Donald Trump wants to replace ObamaCare with something better. It might help if he understands how it works and how to fix it. (Photo: Getty)
During the campaign, he promised to replace ObamaCare, as it’s known, with something far better at far less cost to consumers.
But he was short on specifics and still hasn’t been able to come up with a better plan. There may be a good reason for that.
It’s like this: you’re in a room with 500 people. An insurance company would look out at the crowd and know from actuarial studies that 25 percent of those in the audience will develop cancer in their lifetime. Another 30 percent will develop heart disease.
Another 20 percent will suffer from other illnesses requiring treatment, while maybe 5 percent will suffer accidents that require major attention.
The problem is, the company doesn’t know who those people are.
Under the concept that insurance is supposed to spread risk, it would be in everyone’s interest to sign up for insurance and pay premiums, just in case the bulls-eye is on their back.
The person who develops cancer may require $300,000 in treatment. But because the cost is spread over the entire group, no one is financially exposed.
But insurance companies aren’t in business to manage risk that way; they’re in business to maximize profits for their shareholders. Insurance companies protect their margins by engaging in individual underwriting to lower their exposure, sort of like counting cards at a blackjack table. It’s illegal in Vegas, but not when it comes to insurance.
They hedge their exposure by trying to figure out how the deck is stacked against them. For example, if they think you are a potential cancer victim, possibly because of a family history or pre-existing condition, you are cut from the pool or your rates are jacked up.
Of course, if you are young, the odds of being healthy are much higher, and therefore, a good insurance risk. Young people are rewarded with lower premiums in the short term. But get sick and boom you lose your favored status.
Insurance companies also know individuals incur 35 percent or more of their lifetime medical costs in the last 10 or 15 years of their lives. That’s why older people are summarily dropped by insurers, and why we have Medicare today.
In effect, Medicare is a subsidy for insurance companies because they no longer have to include high-risk elderly people in their pools which would raise costs and cut into their profit margin.
Now how about this:Instead of insurers spending tens of millions of dollars on actuarial studies to game the system, they went back to the original concept of spreading the risk over the largest possible population to minimize costs for everyone.
This isn’t socialism. States are already doing this be requiring mandatory auto insurance for anyone who drives on public roadways. Health insurance should cost no more, no less, than car insurance.
That’s why mandatory health insurance is necessary with no exceptions. That would be the first step toward reform.
One little publicized benefit of ObamaCare is the fact that increasing the number of people with health insurance, cut the cost of uncompensated hospital care by $7.4 billion in 2014 alone, according to federal Department of Health and Human Services.
Those costs, incidentally, are otherwise borne by taxpayers. Repealing ObamaCare would send those expenses skyrocketing again.
As controversial as it may be, Trump should also do away with employer-provided health insurance. Many consider it a good deal because their employer “subsidizes” the cost as a fringe benefit.
But the truth is, taxpayers are paying for the subsidy. That’s because money spent on health insurance by employers is tax deductible. In contrast, paying a higher salary would require them to pay higher payroll taxes.
The system was set up during World War II because companies were subject to wage and price controls to help the war effort. Employer-sponsored health insurance was a way to compensate employees without giving them pay raises. But it was never meant to be permanent.
Second, would be to use the pool’s bargaining power to negotiate better health care and drug costs. The larger the pool, the lower the cost. Plus look at the bargaining power the pool would have.
Congress has refused to allow Medicare and Medicaid to bargain now. Guess why?
The third step would be to make preventive care mandatory.
It’s far cheaper to provide than waiting for someone gets sick and treating their illness. It’s not much different really than requiring driver’s education to get a license. It cuts the risk of auto accidents and lowers insurance costs.
There’s no reason why this system couldn’t be administered through health insurance companies. But it could also be done currently through Medicare, Medicaid, or the gold-plated health insurance plans that government employees and members of Congress enjoy.
The bottom line: A healthy population should be considered in the national interest just like B-2 bombers. The savings alone from lost productivity due to illness would be huge.
Why the richest nation on earth struggles with the current dysfunctional system is a mystery. Oh, could it be the health insurance industry?
If Trump truly wants to make America great again, this is the place to start and this is how to do it.