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The impending fall of Obamacare, and remembering what insurance really is

Posted on Jan 27, 2017 by: Zach West

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We find ourselves on the eve of the repeal of the Affordable Care Act (ACA), former President Barack Obama’s legislative opus.

Obamacare’s proponents told us the new law would bring much-needed modernization and compassion to healthcare in the United States, bestowing insurance coverage upon Americans who are either struggling to make ends meet or suffering from pre-existing conditions that limit or prohibit coverage.

Advocates for the ACA argue that repealing the law would do a moral disservice to Americans, pulling coverage from many who cannot afford non-subsidized health insurance and allowing insurance companies to again discriminate against potential insureds with pre-existing conditions.

This thought process ignores the fundamental concept of insurance. If all that matters is getting the most health care to the most people as quickly as possible, a single-payer system—replete with its own serious problems—at least adheres to the internal logic of that argument. If all citizens categorically have a right to unlimited health care services, the obvious sponsor for associated costs is the government.

Remember the function that insurance ultimately services. Entity A regularly pays small amounts of money to Entity B as part of a contract. If Entity A suddenly needs a lot of money to mitigate a catastrophic event, Entity B will fulfill its end of the contract and give Entity A the money. Entity B has a supply of money on hand because (a) lots of entities besides Entity A regularly pay small amounts of money for the same service and (b) Entity B uses mountains of data to carefully screen clients, adjusting rates and coverage based on risk profiles.

Insurance is a business. If an insurance company doesn't screen clients effectively, it will pay out more money in claims than it earns as revenue. When this happens, the company becomes insolvent, and then no one has insurance. Forcing insurance companies to ignore their time-tested actuarial process is antithetical to the entire concept of insurance; offering coverage at the standard rate to a person with pre-existing conditions is, from an insurance perspective, equivalent to inking a homeowner’s policy while the house is burning down. Coverage programs for people with pre-existing conditions existed before Obamacare, but were very expensive for this reason.

Insurance as an industry has no more obligation to fulfill the perceived moral duties of our government than any other service. Giving insurance companies an impossible task and then suppressing their dissent with cries of greed landed us in our current situation: Rapidly rising premiums, widespread ACA marketplace failure, and all but the largest insurance entities avoiding health insurance like the plague.

No amount of punditry and righteous indignation can keep a balance sheet from sliding into the red. No insurance company stakeholder—shareholders and executives, and also account managers, salespeople, and receptionists—want to see the walls around them crumble. If you believe every American citizen is categorically entitled to a full range of health services at no charge—right here, right now, and we'll figure out the costs as we go—argue for a single-payer system. Just leave insurance out of it.