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Explaining Obamacare Nicely To Donna Brazile

Donna, If You Like Your Plan, You Are Welcome To Keep It And Pay.

By: Repair_Man_Jack (Diary)  |  February 28th, 2013 at 11:00 AM  | 

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Dissonance

Dissonance

I’ve been told by people who know her that Donna Brazile is a dear, dear lady who is not your typical, predictable member of the Left Wing Journalistic Taliban. Given that strong personal endorsement coming from people whose opinions I respect, I’ve decided to explain something to poor Donna – nicely for a change. It could feel like turning over a new leaf. It seems some people have noticed two rather dissonant opinions that she’s offered on Obamacare via twitter that I thought I could help her reconcile.

It seems she strongly, strongly supports Obamacare. This is not a shocking thing to hear form a former lead campaigner for Al Gore’s Presidential Team. The top tweet above is an example of her Obamacare boosterism and Dem Team Spirit. I promised to be nice about this and after enough coffee I can even stomach Dallas Cowboy fans. Thus I’ll let her 1st tweet stand as Exhibit A and offer no further snark.

The conundrum here is that Donna seemed colossally uninformed as to what would happen to the cost of health insurance plans as a result of the Obamacare legislation she herself cheered for. She wonders why she’s having to pay more now that #Healthcareworks.

Hopefully, I can help her through the confusion. The prices of health insurance under Obamacare are getting jacked through the roof for two reasons. 1) Insurance companies have to. 2) The same reason Ghengis Kahn impregnated women all over Asia. Thanks to Obamacare; the insurance companies now can. This relates to the two major components to any insurance policy’s price. There is a risk premium and there is a profit.

The methodology behind the risk premium helps us explain why Obamacare forces insurance companies to charge you more. In a nutshell, insurance companies (and their customers) benefit when the companies cover large populations of individuals. Each individual has a certain risk of health problems; each of these health problems has a typical cost to get fixed. To find out how much AllState* should charge you to insure against your risk of lung cancer, you multiply the likelihood of lung cancer by the cost of treating this unfortunate malady. That gives you an expected value of what AllState would have to pay to insure you against the risk of lung cancer. If all you were insuring against was lung cancer, this would be the risk premium for your policy. The more things you insure against, the more you tack on in expected value, the more you pay in risk premium for a health insurance policy. Obamacare makes you pay for a lot of risks that you otherwise may not choose to insure against. This makes the policy more expensive.

Note well that I pointed out that risk premium was a function of risk (likelihood of illness) times consequence (amount AllState has to pay for you to get fixed). Insurance companies compensate for the varying risks taken by different individuals via price discrimination. People who are older, fatter, alcoholic, addicted to drugs or genetically unfortunate have higher likelihoods of requiring AllState to pay.

Via the economic mechanism of price discrimination, AllState charges different risk premiums to customers who have significantly different levels of risk. If you live your life like Jimi Hendrix before the overdose, you pay more than someone who lives in a nunnery and runs three marathons per year. Or at least you did before Congress passed Obamacare.

This means an upper middle class to wealthy American who can afford to buy her groceries from Whole Foods and attend private Pilates lessons thrice per week gets made to pay the same rate as someone who lives the life of Robert Downey Jr during the really bad heroin phase. This means that you, Donna Brazile, are therefore paying more than you deserve in order to subsidize poor Robert, and his expensive stays in the various rehab shacks.

So insurance companies have to charge you more to cover additional conditions Obamacare ordered them to insure against. They also have to charge lifestyle risks against your policy that you are entirely too intelligent to indulge because Obamacare no longer allows them to price discriminate against people who make foolish life decisions like meth use. So because your company has to insure against more risks than you would maybe want them to and because they are charging more lifestyle risks against your policy than you are probably in the habit of actually taking, your risk premium has to go up under Obamacare.

As for reason two, I pull out an old historical chestnut form Scottish Economist, Adam Smith. As a good, card-carrying leftist, I get that he isn’t exactly your favorite, but he holds a certain relevance here and will help you better understand why you got the Obamacare shiv right in your ribs when it was insurance bill time. Smith had the following to say about cartels of all sorts.

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Yes, once the insurance companies were brought in on the deal with Obamacare, there was one group of individuals who were not represented in the new cartel, Donna. You, me and everyone else who goes to work, does their job and just wants to buy adequate health insurance to care for themselves and their families. That 2nd part of the price of your policy is the profit made by the insurer.

The one mechanism you and I had to control price was to not buy the crap if they tried to rip our faces off. We can’t do that anymore. Thanks to Obamacare, you can’t do that. Hello, individual mandate. You can’t fight back by withdrawing. You have to buy it, or you pay a punitive tax. The insurance companies now know that you have to buy it. I’ll give you three guesses what happens to the price of your policy under that set of economic conditions, and since I’m being nice in this blog; the first two won’t even count.

Insurance companies are hitting you in the wallet, Donna. They are ripping you off because you enabled them to. You cheered for it, you fought for it, you won. #HealthCareworks. Pray that you continue to do so for longer than 29 hours next week.**

But there it is Donna. You pay more for your insurance as a direct consequence of Obamacare. You pay for more breadth of coverage than you need and you pay for risks that quite frankly you are not a dumb enough individual to ever take. You are paying to insure the insurance company against someone else’s stupidity. Forward! Finally, because of the individual mandate, you have to pay several thousand dollars for the option of telling an insurer to take their overpriced product and shove it. The individual mandate makes you a part of a captive market. Insurers will abuse your wallet accordingly. I hope this has cleared up why you pay more for your health insurance now that #HealthCareworks. Have a wonderful day.

