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Thoughts on Republican Obamacare madness (and the fraud of private health insurance)

October 5, 2013

One of the things the Republicans used to say about Obamacare (a.k.a. “The Patient Protection and Affordable Care Act“) was that they would “repeal and replace” it. Lately, there’s been nary a squeak about the “replace” part of it, and rather than “repeal” (which implies an action taken in accordance with the will of the people as expressed through the ballot box), the strategy is to sabotage it and hold the economy to ransom in an attempt to defund it.

Amid all the Republican tantrum-throwing, it would be nice to see from them an articulation of why the existing model of essentially unregulated private health insurance works and should be left alone. The reason such a paean to the merits of the current model has not been forthcoming is quite simple. The current model does not work, and cannot possibly work.

Of course, the truth of such a claim depends to a certain extent on what you believe it means for a healthcare system to “work”. One problem is that liberals and conservatives have fundamentally different beliefs about how a “working” healthcare system should be defined, and this semantic difference is what would allow a conservative to opine that the current system is working, whereas a liberal would berate it for its failure. So, to begin, I will offer a quick summary of what I liberals and conservatives appear to mean by “working”.

For a liberal, a working healthcare system is one which gives all citizens affordable access to high-quality healthcare. If there are people who the system is unable to cover for whatever reason, that is a failure of the system. It will not surprise you to learn that I share this definition of “working”.

For conservatives, and you need to be aware that this is largely conjecture on my part based on observation, I think they have a simple definition of whether an enterprise works or not, which is whether it is profitable. Obviously, on this score, the private healthcare model is a great success – insurers make money, hospitals make money, lawyers make money. Any interference which lessens the amount of money made by these principal actors in the system would, by definition, make the system worse. This is the reason for Republican antipathy to any form of federal regulation – it may reduce someone’s profits somewhere, which is a crime against the very foundations of capitalism. But we will leave that for another blog post.

So, with “gives all citizens affordable access to high-quality healthcare” as our understanding of what constitutes a working model for providing healthcare, let us see why the private health insurance fails to the extent that it could be reasonably described as “legalised fraud”.

What is insurance? It’s a bet. It’s gambling. If you have a hunch about how something is going to play out, you can make a bet on the outcome with someone: for example that a particular horse will win a race. You name your stake, if someone takes your bet then they undertake to pay you some multiple of your stake if your hunch is correct, they keep your stake if you’re wrong.

With insurance of any kind, you are effectively saying “I bet that something bad (house burning down, holiday company losing luggage, nasty illness) is going to happen to me”. The insurance company then tells you what you need to stake in return for a particular payout if you win (that is, if the bad thing happens). Typically, your bet is implicitly time limited, so you’re betting that a particular nasty thing is going to happen to you this year and you pay your stake for a year’s coverage, and renew the following year, but that’s a minor detail. Now let’s look at three obvious truths:

  • What’s the aim of the insurance company? Simple – they exist to make money.
  • How do they gain money? By taking in premiums from people.
  • How do they lose money? By paying out when they lose bets.

Every time someone makes an insurance claim, that’s a bet that the insurance company has lost. Too many of them, and they won’t be making a big enough profit, and everyone there will be sad. So, faced with that, how would we expect an insurance company to behave?

  1. They can try to avoid paying out wherever possible. Depending on the value of the claim (i.e. their potential loss), we would expect to go through all of the paperwork very carefully, looking for any discrepancy or omission that would give them the right not to pay out. Sure, there’s effort involved with doing this, but if it costs less than the claim would, it’s the rational policy to pursue. There might be some bad publicity if they do this too often, then again, this might not be as damaging to their business as you might think (e.g. if the insurance policy was bought by an employer for its employees, the employer may have little incentive to make a fuss about poor service).
  2. They can avoid taking bets that they’re going to lose (or, they can charge huge premiums for cover if there’s a large chance they’ll have to pay out). This, of course, is the basis for the notorious “pre-existing conditions” in insurance policies – if you have a known condition then you may be denied coverage because, from the insurance company’s point of view, you’re almost guaranteed to lose them money.

In these two points, we see the essence of why the private health insurance model simply cannot work. As private enterprises, their raison d’être is to make money. Paying out on a claim loses them money. They will, in general, want to pay out on as few as possible, whether this involves finding excuses not to honour a claim, or simply refusing to insure people who are a clearly a dead loss. It’s easy to get health care coverage if you’re probably not going to need it, but you’re either going to fail to get coverage or are going to receive shabby treatment if you do actually need it (and then you can expect the insurance company to drop you like a hot potato, as you now have a “pre-existing condition”).

Of course, there are always exceptions to the rule. There may be some times it’s worth paying out – consider a young healthy person who breaks an leg playing sport. Such an injury is well understood, may be completely fixable relatively cheaply, and the insurance company probably has more to gain from retaining the healthy person’s custom (and recommendations to friends) afterwards. Other claims that are worth paying out for are those from celebrities and politicians – I’d be quite surprised if companies handling these people didn’t have a policy of treating their claims with far greater leniency than those from the hoi polloi. But, assuming you have expensive healthcare needs, and are not a face known to millions from the TV, the insurance company is not going to be on your side.

So how to fix this?

Well, without regulation, there is no way to fix this (at least, so that it works in the liberal sense – it’s already working absolutely fine in the conservative sense). Insurance companies left unregulated are going to do the thing that makes them the most money, which is not to insure risky people, and to try to stop ensuring people once they turn bad.

So, Government needs to step in to make the system work, and thus we have the PPACA which, though not perfect, is at least a start, and it means that everyone gets healthcare. Why, then, are the right-wing in such a tizzy over it, to the extent that the Republican party is prepared to do huge amounts of economic damage in an attempt to bully Obama into abandoning the plan? There are a number of possible reasons.

  1. They hate Obama, and particularly resent the fact that he’s implementing a conservative plan but will get the credit for it. Mitt Romney introduced the idea, which was invented by a conservative think-tank, successfully in Massachusetts. If Obama had never existed, but Romney had won the presidency promising to bring his working healthcare system to the rest of the US, the Republicans would be falling over themselves to bask in the reflected glory. But the Kenyan Muslim atheist socialist does it and it’s an assault on the foundations of America.
  2. They don’t recognise there’s a problem. From their point of view, people are making money out of the system which must mean it’s working just fine. If people don’t have healthcare, they can always get a job.
  3. It sets a terrible precedent. For me, this is probably the key to it all. The Republican line is, and has been for some time, that Government is always the problem, never the solution. Everyone would be better off if the Government just got the hell out of everybody’s lives with their laws and regulations. Unfortunately, Obamacare is likely to pull the rug from underneath this particular bit of dogma. And then the danger is that the American public may start to wonder what else the Government could be doing for them. And where does that lead? Nazi Germany The possibility of an increase in the rates of tax paid by the wealthy, which is ultimately all they care about.

Hence the current paralysis. Republicans are so determined to prevent any suggestion that Government is not the ogre they’ve repeatedly portrayed it to be that they’re prepared to do immense damage to it, the economy, and themselves. Fun times.

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