Monday, April 11, 2016
No Risk, No Reward
Capitalism is unthinkable and unworkable without risk.
UnitedHealth Care has just announced it is pulling out of ObamaCare plans in Arkansas and Georgia. It may pull out of other states later. Observers fear Anthem and Cigna may follow and ObamaCare may further unravel. There are signs this unraveling is already occurring as 12 of 23 co-op non-profit insurance plans have dropped out of the ObamaCare health exchange market, and the remaining 11 are in dire financial straits.
What’s going on here, in my opinion, is that the Obama administration’s health care policies have undermined the importance of risk in the America economy. The insurance industry is based on the concept of risk. Insurance is the business of insuring property, life, and one’s person against loss or harm with the payment proportional to the risk involved. The insurers’ profit is based on the odds they will bet right on harm not occurring.
By not allowing insurers to exclude those with pre-existing conditions from the insurance pool, ObamaCare removes the ability of insurers to calculate risk. The health exchanges and insurers bet that millenials would jump at the opportunity to be in government subsidized plans. Instead of 40% joining, only 28% did. They bet those 35 to 64 would be disproportionally healthy. They were not: 28% more than estimated were hypertensive. Likewise, 27% had coronary artery disease, and an astonishing 94% were hypertensive. Insurers, unable to calculate risk in populations with unknown numbers with pre-existing conditions, took a bath, and government had previously pledged to bail them out.
The lesson here is that one cannot remove financial risks in health insurance markets without knowing the health risks in the population you are insuring. If you do, the consequences will no rewards and heavy losses for insurers, without whom government cannot function in health care markets.
There is an even deeper philosophical problem in a capitalistic society like American.
Capitalism rests on the concept of equal opportunity and economic freedom, that entrepreneurs and insurers should be free to take risks and deserve rewards if their risks pay off.
Socialism, and its stepchild, progressivism, rests on the notion that economic and health outcomes out to be equal, free of financial risk, and successful risk-takers ought to be taxed for their rewards. A riskless society punishes entrepreneurism. It may achieve equal and “fair” outcomes with promised access for all to health care but at the cost of a stagnant economy for the middle class with rationed health care resources for all.
The health exchange game, may not worth the candle, meaning there is not enough at stake, or to be gained, to pay the necessary expenses of the undertaking, or, more generally, the risks are too great for any possible gain.