“Affordable Care Act Cancer” The Middle Class Silent Killer

The Affordable Care Act is attacking and mutating our health insurance benefit packages much like cancer attacks healthy cells, and most people don’t even know it.  In the coming year, the middle class will find themselves the victim of this cancer.  Much like cancer, by the time most people know what is happening, the damage will already be done.  The middle class will find themselves fighting for fiscal survival as our family’s healthcare expenditures skyrocket.

Now I want to be clear, this is not a conspiracy.  It is a well orchestrated plan to house the cost of expanded health care for lower income families and high risk groups in the heart of the middle class.  I don’t care which side of the fence you’re on.  I’m a realist.  I form my opinions on facts and here is what I see.

Health Insurance Is Big “For Profit” Business:

When I say big, I mean billions of dollars.  Look into your 401K and investments to see where you’re investing your dollars.  If you’re lucky enough to still have some money after the beating the middle class took during the last recession, you won’t have to dig very deep to see some of your dollars invested in companies providing health insurance.  The fact is that these companies are a huge part of the investment landscape.  Why is this so important?

These companies will not be absorbing the costs of expanded healthcare.  They are a critical component of the economy and must produce profits.  Some people think that these companies will just reduce their margins to provide more cost effective health insurance packages.  This simply will not happen as insurance companies answer to their investors  It would destroy the economy as we know it.  We have a free market (for now), and if they were operating with inflated margins, good old fashion competition would produce more affordable options.  These companies will not be absorbing any additional costs.

Health Insurance Profitability Variables:

Let’s make it as simple as possible.  Health insurance companies make money by collecting more in premiums than they pay out in benefits.  There are only a few variables that impact the amount of money they make:

1. Group Risk: The overall health of the group being insured dramatically impacts the amount insurance companies pay out in benefits.  The Affordable Care Act is eliminating the ability of the insurance carriers to separate risk based on health and age.  The premium dollars will need to be distributed accordingly to offset the cost of benefits.  If you are young and healthy, you can expect to pay more.

2. Benefit Components: Benefits cost money.  The Affordable Care Act requires essential health benefits.  These essential health benefit components are more benefits than the average health plan currently houses.  As these components are implemented into current health plans, the costs will go up.

3. Out of Pocket Costs: The Affordable Care Act provisions will produce health insurance packages through the Exchanges that cover the cost of benefits from 60% – 90%.  Premium prices will reflect the cost the consumer is responsible for. Low cost premiums for Bronze packages will cost consumers 40% of benefit costs and high cost premium Platinum packages will cost consumer 10% of benefit costs.

4. Provider Discounts: Health insurance carriers create their own networks by negotiating what the providers will get paid, and signing contracts with health care providers to service their consumers.  The one thing that produces deeper discounts for health care providers is Volume. There are two variables that create volume:
   • The number of consumers an insurance carrier is able to drive to their providers.
   • The number of healthcare providers an insurance carrier provides their consumers.

How We Will Pay For It:

Ever wonder why the Insurance industry isn’t screaming about the effects of the Affordable Care Act on their profitability?  They aren’t going to loose any money.  This cancer is just going to mutate the packages that they provide and the middle class will pay more.  There are simply 3 ways to recoup the profit of expanded health care by insurance carriers.

1. Increased Premiums: Young and healthy individuals and families will pay more for health insurance to offset the costs of decreased premiums for higher risk groups.
2. Out of Pocket Costs: Middle class consumers are about to see their health benefits change and you will see more out of pocket costs for your premium dollars.
3. Smaller Networks/Larger Groups: We are about to see our health provider networks decrease with fewer options so our insurance carriers can access larger discounts or be encouraged to the exchanges to create larger pools.

Why will this affect you?

This cancer isn’t confined to the Insurance Exchanges.  The billion dollar health insurance business is going to be heavily motivated to create the largest groups with the smallest number of providers to access the biggest discounts.  You won’t have to worry about your employer providing insurance.  The insurance industry will make it very unappealing to take employer group plans as they will benefit from more people enrolling in the exchanges.  Any time you ask a billion dollar industry to accommodate lower cost offerings, they will quickly find ways to get you to the price point you want, but they will use the entire client base to offset the costs.  Unfortunately, the middle class is this client base.

I’ll prove it to you:

Why do I know that this is going to happen?  Two Affordable Care Act provisions helped me diagnose this silent killer.

1. Cap on flexible spending accounts decreased from $5,000 to $2,500.  It is interesting why this would be part of the healthcare law.  Pretax contributions used to offset out of pocket health care costs seem like a good idea to me.  The administration must have reason to believe that out of pocket costs are going to rise substantially and motivate employees to contribute more money to our FSA.  The only problem is the administration would loose a ton of middle class tax revenue if that happened. Solution – decrease the cap to get the tax revenue just in case.
2. Medical deductions rise from 7.5% to 10% of income: This is perhaps the most telling.  Very few people are able to take advantage of the medical expense deduction (for now).  Why would the Affordable Care Act address this?  They must expect many more middle class taxpayers to incur this level of out of pocket health care cost.

The Affordable Care Act is a cancer to the middle class.  This healthcare law is quietly mutating our health care insurance offerings and the middle class is about to pay for it.  Look at it from a pure business standpoint.  Who is the biggest client base for the insurance industry?  Who pays the most tax revenue?  The middle class is about to pay for expanded coverage for low income and high risk pools and the government is going to make sure they get their tax revenue. Do you think the two provisions above were written into the Act for no reason? This is really happening.