With the deadline looming right around the corner on January 31st to sign up for health care coverage through open enrollment, many people are being hit with sticker shock on what it will cost to carry individual insurance. While it was bandied about that costs would go down when the Obamacare system rolled out, individuals and families across small businesses and large corporation are continuing to see their premiums spike. United Healthcare recently announced http://cnnmon.ie/1lHDU41 that they could lose 1 billion dollars through Obamacare from actual results in 2015 and projected losses in 2016. So, will big insurance companies ultimately need a bailout?
The first question revolves around the pressure being put on the system. Why are premiums continuing to go up?
There are more people in the system- There are so many different reports on exactly how many of the uninsured actually got insurance, but what we do know is that nobody can be denied coverage. Many of those who were uninsured had serious health issues that did not allow them to get coverage. This means that more cost got added to the system.
Those that can’t afford are subsidized- There are also many people who simply cannot afford coverage at full price based upon their income and Obamacare is set up so health insurance does cost more than a certain percentage of your income. Thus, Obamacare sets certain income levels for individuals and families to allow for ‘subsidized’ health insurance. What this means is that some individuals and families pay nothing and some pay a greatly reduced amount to have the insurance. So, if more people are paying into the system guess who does pay for the shortfall?
Large employers now pay fines- (source: (www.jsmithlanier.com) Those employers who have 50 employees or more are now subject to significant fines if they don’t offer health insurance to their employees. Even if they do offer health insurance, the insurance premiums cannot exceed 9.66% of the employee’s income.
This year in 2016, we will also now be at the highest level of the so called “penalty” (technically it is a fee and not a penalty) if you forego having health insurance. The ‘fee’ is set at 2.5% of your household income or $695 per adult/$347.50 per child to a maximum of $2,085 per family whichever is the greater. The only way the IRS collects this ‘fee’ is if you have a refund on your tax return or if you send in the money on the honor code. How long do you think it will take people to adjust their withholdings so they don’t get tax refunds and since there is no criminal or civil penalty if you don’t pay the fine what do you really think the IRS will collect?
What concerns me about this and make a financial bailout of insurance companies a real serious possibility is that this boils down to simple math. If the claims that the insurance companies pay out continues to exceed the revenue (premiums, etc.) that they bring in the door only two things can happen. Either premiums will continue to skyrocket (which they are) which is not sustainable for Americans or insurance companies will be in serious financial trouble. We don’t know where the Government is headed with this and the 2016 election will certainly give a much clearer path on how health insurance will continue to evolve across America.
Do you think that this could be the next great financial earthquake?
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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.