The Affordable Health Care Act of 2010

The US Supreme Court, by a vote of 5 to 4, has recently upheld the landmark Affordable Health Care Act enacted by President Obama in 2010. The most controversial feature of the Act is to force every citizen to buy health insurance in order to enlarge the insurance pool. The Court rules that this is an appropriate tax to penalize failure to buy health insurance.

Those in opposition would prefer the Act be declared unconstitutional on grounds that the government has no right to force people to buy things. However, they ignore the fact that the government has already forced all drivers to buy car insurance. What is the difference? Car insurance costs an average of less than $40 per month whereas health insurance costs over $400. That is why nobody complains about being forced to buy car insurance.

The health care crisis in America has been worsening for three decades now. Despite its complexity, the one consequence that affects all citizens is the unrelenting rise in price. This everybody agrees and desperately wants to fix, because none wants to go broke if getting sick. However, people differ widely on how to fix it. The price inflation is the root of all health care problems. High price causes people to drop out of the insurance pool because they cannot afford it. The high price also encourages the young and healthy to drop out because they think they can take a chance without insurance. As a result, the number of uninsured has grown to 45 million in America today.

Can we rely on the private sector to fix the problem? Well, the American health care system is largely run by private companies from the beginning. If they know how to fix it, they would have done something drastic already during the last 30 years. Instead, they blame the government for setting up too many regulations while their profits continue to soar. This confirms the fact that higher price for the consumer contributes to higher company profit without improving the quality of service. Finally, the government has to step in as the crisis becomes intolerable.

Basically, there exist only two fundamental problems to solve: fast rising prices and declining insurance pool that are tightly linked. Although private companies profit from fast rising prices, they know that it is unsustainable. They are doing everything to lower costs including: streamlining operations, digitizing medical records, hiring foreign doctors and nurses at lower costs. Whether they will pass on the cost savings to the consumers remains doubtful, but at least they are doing something to relieve the inflation pressure. Therefore, the government does not have to do much to help, except to ensure free competition and price transparency among health care providers so that the consumer can compare and choose the lowest price.

The other fundamental problem is the declining insurance pool due to people dropping out because of high prices. Worse, the reduced pool is left with old and sick people who need more health care. This is the worst condition to run a health insurance business. The insurance operation only works with a growing market where the majority pays for the minority who get sick. That is why insurance companies cherry-pick their clients to weed out the sick or those with pre-existing conditions. In this way, they invariably reduce the insurance pool, thus hastening the contraction of the market. They know that this practice cannot sustain if the pool gets ever smaller due to rising prices. (See my other post, “Health Insurance in Jeopardy?”)

Facing this dilemma, many insurance companies support the reform Act because it forces the 45 million uninsured (especially the young and healthy) to buy insurance. They salivate at the potential size of this market at an average of $400 per person per month! That is why the insurance industry grudgingly accepts the reform Act’s demand that they cannot weed out sick people or those with pre-existing conditions. So you can see that the reform Act carries both a carrot and a stick for the insurers.

What should the government do? Everybody agrees that the government should serve the people, not big business. Even communist or dictatorial regimes say they serve the people (as they continue to persecute those who refuse to shut up). The reform Act’s biggest achievement is to forbid insurance companies to weed out the sick and those with pre-existing conditions. For those who cannot afford insurance, the government provides subsidies to ensure they stay in the insurance pool. By bringing in the uninsured, the reform Act attempts to achieve universal coverage, that is, the biggest insurance pool possible because a shrinking pool does not work. Because of the reform Act, all citizens do not have to worry about bankruptcy just in case they get very sick.

What does the Act fail to achieve? It fails to create a government insurance exchange to directly compete with private insurers to lower the price of insurance. The insurance industry is vehemently opposed to government direct participation. They put up a fierce fight to exclude government participation from the reform Act, and they succeeded in doing so. Therefore, while many developed countries have a single-payer system, the US still has a private system where the government only subsidizes health insurance provided by private companies.

The Affordable Health Care Act is just the beginning of reform after 30 years of inaction. Continuous efforts must be made to keep costs under control, which is the single most important fundamental issue. This can be achieved with the right mix of government regulations and market competition. The reform Act is not socialism as vilified by the opposition. It’s pragmatism for the current unfair system that desperately needs reform.

June 2012



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