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The ObamaCare 9% Plan

“The open question is whether that’s a one-time spike (In Health Insurance premiums) or the start of a period of higher increases,” said Drew Altman, the chief executive of the Kaiser foundation.

(HT: New York Times)

So let’s imagine a scenario here. An industry consisting of large, partially-regulated firms sells to a group of individuals with limited purchasing power. The production cost of the product can be expected to rise by 5% a year. If 7% profit is what most people consider to be fair and honorable, an annual price increase of 5.3% to 5.5% is probably not an irrational expectation.

The industry in this example is health insurance, the consumers are small businesses and the product that grows in cost by about 5% per annum is group employer plans to cover small-business workforces. A funny thing happened on the way to the forum. Prices went up 9% this year, not 5.5%. The difference is causing people already disinclined to like private insurers to loudly pound the table for the further socialization of the medical sector.

In a simple free-market, a cartel of insurers could enjoy maybe seven fat years. At that point, reality would intrude on this cartel the way it did on OPEC during the 1980’s oil price crash. If 7% is considered a fair and honorable profit, I will not tend to buy the product of someone who is deliberately manipulating a market for 80% profit instead. Innovations will occur, policies will change, and that cartel of health insurers will then endure seven or more lean years after all the small businesses drop them like a life-threatening heroin habit.

Obviously, something must be badly askew. Insurers hire as actuaries some of the smartest mathematicians currently working in the United States. What would permit them to even think they could get away with attempting this sort of a bunco scheme? Something is, in fact, askew, and the insurers are engaged in a government-fueled arbitrage trade against the American taxpayer.

Under the aegis of the ObamaCare Law, the Federal Government concerns itself censoriously with spikes in health insurance costs – when they exceed 10%. Also, under the same law, they offer small businesses a way to drop these insurers the way a successfully-reformed junkie kicks Mr. Brownstone. Just pay a $2,000 per capita fine, and the pool of employees requiring insurance get dumped onto a government-sponsored cartel; oops, I’m sorry, exchange.

Ah, but here’s where the Sugar Plum Fairy goes on her messy period. Someone still has to buy all of these workers insurance. Someone still has to pay for said health insurance. The someone buying said insurance is the government. The poor son-of-a-sea biscuit paying for somebody else’s $12,000 health plan will start receiving his 1099’s and W2’s in the mail next January and February.

So health insurers are given enough of a regulatory ceiling to jack premiums up twice the predictable cost increases before anyone tells their mom. The businesses who have to buy said product can ditch the whole situation for a fine of 1/6 the price of the insurance. Thanks to the scintillating brilliance of ObamaCare, the taxpayers get put on the hook to finance the $10,000 delta between fines and the actual cost of the product.

This catalyzes utterly destructive modes of behavior. Insurers have pricing power at double the rate of cost increases. They are having money all but thrown at them under Federal Law. I’m afraid I’m just too old and cynical to believe that an entire room full of Congressional staffers wouldn’t comprehend that an industry that hires and trains absolutely brilliant mathematical minds wouldn’t figure this situation out and then rape it for every dime it’s worth.

This brings me to the point of the post where I don the tin-foil hat Internet Conspiracy Theory, and hope that it doesn’t mess up my finely-combed coif. The Congressional authors of ObamaCare had to know this would occur. It’s almost a LIHOP. When the fines were set so much lower than cost of the policies, Congress had to know private purchasers of employee insurance plans would pay their fine and ride off into the sunset.

Furthermore, the authors of the ObamaCare bill had to understand that a delta of $10,000 per policy had to be made up somewhere. As more and more groups of employees have their employer-based insurance cancelled, this cost is increasingly allocated over the tax base. Also, the market increasingly becomes the domain of a single payer. This makes me wonder about one missing piece…

What are the insurers thinking in doing this? They either intend to ride this arbitrage opportunity like a surfer on a tsunami and then ditch the health insurance business as soon as the Feds get wise enough or broke enough to enact more intelligent cost controls, or they intend to buy themselves a US Senate. They thereby plow their arbitrage profits into a hedge consisting of political protection from the rule of law and the concept of fundamental fairness. I’m left once-more gob-smacked at how utterly and totally the massive expansion of government into every facet of our lives completely undermines the morality of civil society.

ObamaCare Arbitrage Party!!! Woo-Hoo!!

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