Monday, November 4, 2013

Unaffordable Health Care


Ok, it has been over a year since I have last blogged.  The current health care debate is so important and so misunderstood that I feel like I have to put something out there.  So I want to talk about how insurance works.

Insurance companies were created to provide people with an assurance that whatever they buy insurance for will be protected.  Let's talk about simple fire insurance.  You can buy fire insurance for your home.  Let's assume a company in Utah offers fire insurance for $100/year.

Year 1: 1,000 people decide to buy this insurance.  The revenue for that insurance company for that year is $100,000.  During that year, only 1 home was destroyed by a fire.  The home was worth $200,000.  The insurance company is then obligated to buy a new $200,000 home for that insured customer.  Where do they get the other $100,000?  Well, since this was their first year in operation, they would have to borrow that money from a bank.

Year 2: The insurance company has to make up the $100,000 that they now owe the bank, and they need to protect themselves from going into bankruptcy - which is what will happen if they don't increase their revenues.  So they raise everyone's rates to $200.  Year 2 revenues are thus $200,000 and luckily no homes burn down.  So they pay the $100,000 back to the bank and have $100,000 in profit.

Year 3: The insurance company needs to analyze their history to decide what rates need to be for the future.  Since they have so far had .5 houses burn down every year, and the average cost of the home is $200,000, they need to make at least $100,000/year.  Oh wait, let's say there are 3 employees each making $50,000 each.  That is an extra $150,000 that they need to make in revenue.  Plus their rental and utilities cost $10,000/year.  Taking only those basic expenses into account, the company's expenses equal $260,000.  With the 1,000 people that are on their insurance rolls, that comes down to a "premium" of $260/year for year 3.

Insurance companies can't pay out more than they take in.  Let's now talk health insurance.  Until recently, people who wanted health insurance could buy it and the structure would work just as we explained above.  With the new Obamacare regulations, insurance companies can only charge so much for certain people (they can't charge more for higher risk people like women who frequently have babies and cost the hospitals more money on average than men).  Since the expenses of the insurance companies don't change, their only option then is to raise the premiums for EVERYONE in their pool, men and women.  Same scenario when you consider pre-existing conditions.  The new regulations say that all insurance companies have to cover anyone with pre-existing conditions.  That is similar to someone who didn't have insurance before their house burned down and, once it burned down, they come to the insurance company and the insurance company is forced to pay for their home.  Where does that money come from?  Liberals believe that the evil, rich insurance companies are now forced to foot the bill.  In reality, the insurance company will just file the cost on to the other insured customers, who have been paying the premium all along even though their house hasn't burned down.

Keep in mind, when Obama and other liberals mention all of the "wonderful" additions to the health industry through the affordable care act, none of them are free - and none of them will be paid by "evil insurers or pharmaceutical companies".  All companies must make a profit or they will go bankrupt.  You can count on seeing the added benefits in your plans, but you can also plan on seeing higher premiums.  Oh, don't forget about all of the additional taxes that need to be raised to now pay a third party - the government agency in charge of the all of the regulations for the new law.