The Great Float Grab: How Healthcare Reform Puts Your Money in Wall Street’s Pocket

[midnight]

The health insurance industry makes a substantial part of its profits by hanging on to premium dollars as long as possible — premiums which are established after assessing anticipated risk and expected claims. But if all claims are paid, there’s no need for managing risk by reserving premium dollars, and no need to hold reserves for investment. Getting insurers and Wall Street to give up the reserves is going to be a challenge.

How the new health care law promotes float

Under this new system, health insurance companies are no longer really insurance companies. Insurance companies manage risk over a large group of payers, but this is no longer happening. Community rating, guaranteed issue, exchange-wide risk-adjustment mechanisms and the individual mandate help to take away the health insurance companies’ risk-management function. Everyone can get insurance regardless of their health status.

The government is now responsible for all the money going to the health insurance companies. This is either through direct subsidies or requirements that people and companies buy their product. Having the government say you must hand over premiums to an insurance company is essentially the same as the government taxing you an amount equal to those premiums and then giving the money to the insurance company.

The insurance companies are also no longer even spreading risk over their pool of customers. The government is doing that. Yet, instead of just handing the money to doctors and hospitals to pay for medical treatment, the new law hands it to private health insurance middlemen, who hold it and then give it to the doctors and hospitals, after skimming off the top.

Wall Street really knows how to run a racket....



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