The spectacle of President Obama, Speaker Nancy Pelosi, and their fellow Democrats taking the American health care system over the “precipice of health care reform” (to use the President’s phrase) has been something to behold.  I am sure watching the RMS Titanic clip the iceberg from the ship’s bow was a similar sort of “spectacle.”
 
Now we are all discovering just how much damage the iceberg did.
 
Many folks are rightly concerned about the cost of the bill.  There is also the fact that this bill will put health insurers on the road to financial insolvency.  Those are big problems and there are more to boot.
 
But, there is an aspect of the plan not receiving much attention.  Contrary to the stated goal of the architects of this monstrosity, this bill will not increase the number of Americans purchasing health insurance.  In fact, we believe it will actually INCREASE the number of Americans without health insurance.
 
How can this be?  Frankly, we find it hard to believe ourselves, but facts are stubborn things.  
 
Hear us out:
 
Point #1:
Starting in 2014, health insurance companies will no longer be able to deny coverage to anyone with a pre-existing condition.
 
Point #2:
Starting in 2014, everyone must purchase health insurance or face an annual fine of $695 per individual not covered up to a maximum of $2,085.
 
Point #3:
The government is going to help you pay for health insurance if you make up to 400% of the federal poverty level by capping your premium expense at 9.8% of your income.  So, a family of four making $88,200 a year (i.e., 400% of the federal poverty level for a family of four) will not have to spend more than $8,643  ($720.00 a month) for health insurance.  People making more than 400% of the federal poverty level will not have the benefit of the cap.
 
Point #4:
Employers with more than 50 employees must provide health insurance or pay a fine of $2,000 per worker each year if any worker receives federal subsidies to purchase health insurance. 
 
Examine the incentives these four points create.  As of 2014, you have a choice between purchasing health insurance or paying a maximum annual fine of $2,085.   
 
Let’s say you have a family of four that makes $88,200 and gets the benefit of the annual cap, 9.8%.  Your health premiums cannot exceed $8,643 a year for your family.  Let’s say you find a great deal on health insurance in the “exchange” that will cover your entire family for $5,000 a year.  Will you buy it?
 
That is a great deal.  In fact, I know of no market that will offer you that deal today, but let’s assume you find it.  Will you buy it?
 
“Of course, my family needs health insurance!”  You say. 
 
Are you going to use that health insurance right away?  What if you and your family do not have any large health expenses this year?  What if you don’t have any large expenses next year?  You could have saved that $5000, right?  Sure, you might have to pay the $2,085 as a fine, but you would still be $2,915 ahead.  Over two years, that’s $5,830!
 
Why not wait until you have to buy health insurance?  Why not wait until you or someone in your family has a health problem that will require a large expenditure?  After all, the insurance carriers can no longer deny coverage based on pre-existing conditions!  Now there is no incentive to purchase insurance before you really need it!
 
Thus, large numbers of individuals and families will now choose to forgo insurance and save their money (or spend it, who cares?) until they HAVE to buy insurance.  As long as the cost of health insurance exceeds the penalty or fine they may or may not pay there will be a huge incentive to forgo insurance coverage.
 
Consider Point #4 again.  We insure many companies who pay 100% of their employees’ premiums.  The costs of these annual premiums far exceed $2000 per year.  Employers provide health benefits for two reasons: (1) many consider it the “right thing” to do for their employees; and (2) all of them believe providing benefits helps them recruit and retain quality employees.  Both of those incentives have now been eliminated if their employees are now federally mandated to buy insurance and cannot be denied coverage.  Thousands of employers will choose to pay the fines rather than continue offering health insurance coverage.
  
Combine these two incentives and the result will be a swelling of the uninsured.
 
How could a health care reform bill with the stated goal of offering more Americans health insurance actually end up doing the opposite?  Let’s rephrase that.  How could a government program actually cause the opposite of its intended consequence?  How could we believe otherwise?  Remember, we have not even begun discussing how to pay for this. 
 
These perverse incentives will not go into effect until 2014.  There is still time for action . . . or you could just get in line for a lifeboat.  Remember, women and children first!
 
Andy Adams
713.869.8346
aadams@adamsins.com
www.adamsins.com?

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