So, with the government shutdown, slimdown, or whatever you want to call it, along with the important date of October 1st just passing, the majority of conversations have recently been directed towards the Affordable Care Act, or Obamacare. Many people wonder my opinion, or at least ask for the opportunity to share theirs, so I felt it would be a good idea to post it here and let the word be spread.
First, is the Affordable Care Act inherently good or bad? I don't believe that many things in life can fall on either side of that but are made up of parts of each, especially when it is created by a multitude of men and women. When asked about it being a good or bad law, I say it is a great theory, with many pieces of law that are beneficial to the masses.
- Should a person who is paying for health insurance be allowed to visit the doctor preventatively and not have to pay for it, definitely.
- With the need for our country to keep up or in some cases catch up in education, many young people are staying in school longer and should have access to their parents' plan until age 26.
- Yet, even greater than these two definite yes answers, is the theory of how the economy in total could benefit if people were more proactive with their healthcare, in many aspects; first if there could be a benefit for people to reduce health related risks, (i.e. fitness membership bonuses based on usage), secondly, the aforementioned preventative benefits, and third, having health insurance available to all purchase so when a minor occurrence did happen they were willing to visit a doctor rather than wait until it was an emergency and more costly.
This being said, the first option, is made available by many insurance companies now with an insurance policy. The second is an important measure of the law, but could have been implemented on its own mandate. The third, this idea is great, but it fails to take into account the fact that many people are like me, or even worse and extremely stubborn so even with health insurance plans choose not to go to the doctor until it creates more cost than necessary!
All of this has been the good or possibly neutral points regarding the system, so what could be the bad some people have asked, it sounds great, it will provide "insurance" for everyone and their are government subsidies and tax credits available to help make it affordable, right? Here, in my opinion is the major issue and I will start with the definition of "insurance"!
Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.
What this is stating is that the purchase of insurance is based upon the premise that there would be a scale balanced between cost of premium and the long term cost of a possible, not guaranteed loss. This being the reasoning behind underwriting and pre-existing condition waiting periods and exclusions. I am going to add a picture here, that may offend some people but it is currently being used on social media as a justifiable reasoning for the act, so I felt I could explain the world of insurance and the act's detriments with the same photo!
Now, I am an extremely empathetic and sympathetic person and have battled internally on the decision to write this post as I feel extreme compassion on this person for her situation. The pragmatic side of me though wants to make sure both sides of how this works are explained and this is a perfect example of something called adverse selection, I will include the definition and explain in additional hypothetical situations after.
The term adverse selection describes a situation wherein an individual's demand for insurance (the propensity to buy insurance and/or the quantity purchased) is positively correlated with the individual's risk of loss (higher risks buy more insurance), and the insurer is unable to allow for this correlation in the price of insurance.
In essence, in this specific example, she could have most likely purchased an individual health insurance plan the day after she was no longer on her parent's health insurance. This would have been prior to her tumors being considered a pre-existing condition and as long as she kept the policy premium paid, the company would have provided her the insurance she needed at the time the loss occurred. Due to circumstances unknown by us in detail, this choice was not made, (in most cases it is due to cost and the attitude that this type of thing won't happen to me) but when there was a certain loss to take place, her need became greater and she was now willing to pay for insurance rather than paying for the medical treatments needed out of her own pocket.
To compare this situation, let's think of the other types of insurance that the majority of you who will read this have been maintaining for years and see what your reaction would be to adverse selection in those areas.
1.
Auto insurance - although a law of most states to carry liability insurance to protect other drivers and their vehicles, many people still do not purchase this insurance, and there is no law that requires the purchase of insurance to protect one's own financial asset or own vehicle (only can be specified by a lender to be required), known as physical damage coverage but yet there are people who aren't required to have this physical damage coverage, that do have it in case their vehicle is involved in an accident and they want to receive compensation in return for that damage, so they pay a premium to do so, not knowing when, if ever they will need it. So, to those people I say, what if, your neighbor, made the decision to not purchase this insurance pulls out of his driveway and smacks right into your vehicle parked on the street. Noticing the large amount of damage on his beautiful vehicle makes his first call to an insurance company to secure insurance and they allow it, and he has paid in $0 premium up front but receives $5,000 from that insurance company to fix his vehicle, while you have been paying your premium for the past number of years and have submitted a minimal claim for a windshield?
2.
