President Trump is right. Insurance is hard, even for someone like me who has spent nearly twenty years in this business, so it must be nearly as unfathomable as quantum physics for the average person who has better things to do with their time. I will not deny that there are many things wrong with the Affordable Care Act, but the most egregious and unfathomable is that the majority of our elected leaders who are responsible for crafting health care legislation, don’t understand how insurance works either.
Take Florida Senator Marco Rubio.
During the two years that negotiations and planning were taking place prior to the passage of the Affordable Care Act, there was much wrangling with insurers to get them on board the idea of offering plans through the insurance exchanges. The insurers knew that in the early years of the program, the first three to five years, they would lose lots of money since only the sickest would apply, people with untreated chronic conditions or who only saw a doctor when they ended up in an emergency room. The investment that insurers were making in infrastructure and systems upgrades to process the enrollments, and deal with the influx of new member claims would be overwhelming, and cause serious harm to their stock price, profits and shareholders.
To compensate the insurers for the increased risk they were taking on, the government set up something called risk corridors, a key financing mechanism intended to help insurers offset losses until the plans were stabilized. The idea behind the scheme of the ACA was that as the plans and marketplace matured, and the penalties for not signing up kicked in, more healthy individuals would enroll and spread out the risk – which is the basic historical premise of insurance. Everyone pitches in and pools their money and when one of us needs help, there will be enough in the kitty to cover the expenses. Nowadays, insurers use complicated actuarial tables and the data they collect on the health of their insured population to set premium rates. (By the way, if every American under the age of 65 was covered under one plan for basic insurance – annual check ups, blood work, emergency room visits, cancer screening, pre-natal, well-women and well-baby care and a reasonable prescription plan– it is estimated that our premiums would go down by almost 50%, and we would have low co-pays and no deductibles – and that basic coverage would be more than sufficient for nearly 95% of America’s health care needs.)
Although Mr. Rubio has been a staunch and vocal critic of the Patient Protection and Affordable Care Act, he nonetheless enrolled himself and his family in an Obamacare individual insurance plan, and accepted the roughly $10,000 special subsidy from the government that is not required to be paid back. Mr. Rubio explained that the subsidy was an “employer contribution” essentially telling us that he was no different from any other working stiff who received insurance from an employer. If Mr. Rubio were an ordinary citizen, however, the IRS would demand that the subsidy be refunded because his $174,000 compensation as a U.S. Senator is well over the limit for government subsidies, which at the time he enrolled was $94,200 for a family of four. For Mr. Rubio to qualify for non-refundable government subsidy based on his $174,000 salary, he would have needed a family of 12. Before Obamacare, members of Congress were offered health insurance for themselves and their staffs through the Federal Employee Health Benefits Program. The federal government contributed $10,048.76 towards premiums for families, and $4,966.80 for individuals, according to records from the U.S. Office of Personnel Management. And by the way, because they were insured under a large group plan, their premiums were further reduced.
Now back to the risk corridors. In 2014, while still insured by the Obamacare insurance marketplace and receiving subsidies not required to be paid back, Mr. Rubio sabotaged the whole scheme by quietly slipping a health care provision into a spending bill that reduces the payments to insurers promised to them by the government in exchange for the risk they were taking on in supporting this new way to insure millions of uninsured Americans. As a result of this, many insurers dropped out of the exchanges, and continue to do so. They could not afford to pay claims based on the new reduced payments. One insurer, Health Republic of Oregon, decided to close its doors after learning that it would receive only $995,000 instead of the $7.9 million it had planned on. Mr. Rubio, with his sneaky act of subterfuge under the guise of doing what’s right for average Americans, has undermined the foundation of the insurance marketplace. The plans never had enough time to stabilize, which the risk corridor payments would have allowed them to do. His hypocrisy knows no bounds. He undermines a source of insurance for millions of Americans while he has a government safety net.
Fast-forward to 2017, and the defeat of the American Health Care Act by members of the Freedom Caucus. The new legislation – dubbed “Repeal and Replace” – would have reinstated those payments to the insurers, and reduced premiums, a premise that the members of that caucus call “corporate welfare”. Once the House began making changes to the legislation to accommodate the members still opposed to it, it was doomed to fail. They gutted the provisions in Obamacare that provided for across the board minimum insurance coverage, which allows you to shop and compare plans knowing they all contain the same basic provisions of coverage. They also took out extra taxes paid by device manufacturers and other incentives and provisions that help pay for the subsidies.
So when President Trump tells the American people that Obamacare will fail, he knows the score. And he can thank Senator Rubio for the favor.