*- I’m totally neutral towards AllState. They just show up in the blog as an example of a well-known insurance provider.
**- Oops, there went Mr. NiceGuy. Oh well. That dude is a pantywaist anyhow.

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COMMENTS

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  • jaykali

    So has the discrimination stuff already kicked in for individual insurance? I had individual insurance a couple of years ago and it worked fine. I had to do a blood test and fill out forms. I suppose you still have to do that, but now you can’t get denied? I had a friend who was barely overweight and got denied. So are you saying if I smoked and filled out that I did on the form they would charge me the same price and I can’t be denied. I am pretty sure the latter part has already kicked in but I wasn’t sure ab the price stuff. When did that happen or is that a 2014 thing?

  • gscandlen

    Jack, it is worse than all that. Yes, insurers now have to pay for many things that no one would freely buy if they had a choice. And, yes, they are not allowed to rate based on risk so healthy people pay more than they should. But on top of all that they are not allowed to ask any health questions when they enroll people. So they have no idea what kind of risks they are attracting. Their pool of people might be very healthy or they might be very sick, they don’t know. So they have to err on the side of caution and price premiums to meet the worst scenario. If they are wrong they can rebate some of the money at the end of the year. But if they had underestimated the risk and charged lower premiums there is no way the could recoup the losses. So we will all be required to pay premiums as if the whole pool was made up of diabetics and cancer patients.

    Very few of us will be willing to pay that much, so ObamaCare will end up creating MORE uninsured people, not less.

  • macbookben

    Again, your excellent writing both delights and instructs. I think the Obamacare was set up like this, to grow into an unsustainable red giant before it collapses into a white dwarf because the money-fuel is all spent. That’s the pathway to a single-payer system where rationing becomes the order of the day.

    A slight correction, perhaps it is the bon-vivant Robert Downey Jr. to which you refer in the 8th paragraph? No matter, Morton “the loudmouth” was a big time smoker who succumbed to lung cancer after a lifetime of heavy tobacco use. So, really, the lesson is the same.

  • Repair_Man_Jack

    Nicely done. Correction up.

  • jpkoch

    The angle is that an insurance company can simply stop underwriting health care policies once the regulations get too much or their profits become too small to justify remaining a player in the market.

  • http://conservativemormonmom.blogspot.com ew88

    I would only add that doctors were also not brought to the table, which will lead to further doctor shortages. See their reactions to Obamacare at
    www.conservativemormonmom.blogspot.com

  • http://www.TerriersOfTheRight.blogspot.com Flagstaff

    I may be wrong, but I believe the number of people insured has already gone down relative to the population, at least.

  • http://www.TerriersOfTheRight.blogspot.com Flagstaff

    That is as clear an explanation as can be done in so few words. It may not be complete, but it partially refutes Matt Yglesias’ claim that EVERYBODY needs to be added to medicare so its price will go down.

    I believe another requirement for insurers is that 80% of receipts MUST go out as health benefits. That means it’s to the insurers’ benefit to charge as much as possible, covering as much as possible, because that makes the remaining 20% portion bigger, too.

  • gscandlen

    No, they will not be allowed to ask about your health when you apply. Smokers can be charged 50% more, but no other condition gets added rates. Most of it goes into effect in 2014 but carriers are trying to get the premiums they will need now as a baseline for 2014.

  • Melody Warbington

    We’re not all that open-minded, RMJ. I submit that anyone who campaigned for the narcissistic, opportunistic, lying weasel algore isn’t a dear lady.

    I agree with Flagstaff that your explanation is clear and concise, but probably still beyond the grasp of Ms. Brazile and other leftists, even when reality hits.

    And I thought Downey reformed. Charlie Sheen, on the other hand…

  • Repair_Man_Jack

    Charlie Sheen is #Winning. How could you say such a thing?

  • adumas

    A clear, concise description of how “fairness” works. I’m certain Donna will now understand why her premiums have gone up. I certainly hope she doesn’t think they’re done going up, though, because the real deal doesn’t even kick in until 2014.

    But, if she has more complaints or questions, you can remind her that she is only getting what she asked for.

  • adumas

    Yglesias’ claim is simply based upon the warped idea that there will always an endless supply of someone else’s money to pay for everything liberals feel entitled to.

  • jaykali

    Okay good to know. So ya we are still a year or so way from ppl actually knowing what’s going on. A lot of ppl pay almost zero attention to politics until something actually affects them.

  • Repair_Man_Jack

    I don’t know if you do any cost analysis, but a very smart guy named (ironically) Dr. Christian Smart wrote a piece entitled “Here There Be Dragons.” If you work your way through what is basically some pretty sweet actuarial voodoo; you’ll see that he is telling program managers and cost estimators to make the exact same mental guess that you just did in your post.

    https://www.iceaaonline.org/awards/papers/2010_risk.pdf

  • Repair_Man_Jack

    That was more of a necessity before my beloved Deadskins drafted RGIII….

  • Repair_Man_Jack

    As long as everyone who gets added makes more scratch than him, he is correct. He is advocating for a bigger Free Rider problem, so that he can take a longer free ride.

  • Repair_Man_Jack

    That’s also a possibility. If you have an entreprenurial turn of mind, perhaps you can think of a good substitute good for people who still need the coverage…

  • http://www.TerriersOfTheRight.blogspot.com Flagstaff

    I thought the Free Rider concept was about the folks who don’t have insurance but use the emergency room instead. This, by the way, is a giant red herring anyway. Emergency room care is expensive, but it can’t come close to the cost of adding millions to the insurance pool, most of whom don’t themselves pay, who can now visit the doctor as often as they want for whatever reason they have.