What to know a factual reason Obamacare is doomed to failure? Read this. This was something our former controller sent me. If you can follow it youll realize that threat of a death spiral with Obamacare is real. OK, first the math. Three very simple things, all of which are easily verifiable via google: (1) The law states that, in the individual market, 80% of all premium dollars must be paid out in benefits (85% in the group market). So Benefits = 4/5 Maximum Premium, which is the same as saying Maximum Premium = 5/4 Benefits. (2) the law states that any individuals premium (read old guys with preexisting conditions) can only be a maximum of 3x the lowest premium charged (read young, healthy guys). (3) In reality, however, the average 64 year old male consumes 6x the health care dollars that an 18 year old male does. So we know for every $1,000 in benefits that the young guy receives, the old guy gets $6,000. And we know that the maximum premium on that $7,000 in combined benefits is 5/4 of it, or $8,750 - which Im going to round to $8,800 just to make the numbers easier to follow. So who pays what in premiums? Well, since the old guy can only pay 3x what the young guy pays, by default it becomes $6,600 old guy, $2,200 young guy. The old guy is paying 10% more in premiums than comes back in benefits. Thats a very good deal. The young guy is paying 120% more. Thats a world class screwing, and he knows it. The insurance company knows it as well, so they want to cut the young guy some slack. So they decide to lower his premium to $1,800 - still 80% over premium. But, and heres the elephant in the room, that means they have to lower the old guys premium to $5,400, since it can only be 3x the young guys. The old guy will only be paying 90% of actual benefits in premium, and the whole package only brings in $7,200 in premiums to cover $7,000 in benefits. Ask your broker how many insurance companies they know that would do that. That example is the far end of the scale in both instances, but it illustrates the point that the only way this can work is for healthy young people to submit in huge numbers to a monumental screwing. They will not, and they have not. They didnt buy insurance in 2013 because they feel they didnt need it. Now, theyre supposed to pay 96% more in 2014 for a product they rejected in 2013? When the downside if they get caught by the IRS (and thats a very big if) is a $95 fine? And, if in August they discover they need insurance they can just buy it then? Thats why the insurers are not coming close to the 38% number, why premiums go up again next year, and why even more young people will not comply in 2015. ________________________________________
Posted on: Wed, 05 Mar 2014 05:06:19 +0000
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