I'm just a local business and finance nerd looking to help people get educated about small business, marketing, and personal finance! I write about anything and everything that I can tie into those themes. I'm also Central Florida's only Kilted Realtor, so I write about Real Estate too! Check out my About Me page to see the origins of Cash Flow Celt.
Conquering Your Financial Empire
Trump is the president of the United States. I’ll add that to the list of “Things I thought I’d Never Say”. Now that it has happened I’d like to say a few things without getting too into the weeds of political debauchery. I didn’t vote for him, but I will stand behind him. That said, I absolutely understand the fears of all the minorities that he openly degraded and threatened – I stand behind them too. I will call out any attacks I see on people through a Trump presidency. At this point though, he hasn’t done anything except rhetoric. At this point he’s not a bad president. I’m willing to give him benefit of the doubt to see what happens. He has already changed his view on repealing Obamacare. Perhaps he can change his mind on other things too. Maybe he will be more pragmatic than people believed; just as Obama was more pragmatic than his idealistic campaign set out.
There. Now back onto some sweet, sweet finance! On topic though, I’d like to talk about Obamacare and why I fear what Trump may do to our healthcare system. I am going to take a direct positional stance on how I feel healthcare should be run. Many of you may disagree – I welcome that – and if that’s the case, let me know in the comments.
As Bruce Lee said, “Be like water”. Ok, that’s not exactly what he said and he wasn’t really talking about insurance. Not important. Insurance is like water. It groups everyone together – into a risk pool – and that pool becomes formless. It becomes the risk. Once the risk becomes a single entity it can be quantified for manipulation and premium pricing. In fact, that’s what an actuary does! Given the law of large numbers and varying death rates, an actuary can quantify how much the insurance company will pay out in any given year in benefits. From there, they can adjust individual premiums if the person is overweight, a smoker, or any other additional risk factor.
Let me state this clearly: By having more than one insurance company, we all pay higher premiums. That’s because the total risk isn’t being spread as optimally as it could be. Why? Basic economics. Insurance companies benefit from economies of scale. That means, the bigger the company gets, the more efficiently it runs. That’s why the three largest health care insurance companies have 30% of market share by premium benefits written.
In order to be the most efficient and economical, the United States needs to employ a single-payer system. We pay our premiums (in the form of taxes) to the government. Whether we call that Obamacare, Romneycare, or Keep Our People Alive Care. I don’t care.
Right now, Obamacare uses an insurance mandate for insurance coverage. But we do have a single-payer system already in place. It’s called Medicare. Yeah, that insurance coverage that EVERY senior citizen uses and looks forward to using – it’s a single payer system. So why is Medicare successful? One fact is because it’s paid into for the life of the citizen. If we expanded that to cover everyone it would still function the same way. The young and aging would still pay for the elderly when you consider it as a function of services used.
Here’s another reason to consider a single payer system instead of the current Obamacare mandate. An economic term called a monopsony. Monopsony, kind of the step-child to a monopoly, means there is only one buyer (instead of a seller). A monopsony has the market advantage reverse to a monopoly. That is, the buyer gets better or more services for a lower price; compared to a monopoly which has less services, for a higher price.
If our government becomes the only buyer of medical care, then prices will have to drop. We already see that Medicare payments are less than any private insurer. That’s because the government is an 800-lb gorilla in a cage full of orangutans. Nobody can compete for power in the market because the government is too large. If there is a second place, it’s a highly inferior result.
Ezra Klein wrote a scathing article about Obamacare and the healthcare industry in 2014. And he’s exactly right. There is a reason I’ve focused so much on the price-setting ability of a single payer system. And it’s because that’s exactly how we can reduce our premiums. If you didn’t check the article out, let me throw out some numbers. Insurance companies make a 2.2% return on revenue. Compare that to pharmaceuticals who make a 19.9% return and medical device companies making 16.3% on revenue, and it’s easy to see where exactly the healthcare money goes. Right now, medical service providers use Medicare as a baseline price and then add a profit percentage to what the insurance company pays in negotiations. Health insurance companies do not have price setting capabilities right now.
This is why it’s so crucial to implement a single payer system that becomes a price-setter. Medical devices, pharmaceuticals, they will all still be profitable ventures that reward manufacturers. But right now, the bulk of new drugs are “me-too” drugs. They’re clones designed only as generics to get a piece of the pie already on the table. The LA Times wrote in 2010 that 46% of all drugs that the FDA gave priority review to were from the public sector. In order to get priority review, a drug must show a substantial improvement over existing therapies.
Here’s the kicker though. Those public-sector discoveries aren’t the property of the scientist (or team of scientists). They’re owned by the universities or research institutions who employ them. Then, once this grand discovery is made, they sell the research to a drug manufacturer who then proceeds to market the drug for billions while only paying a small sum for the research. It’s ludicrous.
There’s a common myth among people that America’s health system subsidizes Europe’s healthcare system. It might be true to some extent, but it’s not true when it comes to medical discoveries. Novartis, GlaxoSmithKline, AstraZeneca and multiple other large drug manufacturers are based in Europe and all provide beneficial R&D. Yet the drugs that they sell for $300 a bottle come over to America and get sold for $1500 a bottle – that may be hyperbole as far as the numbers are concerned, but there is an “American upcharge” on every medication that comes over.
I would also like to point out that there is a morality issue in healthcare. Profits over people. I won’t dive into that matter to much at this junction; however, it’s a very real issue for many Americans. Consider myself. I’m a functioning adult with dreams and wishes. Yet I suffer from a very serious condition called Blepharospasms. It causes rapid blinking so quickly that I go blind and my eyelids are unable to be forcibly opened. It’s debilitating without treatment and incredibly painful. The treatment isn’t much better. I receive Botox injections around my eye and eyelids every twelve weeks. That treatment, when I was on my mom’s insurance, was $356 every 12 weeks – her insurance was charged close to $2000. Once I got my own insurance with United Healthcare, the largest insurance provider in the nation, my premium is $0 and my insurance is charged right at $685.
In some respect, I actually hope Trump repeals Obamacare so long as it’s replaced with a single payer system. We would all be better off. It’s easy to see once you look at the numbers.
Bologna: The Deli Meat That Could
Valentine’s Day 2017: Pick-up Lines for Champions
Albert Gallatin and his Influence on America
Identity Theft – Awareness is Safety
Military Contract Bonuses: Government Claw Back Edition
Sleepover at the Sheriff! What I learned About Professional Hardships
Restaurant Tipping and all of its Inefficiencies
Why Wells Fargo Should get the Death Penalty