C’mon You Invincibles, Buy Your Health Insurance

Given the low numbers of younger people purchasing healthcare through the exchanges, it is clear that they must not understand how the Affordable Care Act works.  You see, the ACA works by having younger people pay for the healthcare of older people.  Rather than paying for what they actually use for routine care and a little extra to cover the risk an accident or rare major medical condition, as they did with health insurance before 2012, under the ACA young people pay a large amount extra to cover the cost of older people who are using a lot of healthcare.

This is caused by a provision of the law that says the amount charged to older people can’t exceed some multiple of the amount charged to younger people.  For example, young people pay $6,000 per year and use less than $500 per year in healthcare so that people in their fifties can pay $10,000 but use $15,000 worth of healthcare each year.  The idea is then that when you are in your fifties, having used all of your extra money to pay for the health insurance of older people when you were young, the next generations will be overpaying for their health insurance to keep your premiums down.

Of course the older people today get a sweet deal.  They got to use their money for new cars every couple of years, huge homes, lavish vacations, and maybe a kitchen or bathroom upgrade every ten years or so.  They now get to have their healthcare subsidized by you.  You won’t get such a benefit, since you’ll need to forgo all of these things in order to pay for their healthcare.  You’ll then need to hope that the next generation will agree to do the same thing so that you’ll have your healthcare subsidized since you won’t be able to save up any extra money even if you choose to drive old cars or buy an inexpensive house.

Obviously this is what you wanted, isn’t it?  You elected a Progressive House, Senate, and President back in 2008 who wrote and passed the ACA.  If you didn’t like the result, you could have not reelected the President and turned the Senate Republican in 2012 so that the law could be repealed before it went into effect.  Instead you affirmed your desire for the ACA by putting the same people back in, showing that you support the law and agree to make the sacrifice for the older generations.  I have also not seen any widespread protests erupting on college campuses or college newspapers demanding a repeal of the law.  Your silence shows your consent.  That’s great of you to be so nice – now follow through and pay up.

What happens if you don’t?  Well, the insurance companies are required by the law to limit the premiums they charge older people to a fixed percentage of the amount they charge younger people.  This means the insurance companies lose money if younger people don’t buy insurance and pay extra and they will quickly run out of reserves to pay for the benefits they are providing the older people.  Luckily, the government will pay for some of their losses, at least for the first few years.  This means the government will add those costs onto the national debt, so you’ll be paying for those costs, with interest, throughout your working career.  The insurance companies will also raise their premiums dramatically next year to help cover the imbalance, meaning the young people who do sign up will be paying even more still.

Note that the law was designed to force people to pay the higher prices and join the exchanges.  The system only works if younger people are subsidizing older people, so there was great interest in forcing people out of the healthcare plans they had and onto the exchanges.  Saying that you could keep your plan was a lie, told because the ends of getting everyone on healthcare justified a fib or two along the way to get people to go along.  The change was designed to kick in until after the election because people who would be losing their plans and paying more would be upset.

To entice people on the individual market to sign up for the new, higher cost insurance, there is a penalty for those who don’t which starts at 1% of pay and then increases each year.  There is also great incentive for employers to dump their health insurance and send their workers to the exchanges since they will only pay a $2,000 fine per worker, as opposed to paying $10,000 per worker or more if they provide health insurance for their workers that meets the standards of the ACA.  The trouble is that the Administration has been delaying all of these mandates until after the next election because of the backlash and the pleas from Progressives who can smell the tar and see the feathers for some relief.  Because those who were supposed to have lost their insurance by now didn’t, and therefore aren’t going to the exchanges, there is an imbalance between those who are healthy and paying more than they use and those who are sick and paying less than they use.

If we get into a death spiral where young people don’t sign up, so premiums rise, causing even fewer young people to sign up, causing premiums to rise further, eventually the whole insurance system will collapse.  Insurance companies will exit the health insurance market or go bankrupt.  At that point we will have two choices.

One choice, that will be presented by those who brought you the ACA, will be to have a single payer system, with the government being the single payer.  Note that because the government has no money of its own, it means that taxpayers, meaning most of us, will be paying for healthcare.  Your taxes will increase by $6,000 to $12,000 per year to cover the cost of your health insurance and those who are not paying.  This will probably be another deduction on your paycheck like Social Security and Medicare of $300 to $600 per month.

Many of the good doctors, who don’t like a lot of red tape and paperwork, will go into concierge medicine (many already have).  These doctors won’t accept insurance and instead require patients to pay for services directly, either through a monthly payment or at time of service.  The cost of these doctors will probably be less than the amount you are paying for the government insurance (on average, very low wage workers will pay little or nothing, as they always do), but because you will be forced to buy the government insurance, you’ll need to come up with additional money to pay for this private healthcare service.

Just as with schools, the rich will have the choice of paying again for a different healthcare system since they’ll have the disposable income.  The poor will have no way to use anything but the public system.  Many in the middle class will only be able to have a choice for their healthcare if they make great sacrifices of other things since the burden of paying twice will be difficult with their incomes.  In some places the public healthcare system might be fine, but if it isn’t, many will not have any choice but to accept it.

The second choice will be to forget the public health insurance model entirely and go to a pay-as-you-go private system with a requirement that everyone either sign up for a concierge service or save a like amount in a private account (a Health Savings Account) to pay for medical services as needed.  This would be supplemented by an insurance policy that only pays for the big stuff like your appendectomy or car accident.

Without insurance companies in the way, the costs of going to the doctor will be lower.  It will also cost less because almost everyone will be paying for the services they need since they’ll have the money saved up.  Note that this is the main reason that healthcare costs so much today – most people aren’t paying the full price.  This includes Medicare and  Medicaid, that often reimburses doctors and hospitals for less than their costs.  People paying full rates are therefore paying for a lot of other people in addition to themselves, hence the $10 aspirin.

So, come on you invincibles.  You voted for this system, so do your part and sign up and pay your premiums.  The more of your generation who sign up and then rarely go to the doctor, the less everyone will need to pay.  Sure the amount of fraud and waste in the system will cause things to cost more than they would under a private system if most people were paying, but this is the path you chose.  Nothing like the DMV style of healthcare.

If you are having second thoughts, however, now is the time to speak your mind.  The second option above could be done without the insurance system first collapsing.  In fact, it has already started to happen as doctors choose to not participate in the ACA.  All that needs to happen is for the ACA to be replaced with the requirement that everyone put money into a Health Savings Account or pays for a concierge doctor service and that everyone buys a major medical insurance policy.  Anyone who deosn’t could be charged a tax, as the Supreme court has decided is allowed, that would go towards providing for their healthcare when they get sick without money to pay the bill.  It’s that simple.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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