This is going to be long sorry but I promise if you read all the way through to the end you will learn something and you should learn something new everyday.
Telling insurance companies what to do is not going to cost jobs in fact it will be a net creator of jobs over time.
In fact there are three ways it will be a net creator of jobs.
The insurance companies love the Affordable care Act or Obamacare because it is going to give them millions of new paying customers and consequently billions of dollars in revenue. Many of these customers will be young and healthy so low risk customers as far as the health insurance companies are concerned. Some of these people do not have health insurance now because they figure they can risk it as they are young and healthy. Others do not have health insurance because they cannot afford it. That is where subsidies will come in to cover the short fall for low income individuals.
Just look at how the stocks of the big health insurance companies have performed since The Act was passed in 2010. The S&P 500 is up just over 28% from March, 12th 2010 to today’s date the 4th of October 2012. Humana(HUM) is up almost 57% from that date, Aetna(AET) is up almost 36% and United Health Care(UNH) is up over 71%!!! To outperform the over all market by over 250 percent is huge. If you had bought a S&P 500 index fund for $500 in March of 2010 it would be worth $642 before fees and commissions today. If you had bought UNH for the same $500 it would be worth $858. Picking an individual stock is risky though so even buying a Health Insurance ETF would have netted a gain over the S&P 500 just not as much of one. Four of the five big health related ETFs outperformed the S&P500 over the same time frame
The individual and small group market is badly broken in the US. The people in these types of plans do not have the economies of scale to drive down premium costs. Everyone knows buying in bulk saves money over the long term and the same is true with health insurance. Big companies, big groups or big governments can get better rates because they are buying so much. The Health Insurance Exchanges that will be set up under the Affordable Care Act make this bulk buying possible.
All these millions of new paying customers that are relatively low risk make it possible for insurance companies to cover higher risk individuals. This includes older people, people with pre-existing conditions and/or chronic conditions that need long term care. Insurance is all about spreading the risk out over a larger group to minimize individual losses.
Think of it like a three legged stool. You need three points in a plane for a stable platform. Those three points will always create a stable stool because they are all in the same plane. I have already talked about the last two points as they are the incentives but there is a cost component as well. There has to be a cost component as at the end of the day the insurance has to be paid for.
The cost component is the individual mandate. Everyone has to have insurance so there is not a free-rider problem. Everyone needs to pay into the system in order for the insurance companies to cover older more expensive individuals and people with pre-existing and/or chronic problems. Without the mandate you cannot have the other two legs of the stool and it will fall over. There will not be a way for insurance companies to pay for the costs incurred by offering insurance to sick people at reasonable premiums. They will not be able to cover pre-existing conditions without the premiums from younger healthier people.
That is why Romney’s, “lets leave it up to the states plan,” will not work.
Not all states are going to set up plans that use all three legs. Most of the objections form the states that sued about the Affordable Care Act were in response to the Individual Mandate. The coverage for pre-existing conditions and older/sicker people only works if everyone buys in. No individual mandate then no coverage for these people. Romney cannot say that he will keep coverage for people with pre-existing conditions if there is not also near universal coverage. The universal coverage provided by the individual mandate also makes possible things like eliminating lifetime limits, eliminating rescission(when a health insurance company drops a customer because they are too sick and costing too much money) and offering better preventive care.
Now the individual mandate can be bypassed by the states if they can find a way to get to universal coverage without it. I think the individual mandate is the easiest and most logical way to do it but according to the law the states do not have to use it. Find a way to get to universal coverage without an individual mandate and the intent of the law is satisfied.
Romney knows all of this because remember Obamacare is modeled after Romneycare from Massachusetts. Before Romney got it passed in Massachusetts the idea of an individual mandate to promote universal coverage and get sick people onto the health insurance rolls was a Republican idea from the early 1990s. It was the Republicans market response to the Clinton’s health care overhaul.
