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New Regulations Will Destroy the Insurance Market(Obamacare)
Mises Institute ^ | December 17, 2009 | Eric M. Staib

Posted on 12/20/2009 6:24:47 PM PST by sickoflibs

It has been shown that the so-called "public option" for low-premium health insurance is sure to significantly crowd out, and perhaps even eliminate, the private provision of health insurance. Thanks to Senator Joseph Lieberman's courageous stand, it appears that the public option will not be a part of any bill that passes the Senate. Unfortunately, HR 3962 includes regulations that will destroy the ability of private firms to provide marketable insurance, with or without a public option.

To understand the devastation that will be wrought by this bill, one must understand how health insurance functions on a free market to transfer individuals' financial risk to large "risk pools" with less variation across time. Consumers who are risk averse pay "premiums" to insurers each month for the removal of that risk, and in turn insurers assign their clients to different pools according to their risk of large claims.

An Already-Regulated Industry: Insurance companies have already been strictly limited in their ability to assign individuals to different risk pools and charge them varying premiums. By forcing high-risk and low-risk groups into the same pool, existing regulations increase premiums for low-risk consumers and decrease premiums for high-risk consumers. This is nothing more than a coerced subsidy to the less healthy, and it drives low-risk consumers away from purchasing health insurance. This is why the majority of the uninsured are not poor and dying, but in fact healthy young people who are at almost no risk of unanticipated healthcare costs.

To cope with their inability to partition along risk levels, profit-seeking insurance companies must cut costs by excluding the highest-risk patients from insurance. In a free market, these individuals would be offered insurance at a higher premium aligned with their high risk of major claims. In human terms, this leads to the exclusion of people with preexisting conditions and those with significant claims on past insurance plans. Once again, we see how leftist economic policy harms the very class of society that its supporters desire to help.

Obamacare is a Welfare Program: Not oblivious to the exclusion of these unfortunate citizens, on page 95 of the bill, House Democrats have proposed to completely outlaw the exclusion of any customer on any of the following grounds:health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, disability, or source of injury (including conditions arising out of acts of domestic violence) or any similar factors. Thus, it will become illegal to refuse to insure any consumer on any grounds, including evidence of insurability. In addition to being unable to exclude future enrollees, insurers will be prevented by page 29 from legally dropping any consumers from their plans on any grounds other than "clear and convincing evidence of fraud."

The effect on the structure of insurance is obvious; this new law will turn health insurance into a legally-enforced entitlement program, and the new entitlement will be used by those who are too costly to be insured under the current restrictions on risk-pool partitioning. Again, it is important to remember that these patients would have the option to buy insurance on a free market, but that their plans would carry premiums that actually reflect their personal health risk.

While risk-pool separation is considerably limited by national and state regulations, the little separation that is allowed would still be able to mitigate the heavy costs of forcing insurers to cover literally every customer who wishes to buy insurance. While the high-risk individuals would not pay as much in premiums as they would on a free market, insurance companies would still be able to use slightly lower premiums to attract low-risk customers. However, this inequality in premiums is offensive to politicians hell-bent on equality. Therefore, in the very next page of the bill, House Democrats propose to outlaw all variations in premiums except according to geographical area, age group, and whether the plan in question covers an individual or a family.

"The majority of the uninsured are not poor and dying, but in fact healthy young people who are at almost no risk of unanticipated healthcare costs."These provisions will be catastrophic to the insurance market. The bill only allows for premium variation across age by a ratio of two to one between the highest and lowest premiums. In real terms, elderly patients who cost several times as much to insure can only be charged twice as much as 20-somethings who often go entire years without claims. That this is a subsidy for the elderly hardly needs to be explicitly stated.

The bill leaves the determination of the maximum difference between individual and family plans at the discretion of the "health choices" commissioner, who is likely to find himself bombarded with visits and letters from family-centered lobbying organizations seeking subsidized health insurance paid for by singles and nonparents. This rent seeking will inevitably end up in subsidies handed out according to political objectives, whether the goal is to attract more young, single voters or more parents of children.

