More on the massive ObamaCare Loophole
Mar 26th, 2010

Since my last post I've seen quite a few other people writing about exactly the same issue with ObamaCare that I saw: it actually encourages people to not carry health insurance. The most recent is someone's whose blog I've been reading for a while and whose opinions I generally respect: Philip Greenspun an EECS professor at MIT. He actually did the math to reveal that a family in Massachusetts making $100,000 can expect to pay around $20,000 per year on insurance. The fine for not carrying insurance, however, would only be $2,000. And, of course, the insurance carriers would be forbidden from denying them of insurance if they showed up already sick and actually in need of health care.

But there's more! Brian Caplan at the Library of Economics and Liberty (which I don't actually know much about, but I would guess is biased in the libertarian direction from a cursory examination of the site) suggests another unexpected side-effect of ObamaCare will be that employers will stop offering insurance as a benefit. Part of the reason it's currently so common for insurance to be an employment benefit is that the government has been encouraging this behavior since around WWII by not counting health insurance as taxable income. This, apparently, is going to change with ObamaCare.

This, however, I think is actually a good thing. I mentioned in my last post that I had some ideas on a different sort of reform that I've posted about elsewhere in the past; below is an outline of some ideas that I put together a couple years ago (around the time that Massachusetts was debating the inspiration for ObamaCare):

• Decouple health insurance from employment
• current system economically stupid
• encourages un-educated consumers
• reduces consumer choice
• reduces competition in the market
• current system unnecessarily restricts consumers
• people with health problems can't change jobs for fear of losing insurance
• true cost of insurance is hidden from consumers
• Make medical costs tax deductible
• all costs should be up to 100% tax deductible (maybe variable by income)
• makes health care significantly more affordable
• provides the same functional assistance as a single-payer system
• doesn't encourage reliance on the system
• doesn't require increased bureaucracy
• encourages personal responsibility
• Provide low/no interest loads to cover medical costs
• interest rate based on need
• removes problem of non-payment
• allows even the uninsured to afford very expensive procedures
• doesn't encourage reliance on the system
• payments are tax deductible under point 2
• Loosen regulations on insurance industry
• regulations such as setting a maximum deductible hurt both sides
• consumers aren't allowed to decide for themselves what they need
• insurers aren't allowed to innovate and find new solutions
• regulations reduce competition
• not all of them!
• regulations provide a disincentive for new insurance companies to enter the market
• the more insurance companies there are, the better for consumers

Obviously this is still rather rough, and some of the points are clearly designed to address things that have now changed. However I think this is a decent outline of changes that could be made to healthcare that would meet the goals of both sides of the public/private argument. I'm sure there's tons of discussion that could be had on just about every one of my points, so perhaps I'll take the time to break each one out into a separate blog post where I can go into more detail in the future. Also, I'll try and write some more about the code I've been working on as there's some good stuff involving MongoDB, MongoEngine, and—of course—Django.

What does ObamaCare actually do?
Mar 23rd, 2010

I've been generally on the fence about ObamaCare—and really about the various proposals to reform healthcare in general. I do think that our system needs reform, it's just that I've been unconvinced about the specific proposals made for the form that reform should take. But now it's 'happened' (although what we have is not really healthcare reform so much as health insurance reform) so the question is now different: what are the implications of our new system, and where do we go from here?

The implications, I think, are both quite interesting and not at all what most people expect/want them to be. For example, I think the new bill will actually increase the number of uninsured people in America (at least in the short term), and I think it will do this via two separate mechanisms:

1. An active dumping of high-cost and/or risky customers by the insurance companies who currently cover them, and


2. People taking advantage of the new system to actually save money without sacrificing healthcare by foregoing insurance

But isn't the whole purpose of the reform to make both of those specific things impossible? It's certainly the stated purpose, at any rate. So why would I claim that the effects of this bill are going to be exactly the opposite of what we were promised they would be? Well, what does the bill actually do?

