Understanding Obamacare, and why it will ultimately fail

Since 1990, culminating with Obamacare, progressives progressively destroyed health insurance. How? By switching definitions.

Old Definition: Insurance — current fixed, smaller payments to protect yourself from future potential unforeseen larger catastrophic events, based on actuarial equations. The potential future loss times percentage probability of occurrence equals cost of insurance. Example: $1 million catastrophe exposure times 1 percent probability equals $10,000 insurance cost. The equation was a square deal … not a good or bad deal. New Definition: Insurance — a means to spread some people’s known high medical costs onto everyone else’s back.

This “cost redistribution” is achieved via three new mandates on all health insurance:

1. No pre-existing condition exclusions. Even people waiting until after they’re sick to buy insurance can’t be denied coverage.

2. Community rating. With few limited exceptions, unhealthy people can’t be charged more than healthy people.

3. All policies must cover all issues; i.e., a 60-year-old man’s policy must cover pregnancy, nuns’ policies must cover abortion and nobody can choose which illnesses they want covered. These three cost socialization mandates are what Obama means when he says “it’s better insurance.” But they’re also a three-pronged pitchfork prodding insurance costs skyward. How?

This turns insurance’s mathematical sense into nonsense. Pre-existing conditions are 100 percent probability. Follow my math: 100 percent times $1 million is … $1 million. Forcing these three redistribution mandates into everyone’s insurance not only eventually doubles cost, it dooms health insurance to destruction. Why? The “square deal” has become a bad deal. No one who understands financial math will buy insurance costing twice what the actuarial equation dictates except the chronically sick. Because the healthy won’t voluntarily buy it, that’s precisely why Obamacare mandates everyone must buy insurance. Hence, Obamacare’s noncompliance penalties: In 2014, 1 percent times your income; 2015, 2 times your income; 2016, 2.5 times your income.

But Democrats who passed Obamacare unilaterally (with zero Republican votes) failed grasping simple math. Even the maximum penalties in 2014-2015 are far cheaper than mandate-stuffed Obamacare insurance, so many healthy people will simply opt out of Obamacare and pay penalties. Some will assume the risk of self-insurance, others will buy limited-coverage, high-deductible policies that fail Obamacare’s mandate-stuffed requirements. They’ll pay penalties while abstaining from Obamacare enrollment.

Others will avoid penalties entirely by using Obamacare’s 21 exemptions: Have you received eviction, utility shutoff, or foreclosure notices; health insurance cancellation, experienced domestic violence, disaster, family death, increased care expenses for ill relatives, bankruptcy, unpaid medical bills, or Medicaid rejection because Montana didn’t expand Medicaid? Are you participating in a healthcare sharing ministry? Are you homeless, low income, Indian, incarcerated, or an illegal immigrant, etc.? (All allowable exemptions with minimal or no documentation.)

Precisely because Obamacare insurance is cost socialization, it only works if many young/healthy people pay to cover the high cost payouts of the old/sick. PolitiFacts proclaimed Obama’s “If you like your current insurance you can keep it” the Lie of the Year. Why? Because it couldn’t be true. If he granted existing policies exemption from his three-pronged cost socialization mandate, and those policies coexisted alongside Obamacare, healthy people wouldn’t voluntarily switch to far higher-priced Obamacare. The only option is to force cancellation of cheaper, pre-Obamacare policies, which is why Obama can’t relent despite intense criticism. I hand-delivered my daughter-in-law her insurance cancellation notice recently enroute to delivering my “Surviving Obamacare 101” workshop.

Once the young/healthy do the math, realize their options, and start abstaining, a rate death-spiral begins. Obamacare needs 38 percent of enrollees to be young, yet already young enrollment languishes 14 points below that. With fewer healthy paying in, to maintain Obamacare system solvency, rates on the remaining insured will skyrocket. By 2016, when Obamacare penalties escalate to 2.5 percent times your income, Obamacare insurance rates will have escalated even faster, such that financial comparisons will still leave many financially-savvy, healthy people opting out regardless of penalty or exemption.

The taxpayer-financed Obamacare low-income subsidies (averaging $5,290 each) only exacerbate problems. Total cost of $1.1 trillion will weigh increasingly heavy on our children’s economic future, as the rate death-spiral drives Obamacare insurance rates skyward. Seventy-five percent of Obamacare’s 20 new tax increases hit the middle-class heavily, yet still fall far short of paying the tab.

Prognosis? Obamacare is on three-year life support

(Joe Balyeat CPA is a former chairman of the Montana Senate committee overseeing insurance mandates. He is state director of Americans For Prosperity-Montana. Email him at [email protected].)