Turning any transaction into a subsidy both induces the subsidized class to enter the transaction and induces the subsidizing class to attempt to avoid it. In this case, it means that an even greater number of young and healthy individuals (and, most likely, nonparents) will drop their increasingly expensive insurance plans and attempt to prepare for healthcare risks on their own. This terrible result of coercive price-fixing decreases the benefit of the subsidy to high-risk consumers and decreases the ability of the insurance companies to control and reduce average payouts.

Democrats are aware of this effect of their policy, and have legislated accordingly. Pages 296–300 amend federal tax law to create a new tax on all citizens who fail to purchase health insurance. Depriving these individuals of the ability to opt out of the new, undifferentiated insurance pool is an atrocious affront to individual choice, and requires the threat of imprisonment. This new tax will help achieve the statistical goal of universal coverage, but it will do so at an incredible cost to the income and liberty of the relatively young and healthy, most of whom, ironically, voted for Obama and Democratic congressional candidates.

Soaring Costs: Not only will high-risk individuals who are now forced out of the market by regulation be legally entitled to purchase the bill's minimum standard of coverage, but both these excluded consumers and those who are now in high-risk pools will have financial incentives to buy higher levels of insurance. Facing new, subsidized prices, high-risk individuals will purchase plans with lower deductibles. Paying for a higher percentage of the price of more claims will massively increase the cost of insuring the new general pool of clients.

One of the only remaining ways for insurers to cut their costs, then, is to limit the amount that individuals are able to receive in claims. Indeed, insurance companies already use lifetime claims limits to cope with risk-partition laws and deliver lower-price packages to low-risk consumers. Predictably, page 50 of the House bill prohibits insurance companies from imposing any such limits on lifetime benefits.

Outlawing lifetime limits guarantees that all consumers will have the incentive to undergo drastically more treatments in their lifetimes, because the bill ensures that they will not be moved into a higher premium group until they enter a different age group or move to a different area. For the already-subsidized elderly, this creates incentives to undergo many more life-extending treatments in the final year of their lives. Such treatments are several times more expensive than general care for other elderly patients.

Astute readers will correctly object that while the Democrats' healthcare proposal will drastically increase the costs facing every insurance provider, the bill also requires all individuals to buy the minimum package of insurance, or to enroll in the public option. Especially because in the current discussion we are ignoring the effects of the public option, it is possible to argue that if there were no public option this bill would actually be a boon to private insurers, who are virtually guaranteed that every American will buy their plans. To survive this bill, then, insurance companies will simply increase the premiums of the packages that are forced onto every citizen.

This would indeed be true, were it not for further regulations effectively barring premium increases. Page 31 of the bill would require insurance companies to "submit a justification" for any projected future increase in premiums for any group to the secretary of Health and Human Services as well as state-level authorities.

The secretary of HHS and the state "health czars" would then annually review and approve or deny any increase in premiums. In various sections of the bill, the health choices commissioner is given power to determine the cost-accounting and other ratings methods that will determine whether a price increase is "justified" in the eyes of the DHHS Secretary.

Has Rose Wilder Lane received the recognition she deserves? Not even close. But this shirt makes a contribution.Public officials operating under a Congressional mandate to achieve universal coverage are hardly likely to approve price increases, even though that means slowly bankrupting private insurers. Even if they are not made to "compete with" and be strangled by a public option that consumers have already funded with their tax dollars, private insurers will be absolutely ruined by restrictions on their ability to control and separate costs and to increase prices to account for their ever-rising costs.

Conclusion: While a public option would certainly hasten the death of the private-insurance market in America, it is not a necessary means to that end. By destroying the economic structure of insurance, House Resolution 3962 would convert an already-overregulated industry into a pseudo-private welfare program. Even without a public option, insurance companies would be kept from controlling costs or adjusting their prices. The inevitable result will be the complete dissolution of the private health-insurance market.


