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.