Better preventive care is what is going to help us bend the cost curve down and actually reduce our health care costs over the long term. Everyone knows when it costs more to fix something after it is broken then it costs just to maintain it in the first place. All of these people on health insurance now are going to be getting preventive care that will hopefully catch minor problems before they end up as a more serious problem, an Emergency room visit or worst case a death. The Emergency room is the most expensive place to get health care. The more we can reduce Emergency room visits the more we can drive down health care costs. Diabetes, high blood pressure, high cholesterol, heart disease, obesity plus many more medical conditions are preventable diseases that more frequent care and wellness visits will reduce.
Catch the guy with high cholesterol and high blood pressure before he has a heart attack or a stroke that requires an emergency room visit. Get him the drugs he needs to help bring his blood pressure and cholesterol down before a cardiac surgeon has to crack open his chest and try and repair a damaged heart. The stock market agrees with this approach too. The market as a whole things it is a winning strategy and that it will make Pharmaceutical companies more money. How do I know that? Of the five big health care ETFs that I mentioned earlier the one that is up the most since March of 2010 is the pharmaceutical one ticker symbol PJP. It is up 79.73% as I am writing this versus the S&P 500’s 28.14%.
So there you have it one way that the Affordable Care Act will create jobs in the health care sector by bringing in millions of paying customers for health insurance companies and drug companies.
The second way is the obvious way. All of these people are going to need more doctors and nurses. I think that goes without saying and does not require almost two pages of explanation.
The last way the Affordable Care act will be a net creator of jobs is a little more subtle.
Right now if you have a good paying job that provides good health insurance from a large company and you want to leave that company to start your own small business you have a hard choice to make.
Take the risk of starting a small business and follow the American Dream of being your own boss. Be an entrepreneur make your own way in the world then compound that risk with either not having health insurance or paying enormous premiums for individual coverage. Remember the individual and small group market is broken because there are no economies of scale. You have to buy in bulk to save money and as an individual or small group you simply cannot do that.
With the Affordable Care Act you would be able to get affordable individual coverage because of the economies of scale that will come aboutwith the Health Insurance Exchanges. Leave your big company with good health insurance to start that business and while there are still lots of risks the cost of health insurance will not be one of them.
I know this is the case because I work with people who in the past had their own small businesses. One of the reasons they cite for not going back into business for themselves is the enormous cost of individual health insurance plans. A small business is risky enough without the chance that your already expensive health insurances costs might go up by 30 plus percent the next year. In the past the premiums for small group and individual health insurance plans have increased by that much or more in a single year.
Someone who wants to go back to school to better themselves would be in a similar situation. If they have a pre-existing condition now and they leave their current job to go to graduate school that have two choices unless the university offers group insurance to their students. Some universities offer a group plan insurance to their students but not all universities do. Pay an enormous amount of money for individual insurance or go without health care coverage and risk a financial calamity. Take the risk going without health insurance and even if nothing catastrophic happens if you have a pre-existing condition getting that condition covered again when you have health insurance in the future might be impossible or much more expensive.
None of that works without the three legs of the stool I mentioned before.
Everyone has to have coverage and in order for everyone to have coverage you have to set up these Health Insurance exchanges to offer affordable coverage to individuals plus enact subsidies to bring the cost down for those that cannot afford insurance.
The low risk individuals make it possible for health insurance to be offered to higher risk individuals and for pre-existing conditions to be covered.
Without those two things, low risk people in the pool and universal coverage you cannot cover higher risk people or coverage for pre-existing conditions.
There you have it. Three ways the Affordable care act will create jobs not cost jobs.
First, more customers for health insurance, pharmaceutical and other health related companies. The movement on the stocks shows that the marketplace thinks these companies will make more money with the law in place.
Second, more health care professionals at all levels will be needed. Not just doctors and nurses but support staff as well. Expensive ER visits will hopefully go down while less expensive primary care visits should go up.
Third, increased flexibility for workers to start their own business, go back to school or take another job with a smaller company that might not have the buying power of a large company.
I am sure not everyone will agree with all that but I hope you at least learned something because right now overall the general public is chronically misinformed on issues like this.