health-care-costs

Obamacare Premiums Will Jump 25% on Average Next Year- More to Come

Sources are reporting that premiums on mid-level Obamacare health plans will rise on average 25% next year. ABC reports:

Overall, it’s shaping up to be the most difficult sign-up season since HealthCare.gov launched in 2013 and the computer system froze up.

Enrollment has been lower than initially projected, and insurers say patients turned out to be sicker than expected. Moreover, a complex internal system to help stabilize premiums has not worked as hoped for.

Nonetheless, Obama says the underlying structure of the law is sound, and current problems are only “growing pains.” The president has called for a government-sponsored “public option” insurance plan to compete with private companies.

Republicans, including Trump, are united in calling for complete repeal, but they have not spelled out how they would address the problems of the uninsured.

Clinton has proposed an array of fixes, including sweetening the law’s subsidies and allowing more people to qualify for financial assistance.

Sharpest Jump Yet

Keep in mind that 25% is the average. In Arizona it will be 116%. In Pennsylvania, it will be 43%. North Carolina- 40%

Minnesota is considering calling for a special session to generate special funding to deal with the increase for citizens in its state.

However, more importantly, the cumulative rise in premiums since Obamacare began the rise has been a whopping 126%.

When the plan was initiated, it was projected that at least 21 million sign ups were needed to make Obamacare work. To date, only 12 million have enrolled so far.

The Hype to Sell It to the Public

When Obama was selling the Affordable Care Plan to America, the promise was that “We will start by reducing premiums by $2,500. Premiums will go down he claimed as did Harry Reid and Nancy Pelosi.

Since Obamacare began the average family (the middle class) is paying $4,100 more for their health insurance. That is, a $6,500 increase over Obama’s promise. Is it any wonder that he is campaigning for Hillary now? They are two peas in a moral pod it appears. Subject to hyperbole and well…..downright lying.

Obamacare’s Fatal Flaw

Any plan that eliminates underwriting risks, as Obamacare has with its elimination of screening based on pre-existing conditions, is destined to collapse under its own weight.

This alone creates a fatal flaw that will doom it to fail. Either premiums will rise to the point of becoming unaffordable, and/or benefits will be cut to point of making the coverage hardly worth the cost.

As we witnessing with Obamacare, insurers will simply abandon the plan as 1.4 million people in 32 states have discovered. Large insurers like Aetna, Humana and the United Healthcare Group have left the exchanges by simply terminating their plans……..because they are losing too much money. This is the “choice” that Obamacare has produced for consumers- less competition.

So, now despite the subsidies by the government (which are paid for by whom?), Obamacare premiums will rise significantly next year.

So what is the predictable response of the Statists like Obama and Hillary?

No admission of failure of direction or flaws in the basic concept. Instead, they propose that more government control and public money be thrown at the problem their plan created.

In short, their solutions will be like using gasoline to put a fire out, simply because it is a liquid.

How Underwriters Help Insurance

Any plan that eliminates underwriting. such as Obamacare has done, creates a fatal flaw that will doom it to failure.

There is a reason that people are able to earn a living as actuaries and underwriters. They are a key component of the business of insurance.

Without their work, insurance is little more than legalized gambling or a game of Russian roulette with a bullet in the chamber. Eventually, the chamber will spin to the bullet and then its BAM! You lose. Rates rise at uncontrollable levels.

Underwriting helps make insurance affordable and here’s how.

Insurance is a shared risk pool.

All of the insureds pay their premiums to the company to create a pool of money. Most people believe it works like this. They pay the insurance company. The insurance company pays the premiums.

I sold health insurance and that’s what I thought. I was surprised to find out that I was wrong. My brother straightened me out.

How Insurance Really Works

At the time we had our little talk, my brother ran the AARP plan for Prudential. At the time, I sold health insurance to small businesses along with other types of insurance and investments.

At the time, insurance plans were rated based on claims experience. I could sell a policy with a $200 annual deductible, 20% co-pay up to a maximum of $2000 with unlimited coverage and your choice of hospital or doctor for about $200.00 a month for a family.

I keep saying at the time because all of this has changed and guess what? Insurance premiums have sky rocketed.

This fact alone should tell you something about how well the changes have actually worked. Eliminating risk underwriting has not helped premiums. This is why.

