I have read extensively on the new Obamacare law and have discovered a weakness – an unintended consequence, really – I think can and will be exploited by many as soon as they figure it out. I haven’t read of anyone else figuring this out, but, then, I probably haven’t read everything ever written on the subject, so someone out there may have beaten me to the punch. I’ll lay it all out for you, but before I do, a story that pretty much describes what’s going to happen to countless people.
One of my son’s best friends – let’s call him Tom – is getting clobbered by Obamacare. It was his plight that lead me to reason out the exploitable flaw in the program.
Tom is married and has two children ages 10 and 5. His wife had a tubal ligation (had her tubes tied), so no more pregnancies are in the picture. Tom works in construction in a job that is neither blue collar nor management, so kind of a light-blue collar job. He makes reasonable money ~60K per year, and his wife works part time. After the Fed and the rapacious State of California take their bites, Tom and fam are left with a lot less than they started with. They don’t live an extravagant lifestyle. In fact, quite the opposite. They are extremely frugal and, like so many people, live paycheck to paycheck.
Neither Tom nor his wife get health insurance through their employers, so they purchase their own. They shopped around and found a policy that meets their needs and is within their limited budget. They pay ~$300 per month for a policy that has a large deductible and doesn’t have pediatric dentistry or maternity benefits. Tom and family decided that due to financial constraints they would fund routine medical care out of their own pocket to keep insurance costs down but still allow them to be covered for anything major.
Last week they received notice that their policy was going to be canceled next month.
How could their policy get canceled when they were assured, “If you like your policy, you can keep your policy. Period.” by the President, himself?
Because that guarantee only applied if the policy they liked conformed to Obamacare’s minimum coverage standards. Under Obamacare, no insurance company may issue a policy after 2013 that does not meet the law’s minimum coverage requirements. Tom’s family’s plan was canceled because it did not. Not because it was a bad policy, but because it didn’t offer maternity (which his wife didn’t need) or pediatric dental (for which they took good care of their children’s teeth and paid out of pocket for cleanings.)
They were able to get on the exchanges and found that the least expensive policy they could get under Obamacare was $600 per month, which they can’t afford. (And far from being better for them, the new policy had an even higher deductible they’d have to meet out of pocket!) So, now, they are confronted with cutting something else to come up with the extra $300 per month or going without insurance. Given that most of their expenses are fixed, they have no choice but to go uninsured and pay the $95 tax penalty. At least for the short term until they can rearrange their finances.
Their plight made me realize that under Obamacare there were doubtless going to be as many uninsured people after the law took effect as there were before. It was just going to be a different group. The new group of uninsured were going to be the hard working families who lost policies they liked and could afford, but who couldn’t afford the new policies available to them under Obamacare and now have nothing.
Trying to help them figure out what to do led me to discover a way to hack the system.
Why do people buy insurance? For a few reasons:
* First, they want help with routine medical needs, i.e., doctor’s visits, x-rays, lab work, etc.
* Second, they want coverage for any kind of unexpected or catastrophic development. In the pre-Obamacare days, this could be easily accomplished if one were healthy by purchasing a catastrophic insurance policy for a few bucks a month. Now, impossible, because all policies have to meet or exceed the Obamacare standards.
*Third, and probably most important, people want to keep from becoming uninsurable.
And all it took to become radioactive to an insurance carrier was developing a serious disease.
Historically, if you were uninsured and you had a heart attack or developed cancer, you were pretty much screwed as far as getting insured was concerned. You had what is called a pre-existing condition, and though you could get insurance, it would cost you an arm and a leg. If you were insured and got a serious disease, it was a different story. You could still get screwed, but in most states, individual health insurance policies were guaranteed renewable, meaning as long as you paid your premiums your insurance company couldn’t drop you. Your premiums, depending upon your policy, might go up at renewal time, but not to the same extent as they would were you applying for new insurance with the pre-existing condition.
So, one of the big reasons young, healthy people would spend the bucks to purchase insurance is so they won’t become uninsurable should they have the misfortune to develop a serious and expensive-to-treat disease. I have a friend who had a heart attack in his 40s. His wife is in perfect health. Since his heart attack, it has cost over $2,000 per month for them to get insurance even though his heart attack was almost 20 years ago, and he is now the picture of health. (Thanks in no small part to his conversion to a low-carb diet.)
With this third reason that people opt to buy insurance in mind, here is the hack.
One of the central pillars of Obamacare is that people with pre-existing conditions can get insured easily and at essentially the same rates as those without the pre-existing condition. This means that those of us who have no pre-existing conditions will end up paying more to compensate for the higher expected insurance payouts needed to cover those who do have pre-existing conditions. Insurance companies are required to pay out a fixed percentage (which is much higher than most people think) of their premium income. So if they are going to be paying out more – which they certainly will if they are forced to take on people with pre-existing conditions – the only way insurance companies can compensate is to charge those of us who don’t have big payouts a lot more. Which is what Obamacare has done. There’s no free lunch, no matter what is decreed from Washington. The higher health care needs of the sick and the old will be borne on the backs—and out of the wallets—of the young and the healthy.
So, if you are healthy, just go without insurance. Pay the $95 fine, which you have to pay only if you are getting back a federal tax refund. If something bad happens to you, God forbid, then go on one of the Obamacare plans and sign up. Simple as that.
You can’t be denied for any sort of pre-existing condition. And your rates won’t be affected. So why pay for insurance until you need it? Obamacare has effectively removed the main incentive for the young and healthy to opt in responsibly to avoid bankrupting themselves or becoming a drain on their families or neighbors should catastrophe strike.
In the case of our son’s friend, he can self insure for all of the routine medical visits with the $3,600 he will save by not paying his current $300 monthly premium. And if he, his wife or one of their kids should develop a serious medical condition, he simply needs to apply through the exchange for insurance, and he will be assured of getting it at the same $600 per month premium he was recently quoted.
If everyone did this, it would, of course, raise rates over time because the young and healthy, who are the ones keeping the system afloat, will be gone from the premium pool.
And, since Obamacare is in such flux right now, who knows if it will even exist in a few months. Democrats up for re-election are already in a blind panic and may force legislation through to kill the program. Or modify it greatly. So I, myself, probably wouldn’t chance it.
But I’m just throwing it out there for anyone who has had a major unaffordable premium increase who might be looking for a way to deal with it. Many, such as my son’s friend, are just going to go without because they can’t afford it. Maybe my interpretation of the situation will bring them a little peace of mind.
Here is a good book on dealing with Obamacare. I have not read it myself because my and MD’s health insurance policy exceeds the Obamacare standards, so it hasn’t been canceled. At least not yet. But I have had many people tell me it’s the best book they’ve read on the subject.
As always, please feel free to set me straight in the comments section. Or let us all know if you’ve read any books or articles dealing with Obamacare that might benefit us all.
ADDENDUM: Okay. It looks like I should have read the above book. Turns out there are parts of the AHA I was unaware of. The open enrollment period being one of them. Which makes the above hack not work so well. It will still work, but not without accepting more risk than most people are probably willing to accept.