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"Everything government touches turns to shit." – Ancient proverb
First, let’s remember that the primary problem with the U.S. healthcare system is the outrageous prices charged by healthcare providers. The U.S. healthcare industry operates under the "regulated capitalism" model, which means it is riddled with monopolies, oligopolies, and labor cartels - all of which are enforced by the filthy government. Thanks to these restrictions on competition and supply, healthcare in the U.S. is absurdly expensive.
In this post, I want to address a particularly stupid piece of government regulation: the 80/20 rule, a gift from Obamacare. This is from the video linked at the bottom of this post:
The answer is the 80/20 rule, courtesy of Obamacare. Here's how the government describes it:
Sounds good, but it's actually very bad.
In every other insurance market, paying out more in claims is bad for the insurance company. Auto and property insurance companies do everything possible to reduce claims. For example, auto insurers lobbied for seat belt laws and drunk driving laws because both reduce accidents, which lowers payouts. But the idiotic 80/20 rule of Obamacare flips this logic on its head. To see why, consider the following two scenarios:
Example 1:
A health insurance company receives $40 million in claims.
Since claims must make up 80% of total revenue, next year, the company may charge $50 million in premiums.
The remaining $10 million (20%) is for overhead, profit, executive salaries, and bonuses.
Example 2 (Healthcare Costs Double):
Suppose the cost of healthcare doubles, and the company receives $80 million in claims.
Since claims must make up 80% of total revenue, next year, the company may charge $100 million in premiums.
The remaining $20 million (20%) goes to overhead, profit, and executive salaries.
See the problem? Under this government-mandated scam, the higher the claims, the more money the insurance company makes. Obamacare turned health insurance into a cost-plus business, where insurers are financially incentivized to let healthcare costs skyrocket. Insurers don’t care about medical costs because higher costs means bigger profits in the long run. Hospitals and doctors are happy as they can just keep raising prices because insurers don’t push back.
This is a natural result of regulated capitalism: insurance companies and healthcare providers win, while the sick and dying patients lose.
Edit: one objection might be that employers and individuals still shop for lower premiums, which provides some downward pressure on costs. However health insurance is regulated at the state level, which drastically limits competition to a few big players.
First, let’s remember that the primary problem with the U.S. healthcare system is the outrageous prices charged by healthcare providers. The U.S. healthcare industry operates under the "regulated capitalism" model, which means it is riddled with monopolies, oligopolies, and labor cartels - all of which are enforced by the filthy government. Thanks to these restrictions on competition and supply, healthcare in the U.S. is absurdly expensive.
In this post, I want to address a particularly stupid piece of government regulation: the 80/20 rule, a gift from Obamacare. This is from the video linked at the bottom of this post:
The answer is the 80/20 rule, courtesy of Obamacare. Here's how the government describes it:
Sounds good, but it's actually very bad.
In every other insurance market, paying out more in claims is bad for the insurance company. Auto and property insurance companies do everything possible to reduce claims. For example, auto insurers lobbied for seat belt laws and drunk driving laws because both reduce accidents, which lowers payouts. But the idiotic 80/20 rule of Obamacare flips this logic on its head. To see why, consider the following two scenarios:
Example 1:
A health insurance company receives $40 million in claims.
Since claims must make up 80% of total revenue, next year, the company may charge $50 million in premiums.
The remaining $10 million (20%) is for overhead, profit, executive salaries, and bonuses.
Example 2 (Healthcare Costs Double):
Suppose the cost of healthcare doubles, and the company receives $80 million in claims.
Since claims must make up 80% of total revenue, next year, the company may charge $100 million in premiums.
The remaining $20 million (20%) goes to overhead, profit, and executive salaries.
See the problem? Under this government-mandated scam, the higher the claims, the more money the insurance company makes. Obamacare turned health insurance into a cost-plus business, where insurers are financially incentivized to let healthcare costs skyrocket. Insurers don’t care about medical costs because higher costs means bigger profits in the long run. Hospitals and doctors are happy as they can just keep raising prices because insurers don’t push back.
This is a natural result of regulated capitalism: insurance companies and healthcare providers win, while the sick and dying patients lose.
Edit: one objection might be that employers and individuals still shop for lower premiums, which provides some downward pressure on costs. However health insurance is regulated at the state level, which drastically limits competition to a few big players.