My brother and I got into a discussion at one Christmas family gathering. At the time, we were both in the business of selling health insurance. I knew that premiums on older insureds with higher claims experiences were pretty high. So, I asked him, “How can Prudential afford to insure all those people on the AARP plan? Won’t the rise in rates cause them to lose too much money?”

He responded by asking me, “Well, who pays the premiums?”

I replied, “The insurance company.”

He said, “No, they don’t.”

A bit surprised at his answer because after all, I sold a lot of health insurance plans to small businesses. So, I challenged him and asked, “Well, then who does?”

He explained to me that insurance (all insurance btw) is a shared pool of risk. Into the front door comes all of the premiums which fill up the shared pool.

However, out of the back door goes the payments for the claims.

Out of the side door goes the insurance company’s admin fees. The insurance company earns its profits by attaching a fixed administrative fee. That doesn’t change. Their profits come from the administrative fees, not the premiums.

At the time, Prudential managed the AARP plan because they came in with the most competitive percentage on the fixed admin fee. When that changed, which it did eventually, Prudential lost the AARP coverage to another carrier with a lower admin fee. The plan remained, the insurer changed. Common in fixed models like an AARP plan.

Well Then, What If Claims Rise?

Remember, the premiums coming in the front door fill the pool. The claims going out the back door drain it.

So, if the pool gets too shallow from high claims expenses, you have to fill it back up with more premiums. Where do the premiums come from? Well, as we already noted, they come in the front door from the insureds.

The insurance company doesn’t fill up the risk pool. They still get their fixed admin fee to earn their profits. Efficiency and reduced claims costs advance their profits, not premiums.

So, the answer as to who pays the premiums in a health insurance policy is quite simple: the insureds do. More claims? Simple fix. The people who are insured pay more.

In the case of a government plan, we all end up paying because government simply fills up the pool with more money that gets added to the public debt.

If the claims in the pool rise, the people in the pool will pay higher premiums to fill it back up. Or in the case of Obamacare, we all eventually pay which inflates the value of the dollar reducing our purchasing power and our ability to save or invest as well.

The insurance company doesn’t want higher premiums. When premiums grow, healthy people who can afford to pay and don’t drain the pool with excessive claims, leave the plan.

Sick people stay because they are benefiting the most from the plan. They cannot afford to leave and lose coverage.

However, when rates rise, the people who can leave the plan will. They are very “insurable” and will be able to find more affordable coverage elsewhere.

That in and of itself is a primary reason rates continue to rise. Less people are paying in tightening the pool. Healthy people along with their premiums have left. More claims are going out the back door from the sick people left in the plan. Less people. More costs. Rates rise.

What Eliminating Underwriting Does to Insurance

In health insurance, underwriting allows the insurer to gauge their risks. As a member of an insurance pool, you want them to gauge their risks accurately. The better their risk predictions, the lower premiums you will pay because claims will be moderate.

If the underwriters assess poorly and take on a lot of bad risks, you will pay higher premiums because claims costs will rise.

Dividing people into classes based on their sex and age helps premium payments. Younger healthier single people will pay lower premiums. Lower premiums for them will attract more of them. Their premiums and their lower claims will help offset some of the costs for the older and sicker people who will pay higher premiums.

Woman of child bearing age may pay higher premiums because it costs more money to have a baby. Single females with lower claims offset some of that rise for that class. There is a balance that works itself out if all is done intelligently and carefully. Never perfect but better than no underwriting or risk assessment at all for sure.

Now however, much of that has been discarded. People think that premiums are going up because insurance companies are making money off of them. They aren’t.

As mentioned above, insurance companies make their money from the admin fee, not the total premium. If claims rise, premiums will also.

As should be clear by now, that is because the insureds pay the premiums, NOT the insurance company.

The bottom line: reducing underwriting of risks will generate higher premiums. The shared pool becomes a gamble or a crap shoot based on chance, not a skilled assessment of risk.

This is how knew from my brother’s little holiday class that Obamacare is destined to fail. It will collapse under the weight of its own crap shoot arrangement.

That is also why I knew that Obamacare is more about control of the people. It was never intended to be a genuine solution. This is why the law is so large and covers much more than health insurance. It controls the people from cradle to grave. Costs are a secondary factor. Control is the real intent.

But Wait There’s More!

