Finance Tips

The game played by politicians is to take an idea from their own agenda and then frame it in a way that sells it to the other side. When the politicians meet in the middle, bipartisan solutions to problems emerge. This reflects the fact there is no monopoly on good ideas, only simple good solutions to difficult problems. In the healthcare debate, one of the solutions proposed by the GOP was to allow people to buy their insurance across state lines. This sounds a good idea. As the law stands, every state regulates the sale of insurance within its own borders. This limits the size of the market. If insurers had to compete with each other on a regional or national level, the premium rates would fall and every citizen would get a better deal. Well, let’s look a little more closely at how it would actually work.

At present, every state has a Department of Insurance to regulate the insurance companies licensed to sell policies. This is a reasonably effective system for consumer protection. But if regional or national insurers could sell policies into many states, it would break the regulatory system. It would no longer be local supervision of local companies. Insurers would decide where to establish and would, of course, choose the states which had the weakest consumer protection regulations, i.e. where they could make the most profit. Think banks and finance companies. These companies broke the US economy and produced the recession because their sales of subprime mortgages and associated derivatives were unregulated. Now apply the same thing to interstate insurance. As a final thought on this issue, remember all US states have different laws and one state cannot enforce another’s laws. That is sovereignty for you. So the state where an insurer is based cannot protect consumers under another state’s laws.

Secondly, opening the market across state lines allows insurers to cherry pick the best people to insure. Without regulations to limit the right to discriminate against people for pre-existing conditions and to increase premiums as people get older and fall ill more often, insurers will just take their profit from all the healthy people and forget about the rest. Thus, instead of increasing consumer choice, it would have the reverse effect. Most insurance companies would close their branches in individual states. Those that remained would keep all the aging and less healthy people. As their claims rise, the companies will make a loss and close. Without a law to mandate regional or national companies to offer some health coverage, it is likely the number of uninsured people would rise.

When you add all this up, it is a good thing the GOP’s proposal was rejected. Health insurance plans are complicated enough without having to change a whole mass of federal and state laws to allow interstate sales. This is not to say that consumers might benefit if there was more competition in the insurance market generally. With a real free market, properly regulated, consumers would get a better deal both in the terms of coverage and in the premium rates they pay. As it is, you must get multiple quotes to find cheap health insurance. Anticipating their profits will take a hit following this reform, insurers have been raising their premium rates. You must shop around to find the most affordable policy.

To encourage the Democrats to vote through the healthcare reform bill, President Obama framed the moment as one of morality. He argued everyone should have a right to basic health care. This was the chance for politicians to stand up for what was right, even though they might lose their elected jobs as a result. Yet, when you look at the numbers, this law is not going to deliver universal coverage. In socialized countries, everyone has a right to care. What is now branded as Obamacare will only add about 32 million people to the insurance market.

That is about 10% of the population. This makes for an interesting possible result. A small percentage of the population gets access to care and the costs for everyone else go up. It is that fear driving a general loss of support for the law. Whether it will turn out that way is anyone’s guess. It is incredibly difficult to predict the future with any certainty. All that can be said with any certainty is that the majority of the Democrats feel good about themselves for voting the bill into law. They walked the walk along the moral high ground while the GOP was the party of “No” that wanted to sacrifice people’s health for their own political advantage.

It is a tragedy the means of passing the law was framed in such black and white terms. If the two sides in a debate can never agree on anything because the other side is immoral scum, it gets very difficult to enact good laws. No one has a monopoly on good ideas. Indeed, the federal law bears a striking resemblance to the law in Massachusetts. When Mitt Romney pushed it through, conservatives hailed the reforms even though it imposed a mandate on Americans to buy insurance. Now Romney is leading the charge accusing Obama of an unconstitutional abuse of power. This is modern Stalinism, he asserts, quietly forgetting his own law. When both sides are committed to disagreeing, truth is sacrificed and hypocrisy rules. So where does this leave us with the insurance companies?

Unlike the systems in other countries, the private insurance industry remains the key player. Americans will primarily look to the private sector for coverage. If businesses and private individuals cannot afford the premiums, the state will offer subsidies and financial support. This is wonderful news for the insurers. Millions of new people to insure with the government picking up a lot of the bill. This is a licence to print money unless the government acts to reduce the costs of treatment. If the government controls the prices of medications and forces hospitals to deliver only the forms of treatment shown to be cost-effective, this will remove the pressure on the health insurance industry to keep increasing the premium rates. Some rates will inevitably rise in the short term. But, as costs level out, they can be spread out across of wider range of people, many of whom will be healthy. This will take time and the Democrats may lose out in the midterm elections. Nevertheless, with President Obama in the White House, there will be no repeal of this law. The longer it is in force, the more difficult the GOP will find it to repeal as and when they return to power. Until things do stabilize, get the maximum number of health insurance quotes to find the most affordable policy for you and your family.