the administrations spin doctors who will be able to trumpet the benefits of Obamacare. But the fact that this will be achieved at massive taxpayer costs cannot be ignored.

Obamacare may have its positives. But the person who will bear the cost of all this is the American taxpayer.

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