Probably didn’t see that coming if you didn’t read it at the end of my last post, eh?
Well, I’m not under any illusion that the ACA is going to do anything its creators, supporters, and apologists ever talked about or promised. But I do believe it’s got a chance of dramatically shifting Americans back to better health via some of the most dramatic Unintended Consequences in modern economic history.
Unintended Consequences is an actual and pretty self-explanatory economic term. Like unemployment rising among the most vulnerable people when the minimum wage is raised, for example. It wasn’t intended, its degree isn’t necessarily predictable, but it isn’t really a mystery once they show up. Normally, however, they’re only some fraction of the benefit of the new policy, law, regulation, or what have you. This whole Obamacare thing is looking to be all about Unintended Consequences.
I’m going to get to how this is going to make for a better, healthier life for you fellow Fat Heads out there, and even more so for those who aren’t, but first I’m going to have to torture you with a quick primer on insurance. Because even if you have health coverage right now, it’s important to understand that you probably still don’t really have insurance.
What do I mean by that? Let’s consider what true insurance is. It consists of:
1) Some large, definable risk (my house could burn down) within
2) a group of people (50,000 homeowners) that can’t/don’t want to assume the sole financial risk of same, which
3) will occur with some reasonably predictable frequency (100 houses per year in x market)
4) at a reasonably predictable cost to make whole ($175,000 per house)
[3) and 4) are what Actuaries do, and they're generally incredibly good at it and make great money, kids, so stay in school and study that math!]
So we pretty much know how many times this is going to happen and how much it’s going to cost to rebuild all of those houses — $17,500,000.
The thing nobody knows is — which 175 people out of that 50,000 homeowner group is it going to happen to? So since none of those 50,000 want to be on the hook to rebuild their $175,000 house (remember, they still have to pay off the mortgage even if the house is nothing but ashes), they all chip in (via premiums) $350 to cover the rebuilding costs, maybe another $120 for admin and overhead, another $20 or so as profit, and there you go — you sleep easy in your $175,000 house in exchange for a $490 annual premium.
How is what most Americans who do have a health insurance policy not really insurance? Here’s a couple of the most blatant distortions from what real insurance is…
Does your homeowner’s insurance cover having your lawn mowed and windows washed? Of course not. Those expenses don’t comprise a risk to your financial well-being, and we know exactly who it’s going to happen to — because it’s pretty much everyone. If people did have that coverage, it’d be expensive as hell because 1) the cost of administering all of those small transactions would drive the overhead — and your premium — up way over the value of those routine expenses; and 2) with a low deductible or say a $2 co-pay, people would use the services way more often. But how many people are aghast at the idea of “insurance” not paying for those one or two routine doctor visits a year, or not covering the one or two bottles of pink stuff for little Johnny’s ear infections. Even though we all know it’s going to happen — to everyone.
[That type of true medical insurance -- no-frills, high deductible plan where you cover all of the regular stuff -- makes for a very affordable premium and is what Tom had -- until the ACA made it illegal.]
Or this — think this phone call ever takes place?:
“Acme Home and Auto, may I help you?”
“Yeah, um, I want to buy an insurance policy on my house.”
“OK, sir, do you know about what your house would cost to replace?”
“About $175,000 I think.”
“Good. About how many square feet is your house?”
“Well, right now it’s zero.”
“Excuse me, how could you have a $175,000 house with no livable space?”
“Well, it burned down last night. Say, I’d also like a really low deductible, OK?”
Of course that’s insane. But it’s not called insane in the health insurance debate — there it’s called a “pre-existing condition.” We should have a dialogue in this country about how to help uninsured people who already have medical conditions, but to think it belongs in the insurance market is no less insane than the above conversation.
OK, that’s real insurance, but for the rest of this I’ll be using the term to refer to the current stuff many of us have, mostly through employers.
…Now, let’s see how the ACA is going to help us all start getting healthier. One of the main ways is this — odds are pretty good that by the end of next year, you’re not going to have insurance. I don’t mean you personally. That would be a major setback. I mean you and probably 50-70 million of your closest friends. Company-provided health care will be exiting the scene in rapid and dramatic fashion, and good riddance.
It’s a major setback if it happens to a few or even a few thousands of folks, because now they’re out there naked in the market where everyone else is able to pay for all of those expensive doctors visits and specialists and prescriptions.
But when 50 million people find themselves looking for health care with only their own resources, you don’t have a disaster — you’ve just created a monstrous consumer-driven market overnight. Fifty million people who yesterday would’ve gone to the drug store (the closest one), given the nice person behind the counter their insurance card and $15 copay, and then gone home without a thought. Now they’ll be saying things like:
“How much does this cost?”
“It’s $10 cheaper if I drive six blocks to your competitor — can you match that?”
Another thing that’s coming to light if you’ve followed this at all is that the Obamacare policies, besides having major increases in both premiums and deductibles (out of pocket expenses before you get a dollar covered by insurance will probably range from $4,000 for the most expensive policies up to over $12,000 for the “cheap” ones) have made drastic cutbacks in the formularies. That’s the approved drugs that they’ll pay for or count towards deductibles. They have to have at least one drug from each class, and that’s pretty much what you’re going to have.
Many people are going to find that even if they have insurance, they drugs that have worked for them aren’t on the list, so they’ll be out of pocket. So even more important than that conversation at the pharmacy counter, more people will be asking their doctors things like:
“Isn’t there a generic for this?”
“Why’s it so expensive?”
“Why do you want me to take a drug for the rest of my life?”
“Shouldn’t I be looking at changing my diet and habits BEFORE trying drugs, instead of the other way around?”
“It’s costing me $120 for this visit, not counting the hour I just sat in your waiting room. I’d like a little more than 8 minutes and a prescription. How about you explain why you’re making these recommendations.”
Another way this reshuffles the current incentives in our system in a major way is this:
I think most Fat Heads will agree that part of America’s problem is that the commodity, Frankenfoods are just plain cheaper calories than eating good food even before all of the subsidies and price distortions that work in their favor. So, eating crap that has disastrous long term health effects is cheaper in the short run. Then people get cheap drugs to treat the chronic conditions they develop as a result. First we buy you the sugar, then we buy you the insulin. Perfect.
If people suddenly find themselves actually footing the bill for their own poor lifestyle and diet decisions, I believe it will trigger a paradigm shift in how they view their food. Perhaps even a paradigm shift in how they view the people who have been telling them what to eat for the last couple of decades.
These things don’t have to be voted on, or spelled out for the many people who won’t be that focused. But they’ll be listening to the people who do care, and are focused, because now it matters to them, and their positive actions will yield positive results.
It’s all about that “Wisdom of Crowds” effect that Tom is lecturing on (which his how you got stuck reading this!).
OK, you’ve suffered enough. Tom should be back next week. I may put up a couple of corollaries to this line of thought over the weekend, like how the continuing collapse could trigger a sudden outburst of fiscal sanity, and how to decide whether or not you should be trying to get insurance, or just wait until your house burns down and then let Obama buy you a new one.
See you in the comments!
The Older Brother