TOPICS: Business/Economy; Editorial; Government; News/Current Events
KEYWORDS: healthcare; obamacare; schifflist
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The Peter Schiff/Redistribution Watch Ping. (Washington Bankrupting our Nation by Spending your past, present and future money!)

If you realize both parties in Washington think our money is theirs and you trust them to do the wrong thing, this list is for you.

If you think there is a Santa Claus who is going to get elected in Washington and cut a few taxes and spend a few trillion and jump start the economy, and get our lost money back, this list is not for you.

You can read past posts by clicking on : schifflist , I try to tag all relevant threads with the keyword : schifflist.

Ping list pinged by sickoflibs.

To join the ping list: FReepmail sickoflibs with the subject line add Schifflist.

(Stop getting pings by sending the subject line drop Schifflist.)

1 posted on 12/20/2009 6:24:47 PM PST by sickoflibs
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To: Harrius Magnus; mojitojoe; Pelham; mom2twinsn2; LongLiveTheRepublic; ConservativeOrBust; ...
The Peter Schiff/Redistribution Watch Ping. (Washington Bankrupting our Nation by Spending your past, present and future money!)

Timely article!

2 posted on 12/20/2009 6:27:26 PM PST by sickoflibs ( "It's not the taxes, the redistribution is the government spending you demand stupid")
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To: sickoflibs
The American people get exactly what they want.

They have asked for chaos followed by enslavement and they will get it.

3 posted on 12/20/2009 6:28:35 PM PST by elkfersupper (Member of the Original Defiant Class)
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To: sickoflibs

Read later


4 posted on 12/20/2009 6:31:10 PM PST by ElayneJ
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To: SmokingJoe

Try this!


5 posted on 12/20/2009 6:31:57 PM PST by sickoflibs ( "It's not the taxes, the redistribution is the government spending you demand stupid")
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To: sickoflibs

Well, go to CSPAN.org right now and watch these 60 illegitimate prigs pass this abomination that is an insult to taxpaying citizens at 1:AM EST!!!


6 posted on 12/20/2009 6:34:56 PM PST by SierraWasp (AARP is guilty of Elder Abuse by endorsing a law that eliminates Medicare Advantaqe plans!!!)
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To: sickoflibs

“If you realize both parties in Washington think our money is theirs”...exactly:

The 1300+ medical insurance companies hold vast capital reserves backing their insureds (patients) policies. The Fed is broke, and the 5 biggest US financial firms are hopelessly mired in credit derivative rollover obligations that boggle the mind. They need and want the trapped capital in the medical insurance industry, and demand the taxpayer make up for it thru taxation of new govt. medical insurance expansions. It is simple theft, and this aspect is not being included in the dismal picture unfolding before us. The administration and Dem Congress have decided to eliminate private health ins. coverage. It is more than govt. control alone...they want the money in the insurance companies freed up for their purposes instead of it supporting the private aspects of healthcare.


7 posted on 12/20/2009 6:38:58 PM PST by givemELL (Does Taiwan Meet the Criteria to Qualify as an "Overseas Territory of the United States"? by Richar)
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To: sickoflibs; Jet Jaguar; NorwegianViking; ExTexasRedhead; HollyB; FromLori; ...

The list, ping


8 posted on 12/20/2009 6:44:34 PM PST by Nachum (The complete Obama list at www.nachumlist.com)
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To: SierraWasp

Been watching it most of the day. Calm down, this is still an uphill battle.


9 posted on 12/20/2009 6:48:22 PM PST by sickoflibs ( "It's not the taxes, the redistribution is the government spending you demand stupid")
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To: sickoflibs

Why are insurance stock prices going up in such a lousy economy?

