What’s Wrong With Our System
Our healthcare system is failing and there is not a single person in America who would argue the contrary. However, exactly why our system is failing is still a topic of debate. Some have concluded that it is due to greed. While others have decided that it’s all Obama’s fault and a direct result of the ACA. Bad news is, they are both partially right; except that it actually wasn’t Obama, but rather the insurance lobbyists involved in writing the ACA. The ACA did not solve the underlying problem in our nation’s healthcare system: It’s a private system devised around making a profit. Anytime profits and stakeholders are involved, the main goal of that industry is to make more money. As such, anything that cuts into that profit–say spending it on covering sick people’s medical bills–goes against your business model and you have to charge more to recoup those losses.
Past that, it’s simply economics. The ACA mandated that all individuals hold some basic level of health care in an effort to lower costs that result from uninsured patients placing a strain on the system, and to get more young people into the market. This would bring down costs by spreading them out over a greater number of policyholders. Additionally, the program brought in even more patients through a massive subsidy program for those not covered in the Medicaid expansion. These people were predominately lower income, who tend to have higher medical bills directly in proportion to their socioeconomic status. As more people joined the
marketplace with subsidized care and the demand for policies increased, supply actually decreased. The industry shrank both from mergers, and from insurance companies being pulled out of the market for sub-par coverage that didn’t meet the ACA standards of care. The ones that were left had a sudden surge in clients, and as such had to up the price of coverage to make it worth it to them to expand operations to meet that new level of demand; again, because it’s a private industry. That is one of the tenets of supply and demand. So, even though the subsidies were meant to help low-income people access the marketplace, it’s still a private industry which has to make a certain level of profit to stay solvent and appealing to investors, so they raised prices to maintain that level.
Many people believe that all there is today is for-profit health care, however that is not the case. An important distinction to note about for-profit vs not-for-profit health care is that both of them actually can make a profit. However, in the for-profit model most of the excess money—called “profit” in this model— usually goes to the shareholders in the form of dividends or bonuses, and only some of it is reinvested into the company to help bring down costs or create a better product. In a not-for-profit health care system, almost all of the excess—called “surplus” in this model—is reinvested back into the company to create a better product, or to lower costs. However, not-for-profits can operate on a surplus, and most of them do. Some view that as profit, but the biggest difference is who makes the money; shareholders and investors, or those working within the business and the policyholders (in the form of a better product). However, in both cases these companies are private industries with the model of making money, no matter what you call the excess.
One of the biggest problems plaguing the Delaware health insurance marketplace is the lack of competition, as is the case in many industries within Delaware. Due to the fact that insurance companies are not set up to sell policies across state lines, and because many are leaving the marketplace or merging together, the supply of insurance policies shrank. In larger states, this could be mitigated to some degree because of another aspect of insurance called the risk pool. The risk pool is a representation of the quantity and quality of the policy holders in an area. Two of the most important qualities are its size, and its risk-factor rating. In Delaware, we have a small risk pool, meaning a low number of policyholders compared to other states. We also have a high-risk rating, meaning we have a lot of people at risk of producing claims. For comparison, let’s look at another state like Pennsylvania. In Pennsylvania, the average health care policy is priced far lower than the same policy being sold here in Delaware. That is partially due to the fact that they have a much larger population which allows them to spread out the cost. Or, in other words, they have a larger risk pool. Our risk pool is predominantly elderly people and low-income families, both of whom tend to cost more to insure. Combine that with not having enough people to spread the costs out, and up goes the prices.
All of these issues have come together to create a situation that has crippled the Delaware health care exchange, and left little in the way of options for most Delawareans. At this point, you either pay the skyrocketing costs of private insurance, or pay the fine at the end of the year. While our state did take advantage of the Medicaid expansion to offer coverage to more lower-to-middle income families, we also inadvertently set our spending on a path to increase exponentially as the federal government pulls its funding. This leaves us with a vital problem to solve: How can we bring down the rising costs of our Medicaid program, without kicking people off or chopping services, while simultaneously offering insurance to more people who are left in the Medicaid-Private Insurance gap?
Read about more about the Medicaid Buy-In Program in Part 2 Here.