Harry Ried and other Senate Democrats did a masterful job orchestrating the end of the Health Insurance Industry as we know it today. Before you start cheering, understand what is about to happen. Buried in the details of Senate Bill HR 3950 are Draconian measures designed to squeeze the profit out of Insurance Companies.
The average profit for a publicly traded insurance company is between 2.3 - 5.0 % according to the Wall Street Journal. While typical Fortune 500 companies make between 7 - 12 % profit. The overhead and administration costs for Insurance Companies who specialize in individual and small group health insurance are between 25 and 30 % and that’s without the new added regulatory hassles.
The Bill’s rebate program prescribes that once a company spends more than 10% of it’s revenue on administrative costs policy holders are entitled to a health insurance rebate. According to the Congressional Budget Office, essentially what these restrictions and rebates do is turn individual and small group health insurance into a Government run program. Add to this the fact that the current insurance exchange will largely be subsidized by Government funding and Insurance Companies will not be able to compete outside of this new exchange and survive. Given the labor intensive cost of running Insurance Companies that specialize in individual and small group policies, profits are virtually eliminated when all of the new compliance and regulations are added to the existing costs. As a result, all of us currently on individual and small groups products will be forced to buy from the Federally run Health Insurance Exchange. Competition will be gone, costs will skyrocket and your choice of plans and companies will be reduced to just a handful, as opposed to the 100 plus companies that exist in the market today with over 1,000 plan choices (as illustrated in the past by such plans as the Massachusetts Connector). Furthermore, for all of us on those Health Savings Accounts (HSA’s) you will not even have that option under the Federal Exchange. There is no Federal HSA model being considered. So you see, they really didn’t need a public option to destroy private health insurance companies. All that has to be done is to drive private Health Insurance Companies out of business through Draconian regulatory costs and bleed off about 110 million of their customers over a 5 year period. The private industry will simply dry up and blow away, like dust in the wind. Welcome to 1984 and George Orwell’s Brave New World.