The Obama administration is in the process of exempting an unknown and likely unlimited number of employers from the rules of Obamacare. This week, the Department of Health and Human Services announced that thirty companies and organizations (including McDonald’s) were granted a one-year waiver to exempt them from implementing the Democrats’ new healthcare reforms. Why? In short: because the administration realizes that Obamacare makes absolutely no economic sense.
Just as King Canute failed to hold back the tides, Health and Human Services Secretary Kathleen Sibelius is failing to hold back the reality of American healthcare economics. The decision debunks many of the Democratic party’s myths about American healthcare and what needs to be reformed.
First myth: That the health insurance companies are evil and highly profitable and that Washington can control healthcare costs by simply making them spend more of their overhead on actual patient care.
In reality, while the insurance companies are certainly annoying to many doctors (and to some patients) that is because they are actually trying to make a profit or retain earnings (as non-profits do) because that is the only way costs can be controlled and companies can survive. If you pay out more than you take in, you will go out of business. If one wants health insurance companies to go out of business, one need only create mandates and targets that are economically unreachable and you achieve your agenda. The administration realizes that when many insurers implement the new healthcare reforms some of them would need to raise premiums or drop some plans altogether. The president’s promise that “if you like your insurance plan, you can keep it” won’t stand true if bureaucracy and the new reforms drive not-for-profit, low margin insurance companies out of business.
The Obamacare waivers granted to insurers also help them escape from the problematic mandate that insurers spend a certain percentage on benefits. Obamacare now dictates that someone in the Health and Human Services building in Washington can demand that insurance companies that, for a myriad of reasons, spend, say, 22% of their revenue on performing needed activities like running rapidly turning-over enrollments instead spend only 20% on such activities. That is a fine way to control costs if the insurance company could comply. But it has always been in insurers best interests to lower their overhead in order to increase their profitability. In many cases, the reason they haven’t lowered their overhead might simply be because they could not.
Can someone in Washington really dictate whether the insurance company that runs the McDonald’s minimal insurance plans reduce their overhead by 10% or so? Clearly they cannot and hence the need for the waivers. They can add and subtract at HHS even if Congress cannot.
Second myth: Healthcare costs can be contained if we only had the government in charge and had a single payer plan. In fact, the Organization for Economic Cooperation and Development, the keeper of vital economic statistics for the EU and the U.S. reported a 9% increase in healthcare spending last year. Yes, we in the U.S. spend more than any other country but the rate of increase is unsustainable in countries with single payer government plans. We do not need such a plan. What we do need is a plan that creates a market dynamic as the only path to efficiency. Forcing insurance companies and employers to spend more on healthcare will also not address this issue. We have not heard much about “bending the cost of care curve” lately, have we?
In the future, look for more Obamacare “waivers” – and perhaps even a giant waver for the whole mess that has been created.