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The Health Care Conundrum. Here’s How it Ends.

Is the Life Insurance medical exam dead?

By Byron Udell | May 10, 2017

Where is health care reform in the U.S. at the present time? Byron Udell, Founder and CEO of AccuQuote, and an insurance professional of over 30 years, shares his thoughts.

(The following is an editorial from Byron Udell, Founder and CEO of AccuQuote).

Health insurance, also referred to (incorrectly, in my opinion) as “Health Care,” clearly continues to be a politicized conundrum that we’ve been talking about for a very long time. And it’s something our government continues to struggle with as they look for “solutions” to lowering costs and expanding access, so we can all get the medical care we need (doctors, hospitals, and prescription drugs) at a cost that doesn’t bankrupt us. So where is health care reform in the U.S. going?

The “Affordable Care Act” (ACA), also commonly referred to as “Obamacare,” is, and has been since its inception in 2010, nothing more than a ruse – an intermediate step toward a “single payer” system. Single-payer national health insurance has been held out by its promoters as the panacea for all of our health care cost and delivery problems. Now, whether a single payer system is good or bad or, better or worse than what we have now is a separate issue and debate (and one that I’ll comment on later in this discussion).

But make no mistake, Obamacare was destined to fail…by design. You might be asking, why do I say this? Because, while requiring insurance companies to allow people with pre-existing conditions to buy health insurance without any underwriting, risk selection, or pricing differences may seem like the right and compassionate thing to do, it’s simply not a business model that can work for insurance companies in the long term.

When a sick person walks into a doctor’s office or a hospital emergency room with a condition that’s going to cost a million dollars to treat…and that person thinks that their $450 a month “insurance” will cover all the medical costs…something is out of whack. For the insurance company, this arrangement doesn’t make any more sense than allowing folks to buy auto insurance after they’ve cracked up the car, and expecting that the insurance company will pay the repair costs. Yet, that’s exactly what Obamacare requires. But not even the government can force companies to engage in business practices that make no sense, or that lose money by design over the long term.

What are the health insurance companies doing about this problem?

Well, as we’ve seen, they’re exiting the health insurance markets, in droves. Again, it’s important to note that the folks that designed Obamacare knew this would happen. And they hoped that when it did, the government would simply come in and say, “Well, if the insurance companies won’t do this, then we, the government, must now step in and assume the role of the payer.” So whether we ever get to a “single payer” system, and whether that would be a good or bad thing is a subject worthy of debate.

But what no one seems to understand is the following: The cost of health “insurance” is nothing more than a “pass-through” platform for the payment to doctors, hospitals, clinics, and drug companies. Most people don’t know that, by law, 80 percent of the health insurance premiums, in any pool of insureds, MUST be spent on paying actual claims. If less is spent on paying out claims, the surplus is returned to the customers. The remaining 20 percent of health insurance premiums covers the cost of claims administration, distribution costs, and lastly…profit. And the last time I looked, that “profit” is averaging just 4.2 percent annually…which is less than half of the average profits from companies in the S&P 500! Sadly, that’s as good as it gets. And if, in a given year, they charge too little in premiums, and claims are higher over that 12-month period, they actually lose money.

In short, the health insurance companies are already in a horrible industry from a “profitability” standpoint. Add to that, that most of their customers hate them, as does the media and the politicians. Frankly, it’s amazing to me there are still any companies left servicing this market.

But I thought competition among carriers would keep costs down. What happened?

No amount of “competition” among health insurance companies (across state lines or otherwise) is going to save anyone much of anything. Again, they’re already losing money or working on margins so thin that many of them have already exited the exchanges.

If you do the math, the only way to lower the cost of health insurance…is to lower the cost of the care (what doctors, hospitals, and drug companies actually charge)…OR deliver less care. That’s it. Without doing one of these two things, the costs of health care will never go down.

The insurance companies are not the problem, even though it might be expedient to blame them for the rising cost of health care.

So, regardless of whether we end up with…a single payer system or some other variation of our current system (Obamacare or some replacement)…will doctors, hospitals and drug companies voluntarily lower what they charge for their products and services? I highly doubt it.

Alternatively, will we, as a society, as a way to control the overall spend on health care, be willing to accept less care? I think not. We’ve been conditioned to expect that if something is medically possible to treat, then it should be treated…and paid for by the patient’s health insurance or Medicare.

Let’s say your mother is age 74 and needs a new hip. Are you comfortable with a health care “system” run by government bureaucrats, making the determination that your mother’s hip surgery won’t be done because it costs too much, so it’s not “worth it?” Or what if you start having chronic back pain? Are you fine and dandy with some bureaucrat telling you to just “deal with the pain,” because it could be months or years before any treatment will be “approved.”

Look, we all know that the current system has seen annual cost increases in double digits for years. As a result, health care expenses continue to represent a larger and larger percentage of our household income. So let’s do the math. If health care costs go up at say, 15 percent annually, and incomes goes up at only 2 percent a year (they’ve actually be stagnant for 15 years, with essentially no growth)…then in just 15 years, the annual cost of health care (and health insurance) will be higher than all the money we make in a year!

Think your income will keep ahead of your health care costs?

Okay. Let’s carry this math out for the next 50 years. If you have a current average income of $53,000 (growing at 2% per year), over the next five decades, your income will have grown to $137,000 a year. Now, that might sound like a lot of money, but in 50 years, the cost of one year of health insurance for one family is calculated to be a whopping $9,832,809! Yes, that’s right – almost $10 MILLION a year!

Obviously, that will not happen. But the tipping point is getting very close already. And our elected officials don’t seem to have a handle on what to do.

Where do we go from here?

What’s clear to me…and what should be to everyone now…is that minor tweaks in our current system will not solve anything. So as much as I hate to think about it, here’s where I believe it all ends:

There will (probably sooner than later) have to be a single payer system put in place for basic health care. It will be crappy (like the VA), but everyone will get it essentially for free. Of course, we all know that nothing is truly “free.” It will be paid for by the government through taxes.

And in case you’re curious, currently the top 1 percent of income earners pays a whopping 40 percent of all the income tax collected by the federal government. The top 10 percent of income earners pays 70 percent of all income tax in the U.S. The bottom 50 percent of Americans, in total, pay less than 3 percent of all the income taxes our country collects.

To recap, the basic health care system will be 1) run (probably inefficiently) by government bureaucrats, 2) will have long wait times, 3) have horrible service levels, 4) deliver horrendous outcomes, and 5) be an agonizing way to “stay healthy.” But we’ll all have it…as our basic coverage…if we have nothing else. And those who can afford more or better will buy supplemental coverage, much like what was available in the free market before the ACA became law.

The supplemental coverage might be pretty darn expensive. And it may not accept those with pre-existing conditions (after all, it is insurance, not a social program). So those who want to have it when they need it (and who can qualify for and afford it), will be well advised to buy it…before their health changes and they can no longer qualify for the best rates.

Is this future system perfect? No. But it’s what’s coming. Get ready for it. I don’t see this situation ending any other way. If you do, please comment and let me know what you think!

By the way, I sell life insurance, not health insurance, so I don’t have a horse in this race. I’ve shared my thoughts on this issue because I don’t hear anyone in the political or media world that seems to understand the gravity of this topic. Someone needs to tell the truth…whether or not it’s what we want to hear.

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