When you eliminate underwriting, which means take out the ability to reject a person as a poor risk because of pre-existing conditions, or even the risks associated with their class of insureds (age, sex and even occupation), insurance necessarily attracts the highest risks.

Those people who can benefit the most from it by having their penalty of higher premium to enter the pool eliminated will grab it because they have no other good choice.

By paying much less than they would if they paid for their already existinghealth-care-costs-split treatment for a pre-existing condition like diabetes, heart disease, cancer even pregnancy, they get more benefit for the money. The healthy people in the plan, who may in fact even take better care of themselves, suffer with higher premiums anyway.

This may sound heartless, but those are the facts. Increased claims cause premiums to rise. The more sick people that enter a plan or even get sick while in a plan, the higher the premiums will rise because higher claims leaking out the back door will drain the pool requiring more premiums from insureds already in the pool.

How Hillary Sees It

Hillary however doesn’t acknowledge the above connection. During the second debate Hillary said,

But here’s what I don’t want people to forget when we’re talking about reining in the costs, which has to be the highest priority of the next president, when the Affordable Care Act passed, it wasn’t just that 20 million got insurance who didn’t have it before. [Note: Actually 12 million but hey it’s Hillary speaking.] But that in and of itself was a good thing.

But everybody else, the 170 million of us who get health insurance through our employees got big benefits.

Number one, insurance companies can’t deny you coverage because of a pre-existing condition.

Can you see the disconnect? In short, she doesn’t know what she is talking about and doesn’t understand how insurance really works in real life.

Or worse, she does but doesn’t admit it publicly (which I wouldn’t put past her BTW). More important to her than what happens to costs perhaps is who controls the people by controlling the coverage.

After all, it was Lenin who was reported to say that “Health Care is the Keystone to Socialism.”

She also stated that:

Well, I think Donald was about to say he’s going to solve it by repealing it and getting rid of the Affordable Care Act. And I’m going to fix it, because I agree with you. Premiums have gotten too high. Copays, deductibles, prescription drug costs, and I’ve laid out a series of actions that we can take to try to get those costs down.

Folks, how is she going to “fix it” if she claims that one of its biggest benefits of Obamacare is that it eliminates the pre-existing condition underwriting?

She can’t. The plan is destined to fail. The elimination of risk assessment by guaranteeing coverage regardless of current health will continue to attract the sickest people who need it the most just as ABC admitted above. Her fix will be like the “fix” we are seeing now. Higher premiums and declining quality.

The Real Solution- A Free Market

Before the government entered into the health care marketplace, we had some of the best health care in the world. Underwriting was able to operate freely as it does in other markets like car insurance. Bad driving records get you rejected by an insurance company or you pay higher rates. It forces people to drive more carefully.

Health insurance could do the same. That is, fear of high rates would encourage people to take care of themselves. It helps them. It helps the pool of other insureds. It helps the insurance company remain in the business of providing you coverage in the event that life steps in the way and your health conditions suddenly change.

Then Medicare and Medicaid began in earnest. Everyone was covered once they reached a certain age or had a certain income. Healthcare premiums began to rise steadily shortly thereafter.

It has continued ever since. (P.S.- There is no Constitutional authority to take control over a private market btw in case you were wondering.)

The government and Statists will never admit that but as a seller of health insurance delivering increases of 80% and more, I watched it first hand after Medicare got going in earnest.

The game, as renewals rolled in, to retain the business became to offer alternative plans at lower cost. Then in a year or two, they went up too. The game of shop and switch went on once again. It was stressful for not only the agent and the business owner but also the insured as plan benefits went down with higher deductibles and co-pays but costs also went up.

The problem was created by government control of a free market. Government caused costs to rise by eliminating the very things that helped keep them affordable such as the elimination of underwriting through guaranteed coverage despite your pre-existing health condition.

Now, it is even worse. Insurers are guaranteed a customer base by the force of law. They have no choice without penalty of law but to participate in this failing health care model. Consequently, drug companies can raise costs and know that they will have customers anyway. (Just like government subsidized college education btw.)

Obamacare is a disaster already and it will get worse. If it continues, we can expect nothing more than rising costs and declining quality of care- that I can confidently predict.

We either end it or watch it fall apart before our eyes. It can not be “fixed”. It was deeply flawed from the beginning and bound to fail. Watch and see.

Hopefully, you won’t have to.

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