Author : Tim Barnes
As a kid, I learned stories about terrible out-laws like Al Capone, John Dillinger and Baby Faced Nelson. Since their crimes included killing other people there was no doubt that their law-breaking was bad.
I was easily confused when I saw movies like Butch Cassidy and the Sundance Kid. It turned out-laws into tragic heroes. Since their law-breaking did not include killing, when they broke the law, it did not seem quite as bad.
Apparently, I was not the only one who was taught that laws could be broken if only there was a good reason. When the 111st congress passed the Patient’s Protection and Affordable Care Act, aka Obamacare, they broke at least 3 laws of insurance.
In this post I want to explain what 3 laws were broken and what it means to you.
1. THE LAW OF CHANCE
Insurance is intended to restore you to your original financial condition. The idea behind insurance is that everyone pays a small amount of money (premium) to a central administrator (insurance company.) When a member of the group experiences a loss, the administrator can use the pool of money that was created to restore the insured to his original financial condition.
The amount of money that each member of the group must contribute is, or used to be, based on chance. The insurance companies would calculate the odds of each member needing medical care and require them to contribute their fair share. The amount of their premium was based on their health risks.
Obamacare removes the element of chance when it removes the right of insurance companies to use medical underwriting. Since insurance companies are no longer to learn the truth about proposed members they must make one of two assumptions.
- If they assume that everyone in the group is healthy, they will not collect enough money to pay for the health needs of all those in the group who get sick or hurt during the year and need medical help.
- If they assume that everyone in the group is not healthy, they will collect more than enough money in premiums to pay for health care. Fortunately, Obamacare includes the MLR (Medical Loss Ratio) that requires health insurance companies to refund any money that is not used to pay for health care above a certain level.
What this means to you is that you need to be prepared for higher premiums. Since most states already have laws that require insurance companies to collect enough money in premium to pay for anticipated medical bills for their members, insurance companies have no choice but to assume that every member is in bad health.
Premiums will increase drastically in 2014 when Obamacare breaks the law of chance with health insurance.
2. LAW OF UNINTENDED CONSEQUENCES
In the military it is called, “Collateral Damage.” Whether you use the phrase, “Law of Unintended Consequences,” “Collateral Damage,” or some other euphemism is meaningless.
Whenever a government takes sweeping action to help one group of people, other innocent people get hurt.
When America voted for Prohibition, gangsters used violence to gain control of the economy. Innocent people, who were at the wrong place at the wrong time, died. The violence was not limited to law enforcement agents and out-laws.
When the allies bombed Berlin in an attempt to kill high-ranking nazis, innocent Germans, who were not members of the Nazi party, died. The violence was not limited to combatants in uniform.
Obamacare has already caused unintended problems for innocent people. The law does not require insurance companies to offer coverage to children only but it does require that if insurance companies are going to insure children, they do so regardless of their health.
I know that the intent of this portion of the law was to guarantee health care to our nation’s children. However, that is not what happened.
When Obamacare became law in March of 2010, it was only a matter of weeks before every insurance company with which I work, stopped offering “child only” policies. Unless there was an adult on the application that could pass medical underwriting, the child could not get private health insurance.
That means that orphans who were being raised by middle-class grandparents could not get health insurance if the grandparents were already on Medicare. The only option available was for the grandparent to pull a Brett Favre and “unretire” to a job that offered group benefits.
Children of a single, low-income parent could still get health insurance through Medicaid of their states Child Health Insurance Program (CHIP).
When Obamacare goes into full effect in January, there will be some unintended consequences that nobody can imagine.
Already, I have heard that one fast-food chain is going to raise its prices to pay for health insurance for employees who did not previously get health insurance.
I have also heard rumors that companies who are close to Obamacare’s mandate level are going to cut the hours of workers from full-time to part-time status in order to avoid having to pay for health insurance for everyone.
In addition, I have also heard that companies that currently provide group health insurance to employees are going to non-renew their policies after January 2014 and require employees to buy health insurance on their own.
What this means to you is that you need to remain flexible for the next year or so. At this point the only thing that anyone can say for certain is that there is going to be a significant change in the near future.
No politician or pundit can tell you how people and companies are going to act when the new law goes into effect. The only option that I am aware of is for you, the average American, to stay flexible. As the boy scouts say, “Be prepared.”
3. LAW OF LARGE NUMBERS
Similar to the Law of Chance, the Law of Large Numbers says that the larger the group who are exposed to the same risks; the more accurately you are able to predict how many will be effected.
In other words, since Obamacare mandates that over 300,000,000 Americans must have some form of Essential Health coverage, the insurance companies will be better able to predict how much they will need to pay in medical bills.
(Insurance companies can predict with very little error how much many people will need health care. However, they cannot predict who those people will be.)
Unfortunately, the 300,000,000 Americans who are expected to get Obamacare’s Essential Benefit Plans are not the same. Some are active and healthy. Others are couch-potatoes and out of shape. Still others are already sick.
In order for The Law of Large Numbers to work, every member of the group must be similar.
What this means to you is that since Obamacare does not allow insurance companies to “discriminate” in favor of the more healthy, they have no choice but to assume the “worst case scenario.”
If you currently must purchase your own health insurance, be ready for your premium to increase drastically in 2014 when the rates are quoted during the Open Enrollment that starts in October.
Hopefully, the rumors I am hearing are false. However, if they are true, the price of health insurance premiums are expected to increase as much as 80% in October.
I am advising my clients, and doing it myself, to pay off as much debt as possible in 2013 so that you will have the money necessary to pay for health insurance premiums unless your income is below the poverty line and you can count on a full government subsidy.
The Insurance Barn sends out a weekly email to our clients. In it I try to keep our clients informed on trends in health, life and long term care insurance. In 2013 much of the information has been about the imminent arrival of Obamacare for adults in 2014. The goal is to keep our clients informed on what they are required to do, when they are required to do it and how it can be accomplished.
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