Tuesday, December 14, 2010

I'm happy that at least one judge has ruled the Obamacare insurance mandate is unconstitutional and I hope the Supreme Court affirms the decision, but let's be clear, contrary to assertions made by a lot of smart people, the insurance mandate is not necessary to keep the insurance companies from going broke...

Yes, having to cover people with pre-existing conditions and eliminating caps on coverage will increase the costs paid by insurance companies.... but they won't have to eat those higher costs, they will simply - yes, simply - pass those costs on to their customers.

At their core, insurance companies are merely conduits by which money from one group of people (patients) pass to another group of people (health care providers) with a portion of the money siphoned off to pay the administrative costs (including a profit) of the conduit. While there may be occasional instances where there is an imbalance between money coming in and money going out, over the long term, the insurance companies are pretty much going to make sure the money they collect from their customers is equal to the money being paid out to medical care providers. If, for some reason, the money paid out goes up, so too will the premiums the insurance companies charge their customers.

And so it will be the case with payments made for those with pre-existing conditions and those who would have otherwise exhausted their coverage... the insurance company will pay out more and they will simply - yes, simply - just increase the premiums they charge.

This will create a bit of a vicious circle, as each round of premium hikes drives more mostly-healthy people to drop their coverage, thus reducing the premiums collected by the insurance company which in turn will drive up the premiums charged to those who remain in the insurance pool and so on and so on.... which leads to an end game where the only people seeking coverage are those with pre-existing conditions who are told they could get covered but only if they pay an incredibly high premium... a premium that approximates what they would have had to pay if they were paying for their care out of pocket.

But in the end, the insurance company will ensure that they collect amounts equal to what they pay out.... so it isn't the insurance companies that the mandate is designed to protect, but rather us policyholders, who otherwise would have our premiums increased to the point where we'd have to do without coverage... unless, of course, we had a pre-existing condition.