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When it comes to solving the problems and challenges of a country or organization, few things are more frustrating than policies or programs designed by ideology. This is an ever present problem in politics, and is often the reason bills and laws are several hundred pages long. You need that much room to put in rules that address whatever political or social world view of the politicians crafting the bill. The Affordable Care Act (ACA) is no different, and in installment four of Toonaripost’s Series on the law, we will touch on two provisions written into the law that illustrate this phenomenon.
Equal Premiums for Women
In web advertisements and mailers, the Democratic Party refers to this provision as, “being a woman is no longer a pre-existing condition.” The reason for this is that under ACA a woman can no longer be charged a higher premium for health insurance than a man of equivalent age. Two people, male and female, in the same city and town, of the same age, will now have the same or equal monthly premiums.
There are two implications to this provision. The first, as discussed in Parts One, Two, and Three of our series, is that it is just one in a long list of items that create higher premiums. Why would this be? The reason is simple. Insurance companies do not charge higher premiums to women because they dislike women, they charge higher premiums because women have higher overall health care costs.
Insurance of any type is a service meant to provide money or expenses paid for various types of risk. Companies determine through statistics and probability computations what the company’s risk is for paying out a claim are in a given market; auto insurance, life, or in this case, health care expenses. Premiums are not determined in isolation; there is a reason for them.
According to a study by the Health Services Research center, the per capita lifetime expenditure for a female is $361,200, a third higher than males, at $268,700. Two-fifths of this difference owes to women’s longer life expectancy. Another reason is that women give birth.
If you contrast this with auto insurance, then the roles are reversed. Men pay higher premiums, because men have more accidents, get more speeding tickets, and are more aggressive drivers than women. As a result, women pay lower premiums. That is not unfair or discrimination. That is a function of risk and real costs.
Whether a person agrees with the ACA law is not the issue. This series is about the provisions of the law, and its implications apart from political sides. Nonetheless, this is a provision that has a political viewpoint driving the policy. On the political left is a view that everyone should be treated equal in all things and in all areas.
Those on the right would not disagree, but it can be construed that sometimes the policies from the left, substitute the word equal, with the phrase “the same.” Everyone is equal, but not everyone is the same. And sometimes those differences are significant in financial terms. If politicians continue to make laws based on ideology and not reality, there will be more bills and laws that are long, complicated, expensive, and do not fix the problem they were designed for in the first place.
The 80/20 Law
Even though the most publicized area of contention about ACA was the individual mandate, it is not the only mandate in the ACA law. As we discussed in Part Three, there are mandatory coverage items that must be in each insurance plan. There is also a provision called the Medical Loss Ratio. The health care law generally requires insurance companies to spend at least 80 percent of consumers’ premium dollars on medical care and quality improvement. Insurers can spend the remaining 20 percent on administrative costs, such as salaries, sales, and advertising. Noticeably absent from that list is any mention of a profit ratio.
The 80/20 law is perhaps the most partisan provision within the ACA law. It has nothing to do with costs, and nothing directly related to health care. What it does is reflect a worldview as it relates to health care.
The view for most Left leaning politicians and individuals is that health care and health care insurance is not something you should be making a profit from. It is seen as profiteering off the misery of sick people. Whether that is right or wrong is immaterial to this series, but that is the view. That opinion is now law, because there is effectively a backdoor price fixing mechanism within ACA.
Insurance companies now have a ceiling to which they can achieve a positive return on their operations. Over the long haul this will turn health insurance into another form of public utility. If you do not agree with profit motive being a part of health care, then this may not bother you. If you want lower prices, then you should be alarmed.
Many may think that this is not a big deal, because it will mean the insurance company may make 250 million instead of 500 million, but that is not how it works. What happens is that smaller companies cannot get to the 250 million. It means that the profit margin, about 2.5% per person now, could be cut in half, making it less attractive for new players to enter the market, or smaller ones to remain in it. Take, for instance, Humana healthcare. They started out as nothing but a single nursing home.
A company in similar circumstances today may look at the margins, the regulations, etc., and just not enter the market. Smaller and regional insurers will find it more difficult to complete and will go out of business or be gobbled up by bigger players. In the end, there will only be a few insurers in the market, making for even less competition than is already available on a state by state basis now. That means higher premiums, and often lower quality. That is the effect of price fixing, regardless of the marketplace you are talking about.
In 10 or 20 years the ultimate implication and consequence of this one, single provision could turn the Conservative boogieman of single payer into a reality.