Let's look at the first mechanism I mentioned above: insurance companies actively dumping expensive patients (even more so than they already do, I mean). Starting in 2014 they will no longer be able to do this, they will have to cover everyone. But for the next four years they are free to continue doing so, and it makes a lot of sense that they would ramp up this practice so that they can increase revenues as much as possible in preparation for that future. In the meantime the government is offering some sort of high-risk pool of insurance for those people that can't currently get coverage, so it won't even seem like that bad of a deal: the insurance companies win by increasing revenue, Obama wins by being able to point to the vast numbers of people that are already being helped by the program, the patients win because they have health care, and the taxpayers win because... well, actually we don't so much... But that's really not so bad; it's hard to complain about people with health problems getting the help they need, even if you don't think they're getting it in the best possible way and you don't want to have to pay for it. It's the other mechanism listed above that I think is more insidious: gaming the system.

How and why would people game the system? Well, it's actually quite easy and straightforward: as things stand it's quite easy to get the best of both worlds: save money by not purchasing health insurance and still be able to rely on health insurance to pay for your medical expenses. The reason this work is that the 'individual mandate' of ObamaCare is toothless: just as in Massachusetts it's cheaper to pay the fine imposed for not purchasing health insurance than it is to actually purchase that insurance. $100 per year or 1% of your income (whichever is more). That's a pretty paltry fine (though it will increase in 2014 along with the activation of the various other parts of the program). And couple that with the high-risk pools that you'll be able to buy into to get government subsidized healthcare regardless of pre-existing conditions it renders this whole change meaningless (or worse?)! Why would I pay thousands of dollars per year for insurance when I can pay much less and then, if I get sick or injured, simply buy into a plan that I legally can't be turned away from? I'd end up paying less money than I would if I actually carried insurance, but I would still get all the benefits of that insurance! As long as the fine/tax for not carrying insurance is less than the cost of actual insurance, and as long as it is required by law that you be able to buy insurance at any point regardless of your current health conditions, there is absolutely no incentive for anyone to ever purchase insurance right up until the point that they actually need it!

The implications of this are quite staggering: they basically undo the whole fabric of our healthcare system. Our system (even now) is based upon the idea that it's relatively cheap to pay for routine healthcare costs, but relatively expensive to pay for the bigger and rarer procedures. So we amortize those costs over time and over a large pool of people by buying into insurance plans where everyone pays in a relatively small amount and then, on the rare occasion that they need it, they're able to draw a large amount to cover larger medical expenses. But ObamaCare has undone that! Now we don't need to pay into the system (except in a barely token amount) in order to draw from it! If and once people realize this and start dumping their insurance plans, this will lead to the collapse of the insurance industry; it will simply be impossible to operate under the insurance model.

The result of this will be greater and greater financial obligation on the government to support the insurance industry and pay for that healthcare and therefore a greater and greater tax burden on us to pay for it until, eventually, we are all simply paying taxes into a government system that funds all our healthcare needs. Sound familiar? That's because it's a single-payer system—a monstrously constructed single-payer system built with the rotting corpses of the various insurance companies.

This is, of course, a worst-case scenario. In order for this two actually happen at least one of two things has to be true:

1. Our government has to be incompetent enough to not recognize and fix these problems before they overwhelm us, or


2. The intended goal of this plan was, all along, to simply set us on the path to a single-payer system

Neither of these options would really be all that surprising to me, frankly. I'm pretty sure our government is that incompetent, and I'm pretty sure that the people who initially conceived and designed this reform would prefer a single-payer system. But we'll have to wait and see what happens. Regardless, I think it's safe to say that there are really only two possible systems for health care that would be stable: a fully private system, or a single-payer system. There are benefits and disadvantages to both, and there are all manner of compromises between them that I think could actually be good (which I've written about elsewhere in the past, and should really write a post here about as well). But—as much as I hate to sound like I'm parroting those who truly are on the lunatic fringe—we really are looking at the opening salvo in a battle for single-payer healthcare in the US. Whether you think this is a bad thing or not is up to you.