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The Politics of Math

November 2, 2012

Chris Garlasco, Owner & Managing Partner – Founders Insurance Group

Political strategist, Julie Roginsky,unwittingly demonstrated this week on national television why I have so much concern for Obamacare and why you should too. Rather than taking a political position supporting the view of one party or the other, my approach has been to simply look at this monster bill from an actuarial point of view. I have outlined in other blog entries that insurance mathematics, like all of mathematics is not

Political Strategist, Julie Roginsky

political or emotional. I have consistently pointed out that regardless or who runs health insurance, the private sector or the public sector, the insurance will have to conform to the principles of actuarial science. In laymen’s terms, two plus two always equals four. Whether we are speaking of Medicare or wind insurance in Florida, the government has demonstrated that it simply cannot keep politics out of the equation. It is problem that continues to lead both of the mentioned programs facing huge deficits, deficits that the government doesn’t allow from the private sector.

Ms. Roginsky, speaking in support of Obamacare touted how wonderful it is that woman will no longer be “discriminated” against by facing higher health insurance premiums than men. The problem is that it is not how insurance actually works. Insurance is designed to set a price that equals the risk. It is true that women have been forced to pay more due to a higher number of claims. It is also true that woman pay less than men for life insurance due to a longer life expectancy, and lower auto insurance premiums as a better group of drivers (Sorry guys!). Here’s the problem, the risk hasn’t changed. So as a result, the additional premium amount that is needed to cover women has just been shifted to others that don’t present that higher risk. A great car insurance analogy to this would be that of a driver that has several tickets would no longer have to pay a premium equal to that additional risk. Drivers with clean records would simply have to pay more so higher risk drivers could pay less. It should also be noted that the state of Massachusetts attempted to level the playing field in this same way for auto insurance customers. The net result was a reduction of insurance options to the consumer and a system that was so broken that the state eventfully was forced to return to a competitive marketplace to bring prices down for low risk drivers.

As soon as insurance pricing becomes part of the political landscape, the precise math needed to maintain a healthy insurance program goes out the window. This isn’t theory but reality as demonstrated by the financial mess that Medicare has become. The end result is higher costs to the consumer. In the case of Medicare, the government has underpaid doctors nearly ten cents on the dollar for years. The end result was that the private sector, meaning all of you that have private health insurance, have been forced to subsidize that with higher premiums. The other result is more than 50% of doctors refusing to take on new Medicare patients. The additional cuts looming will only create more trouble for consumers.

Obamacare is a very, very cost heavy bill that is being touted as something that will save consumers money. The fact is that regardless of the political party in power, politics and insurance math never make good bedfellows. I have consistently stated that there is a role for government to play in our health insurance system, especially centering on those that cannot obtain coverage in the private marketplace. In the end, the insurance is a reflection of the cost of the actual care. The solutions that Obamacare offers to reduce the cost of the actual care are centered on cutting payments to doctors and cleaning up waste in the system. The government’s record in cleaning up waste is dismal at best. Turning over one sixth of our economy in hopes that the government will somehow change its ways as it relates to waste is a huge risk that we consumers cannot afford. The math never lies, and politicians………

Have a great day!

Chris Garlasco

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