Home Insurance - Currently the state of Minnesota does not require that you place insurance on your home but for many people they have a mortgage and part of the mortgage clause does require you to do so ( I am hoping you see the trend that the governments requirements for insurance up to this point have been based on only the protection of others, not a requirement to purchase to protect ones self). If the neighbor on the other side of you, had paid off their home and chosen to save the premium money, (some tell us they will save up for a future claim, but rarely do), and not purchase insurance, notices their garbage is on fire right next to their garage, the flames are beginning to heat up the siding, it looks as though it may catch fire as well, and rather than attempt to put out the fire and have minimal damage they could easily repair to their home, they instead go online and purchase insurance for the home, using pictures from the previous week. They then head out for a nice dinner, they have saved about that much money from not paying premiums until now, and when they return to a home engulfed in flames they turn in the claim and rebuild their home. Is that an okay scenario for those of you who are protecting your assets with the risk management tool of insurance?
3.
Life Insurance - For the average family, the previous two claims would range from, as mentioned in the first $5,000 or so, and the second around $200,000, but what about this possibility, what if today you entered the doctor's office and he had that difficult discussion with you to tell you that he is terribly sorry but you are facing an extremely rare and speedy disease and within this month you will pass away. You leave, obviously devastated and then remember, that life insurance representative who has been calling you month after month, and how you have blown him off with only a limited savings account and those three little kids and loving spouse at home. They have the mortgage to pay and the rest of their lives to live and you will be leaving them limited financial means. So, you open up your cell phone, looked for that number you constantly push ignore on and call them up, you tell them you would like a $1Million, no make that $3 Million term policy. Please come over this evening and we can sign the papers. You then spend the next two weeks spending every dollar or the limited savings you had created creating memories with your family and then the official policy arrives and that evening in your sleep the disease takes your life. Within a few weeks your family receives their funds and can go on financially while you only made the down payment on the policy, and no other premiums were collected.
Nearly all of you that will read this will consider these items outlandish, or insurance fraud but are expecting this when it comes to health insurance. If you look deep through the Affordable Care Act it states there are penalties to be paid if a person does not have insurance, but in most scenarios these aren't taken directly from your bank account on a weekly basis but removed from your tax refund if you do receive one. So, people will continue to be uninsured, until they have that terrible pain or hear that bad news from a doctor, and then they will go home, sit on their computer, in many cases, and purchase their health insurance, to then go have all the work done they need. Therein creating the scenario for no insurance company to maintain enough financial strength to pay for the claims that were from a legitimate premium paying policyholder for x number of years without continually increasing premiums to no longer make Affordable Care Act insurance, affordable to anyone.
Now, in all three of those scenarios, is there a possibility that a person could purchase insurance just before an incident happened and it be legitimate, yes, but it is a minute percentage and I believe that the same is to be said about health insurance and its nuances. There are people that will purchase health insurance today and complete all medical underwriting to only find out the next month they have a cancerous tumor and will create hundreds of thousands of dollars of expense for their insurance company. The issue is that this will become the norm and not the exception if we move forward with our current plan "as is"!
I 100% agree that our healthcare system and healthcare insurance need to have a reform, their needs to be some allowances made for the child who is no longer able to be on their parents insurance plan but was diagnosed with a lifelong childhood disease, and their needs to be a requirement for preventative visits to be covered by that insurance we are paying for, and their definitely needs to be some pricing control in medicine similar to insurance premiums and how much they can increase annually in certain areas. I do not agree though, that telling everyone they must protect themselves with health insurance, that many will still be unable or unwilling to afford based on their current living choices, and I do not agree, that we can completely eliminate the risk element of insurance and have a successful program.
For the future financial commitment that these companies have made to the millions of people who are currently paying for their health insurance premiums, the companies will have to increase premiums even further to allow for the inability to properly assess the risk that they are now taking on. This will inhibit growth for many businesses as insurance premiums now increase at a more rapid pace than ever before which creates a greater demand for individual insurance where we are placing the responsibility to secure the insurance they so desperately need but require them to part with a portion of their already limited financial resources. Then the question that is often asked is how can we even enforce it to make sure they are paying their portion? Now that is an entirely different but long dilemma!
To make this long winded explanation short, the healthcare system needed to be reformed, but in it's current state, The Affordable Care Act, will create anything but affordability and will eventually price out the very people it was originally intended to protect. To you, fellow Americans, please think about this act from all angles, and let's work together to figure out a solution that is economically responsible, empathetic in nature and sound in logic!
