Time and again we have seen good ideas to benefit the people by regulating companies emerge from Congress in the form of legislation that does exactly the opposite of what it was intended to do, and amounts to nothing short of massive theft by the very industries that were supposed to be regulated. That certainly appears to be where healthcare reform is headed.
While all the details have not been released yet, by all accounts the Senate has finally killed off the public option and replaced it with weakened non-profits run by for-profit insurance companies and an opportunity for uninsured people age 55-64 to buy into Medicare. Many progressives have reacted with jubilation to the Medicare proposal because ultimately they would like to see this concept extended to all citizens. They should be cautious with their enthusiasm.
It is really important to remember the core dynamic of health insurance, which is that statistically speaking, young and healthy people pay for more insurance than they consume in healthcare. As they get older and sicker, they start consuming more healthcare than they pay for. When insurance is structured this way, young people are essentially forced to save in advance for their future healthcare costs and the net effect is “low” premiums for everyone. If young people are not included in the insurance pool and the only people with insurance are those who have very high healthcare costs, then the premiums will be very high because the insurance company essentially ceases to spread risk among the population and begins to be just an unnecessary payment processor, but one that has enormous administrative costs and a requirement to generate a profit.
So now look at what is shaping up in the Senate.
The insurance companies have won a mandate for all people to buy insurance from them. This guarantees that young, healthy people will be in the insurance pool, which will allow companies to do some combination of A) increase the profits they distribute to their shareholders and B) manage the cost of their insurance premiums. By giving people age 55-64 the ability to buy into Medicare, the insurance companies have also, probably, increased the ease with which they can force people in this age group out of their insurance pool. So they have brought in millions of young, healthy, highly profitable customers, and they are getting ready to kick out millions of older, sicker, less profitable customers. You wonder why they have been saying all day that they won? This is why. It is good to be them. They are now essentially getting ready to sell expensive insurance exclusively to people who have no healthcare costs.
Medicare, on the other hand, is being set up to fail because just the opposite is happening to it. It is being forced to take on millions of new older, sicker, customers with high healthcare costs but it will not get any younger, healthier customers to which they can spread the costs. So Medicare is becoming more of a “payer” and less of an “insurer”. This is going to cause Medicare’s average cost per customer to be much, much higher than the average cost of the private insurers. Because Medicare coverage for this age group is going to be forced to be self-financing, the premiums are going to be very, very high. The effect will be that as people turn 55 they will be forced out of their lower cost private insurance, where young people subsidize them, and into Medicare which will end up having much higher premiums than they’ve been paying.
And when Americans look at the two systems side by side they will see private insurance with low premiums (they’ll forget that private insurance only has healthy customers) and Medicare with high premiums (they’ll forget that Medicare only has older, sicker customers) and they’ll conclude that “government can’t compete”. Republicans will have a field day.
The single-payer proponents should be in favor of giving a buy-in to people age 55 -64 only if they know that next year it will be extended to people 45-54, the year after that to people 35-44, the year after that to people 25-34, and the year after that to everyone. To be excited about what is currently on the table now is to be cheering the tsunami that is about to wash them away.