Hello, boys and girls! It’s time for another lesson in Economics 101. Today, we are going to be talking about how insurance works.
Insurance companies actually operate on very low profit margins. They are not like oil companies that make astronomical profits. What insurance companies do in general is take all of their estimated expenditures and subtract this from the total sum of all of their premiums leaving them with usually around 4 to 6 percent profit.
When the Affordable Care Act was passed a few years ago, the law made it perfectly clear that the estimated expenditures for insurance companies would increase significantly by removing previous restrictions on who qualified for insurance. The plan to offset this was going to force the young, healthy and uninsured people into the marketplace which would then increase the sum of the premium revenue. By adding 7 million previously uninsured patients, this would allow insurance companies to maintain their narrow profit margin.
If you look at the rate of individuals signing up so far, it would appear that this will extrapolate to well under 7 million people signing up for these health care exchanges. This will immediately put the squeeze on insurance companies. If the situation does not change, insurance companies will be forced to operate at a loss or drastically increase premiums to make up a difference.
I suspect that some politicians were aware that this would happen, and had a plan to eventually restrict insurance companies by law to keep them from raising premiums. This would eventually lead to the collapse of private insurance companies and set up the government as the single payer of last resort. However, things changed drastically in 2010 when the Republican Party gained control of the House. No such restrictions are likely to be placed on insurance companies for the near future.
If the President does not do something soon to get millions of healthy people into the system, the premiums on everyone’s insurance will start to dramatically increase. Insurance companies will have no choice in the matter. They will either have to increase premiums or stop making profit. The President will likely start accusing the insurance companies of being greedy because of this rise in premiums, but make no mistake about it… the Affordable Care Act will be the direct cause of everyone’s premiums going up.
The “Affordable Care Act” is not only a misnomer but it’s a ticking time bomb… and it is about to go “boom”.