“Health Insurance Company Stock Prices Say it All””
http://www.opednews.com/articles/Health-insurance-company-s-by-background-n015e-091220-88.html


10 posted on 12/20/2009 6:56:39 PM PST by poodle (We are slaves to the corporations and the government is the overseer.)
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To: givemELL
I suppose I am about to make a bad analogy, but I will do it anyway:

Henry VIII had personal reasons for breaking with the Pope and establishing the Church of England. It simply suited his purpose to do so. However, along the way, it became clear that the throne of England would gain control of all of the wealth held by the monasteries in England, if the Pope were repudiated.

Henry liked the wealth very much.

I see parallels with the US government, wanting to control health care simply because they like to control things -- and then, along the way, realizing that insurance companies have lots of money, and the gov't could get control of that as well.

A nice bonus for our masters in the castle up on the hill.

11 posted on 12/20/2009 7:00:01 PM PST by ClearCase_guy (Macbeth is ripe for shaking, and the powers above put on their instruments.)
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To: givemELL

Exactly!

They go where the money is.


12 posted on 12/20/2009 7:11:43 PM PST by Leisler (We don't need a third party we need a conservative second party.)
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To: poodle

Saw that. My guess, because now they have lots of healthy forced customers to pay them taxes.


13 posted on 12/20/2009 7:24:04 PM PST by sickoflibs ( "It's not the taxes, the redistribution is the government spending you demand stupid")
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To: sickoflibs
New Regulations Will Destroy the Insurance Market

Duh!

That's the PURPOSE of Obamacare.

14 posted on 12/20/2009 7:26:47 PM PST by Jim Noble (Hu's the communist?)
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To: sickoflibs

Wonder why the insurance companies aren’t weighing in? Could they have already made a deal with the devil?


15 posted on 12/20/2009 9:12:57 PM PST by freekitty (Give me back my conservative vote; then find me a real conservative to vote for)
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To: sickoflibs; Grampa Dave; tubebender; hedgetrimmer; forester; Ernest_at_the_Beach; BOBTHENAILER
"Calm down, this is still an uphill battle."

Uphill for whom??? They're voting the Manager's amendment thru in the dead of night!!!

Watching that Demonic Dodd get up a preach in the dark of nite reminds me of SATAN!!!

Whatayou mean, "Calm down?" They're about to sack my livelihood!!!

Watching the futile verbage of the Republican leader makes my blood boil!!!

16 posted on 12/20/2009 9:51:53 PM PST by SierraWasp (AARP is guilty of Elder Abuse by endorsing a law that eliminates Medicare Advantaqe plans!!!)
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To: elkfersupper
The American people get exactly what they want. They have asked for chaos followed by enslavement and they will get it.

Exactly.

People were turned off by Bush's annoying frat boy personality. They liked Obama's words and style. So they voted for Marxism, with very predictable results.

Leftist control of schools and major news media has left us with an economically and politically ignorant electorate. It's a tragedy.

17 posted on 12/20/2009 11:23:28 PM PST by SupplySider
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To: SupplySider
All those thousands of pages boil down to one thing: price controls. Price controls have never worked. They don't work now. They won't work in the future.

Is there a single politician who understands the difference between prices and costs?

18 posted on 12/20/2009 11:44:46 PM PST by SupplySider
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To: sickoflibs
The inevitable result will be the complete dissolution of the private health-insurance market.

Precisly the plan.

19 posted on 12/21/2009 3:39:48 AM PST by MaggieCarta (We're all Detroiters, now.)
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To: freekitty
Wonder why the insurance companies aren’t weighing in? Could they have already made a deal with the devil?

Excellent question! I don't have an excellent answer, though. During "Hillarycare" I do seem to remember more insurance companies digging in against the scheme. (At the time, I was working for one who was actively mounting opposition to Hillarycare) I'm "out of the loop," now (and liking it)

20 posted on 12/21/2009 3:45:38 AM PST by MaggieCarta (We're all Detroiters, now.)
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