Bacon, broccoli and the market of the individual mandate

It is entertaining when broccoli finds its way to SCOTUS.

When the Supreme Court addresses the individual mandate in terms of health care, to offer citizens health care savings via this individual mandate, it becomes cloudy in terms of why an individual mandate of this kind is okay, and why other mandates (as referenced in the transcript) are somehow not okay.

Justice Scalia asked the now-pertinent “broccoli” question.  The reasoning the appellants are using is about as absurd as eating broccoli to bend the cost curve of bacon.  After all, the nuance here is that the healthy eating of said broccoli would offset the horrible health habits of those who eat delicious bacon, so we should mandate it, like mandatory policies of health insurance for everyone, except religious people, unions, corporations, etc.

So the bright line rule we see here is that there is some distinction between an individual mandate in the purchase of insurance, but not a distinction in the eating of broccoli, or the abstention of bacon consumption in the marketplace.

But what is that difference?  After all, we’ve been consistently sold the fact that an individual mandate, were it established, would decrease health insurance premiums across the board.  In the bare essence of economics and theory, the volume of subscribers would increase, which allows better negotiation with private insurance companies.

But how many new subscribers?  How many would instead pay an IRS penalty through 2015?  After all, a $325 penalty is nothing, a $695 in 2016 is still cheaper than an AARP Plan A Delta dental network plan.  The penalty, in irony, is affordable to pay the alternative costs for health care.  Unless ACA makes single health plans $50 a month, I can’t see any reality here of any actual reduction of premiums when people sit down to do the math.

So this is the question.  If there are millions of uninsured, how many will actually pay for new insurance, and who would be targeted for the actual mandate?

I got an email from the DC collective at the Robert Wood Johnson foundation, linking a recent study from the Urban Institute (pdf).  In this report, they claim that if ACA were in effect in full today…94% of the entire American population (93% of the older folks) wouldn’t need to buy new insurance.

Wait…Really?

It gets more interesting, in that of the 6% of the population, a fraction of individuals are required to actually pay directly for new insurance, and that a significant amount of the 6% will be subsidized for coverage already, leaving just a few folks left to pay for what amounts to reduced insurance coverage for all.  In business terms, if most of these people are already not in the market for insurance, they’re not going to stay in the market for insurance.  They’d rather pay the IRS penalty, then get signed up on the first ER visit.

In this, there’s a small group of individual Americans who don’t have insurance, and have thrived in a lack of insurance.  This is a small and narrow window of exposed individuals who normally were covered by previous employer plans or COBRA extensions, or people who just hide in the woods.  Some opt for high-deductible catastrophic coverage (not good enough under ACA), while others simply rolled the dice, ate broccoli or bacon, then went on with their lives.

Now, the ACA will remove uninsured people, and we’re supposed to believe that the law will save us money, but ACA never guarantees that these individuals would even buy insurance, when the smarter business decision is to pay the penalty, even at $695 in 2016.

But what about broccoli?  Justice Scalia may have uncovered the secret to all health care.

Were I to commission a bacon/broccoli health study, I believe the results would show that 300 million Americans who were forced to consume broccoli will be quoted lower health care premiums than an individual mandate would with bacon consumption as a control.

Preventative care would be enhanced, with pallative and curative care costs declining, bending the cost curve of health care like fresh asparagus.

Justice Scalia properly poses a question about absurdity in logic, that health care mandates are such a singularity, it’s “okay” to approve it.  When a myriad of other alternatives exist to lower the cost of health care, why choose the mandate of insurance when you can mandate everything else under that justification?  And why are the exemptions allowed, especially an open-ended permanent grandfathering against the spirit of the ACA itself?

Why not mandate a baseline body fat percentage, which would reduce risk of heart disease and heart attacks?  Mandate a baseline number of cigarettes one could buy, or mandate the amount of time you can drive on a busy street, just to reduce cardiopulmonary risk?  Reduce the number of alcoholic drinks you can purchase, especially the bacon vodka?

Added, if the Urban Institute report is somewhat accurate, there would be relatively fewer numbers of new health insurance subscribers, the exact number even lower if study assumptions include all the tax money that the government is giving private insurance for the ACA, and the increased subsidies for states to cover more Medicaid recipients.

And if the uninsured would rather pay a tax penalty, tax professionals will make a killing finding a  loophole for the mandate penalty, and some will probably choose that instead of having to go through the process of insurance coverage.

Humana, Inc. would be a good example to use in terms of what happened after President Obama signed the ACA.  From March 23rd, 2010 to today, Humana’s stock value has jumped near 82%, comparatively with the giant Google, whose value has only gone up a modest 14% or so.  UnitedHealth Group is feeling optimistic as well, trading in at nearly a 65% clip thanks to the expectation of premiums from potentially new subscribers via the mandate.

But how does that translate to anything but profit?  Investors on the market aren’t seeking lower premiums. In fact, the net result is and always will be the profit.  No matter what the actual insurance cost is, they can price the premium to fit.  Increased dollars from ACA will benefit the insurers in the short term, but later, as the money trades for subscribers, you’ll see a shift.

What happens when the subsidies stop?  And in the near term, will their stock drop precipitously if the individual mandate is found unconstitutional?  If found constitutional, would government-sponsored subsidies have to continue ad infinitum, until health insurers are so tangled in our government, that they themselves become too big to fail?

Oil corporations are still provided big subsidies (President Obama hasn’t stopped them at all), even as gas prices jump higher and higher.  The promise from the Bush Administration back in 2005 was that increasing gas and oil exploration would reduce prices, so we subsidized them all, hoping to “bend the cost curve of energy”.  Then then the Obama Administration tried to “bend the cost curve of renewable energy”, and Solyndra popped out.

So when we “bend the cost curve of health”, we might be asking for the same results.  If we remove health care subsidies, costs will sharply rise, and send our premiums back up again, just like oil.  In this, extricating ourselves from this convoluted “capitalism” (more like social corporatism) will become impossible.

Volume isn’t a guaranteed deal, and the entire process of ACA is to sweeten hospital payouts and insurer payouts for reduced premiums.  Broccoli consumption mandates, in contrast, would likely have a direct benefit, or a bacon ban in supermarkets.  In fact, it’d probably be cheaper to do, and easier for Justice Kennedy to handle in SCOTUS.

A broccoli mandate would benefit broccoli farmers across the world, long-maligned by society.  Maybe celery lobbyists would feel left out, so we would have to form a vegetable coalition.  But all the same, we’d improve health without having to buy insurance.

If costs are such a concern, let’s increase subsidies to vegetable farmers to reduce costs and make it cheaper to purchase than cookies and chips, therefore reducing the obesity rate and billions in future health care costs.  If we really cared about health, we would ban delicious bacon.

I often joke about the absurdity of satire, and writers like Jonathan Swift remind me of the convoluted thinking of people.  Now, it’s real-life, in our Supreme Court, bending the curve of reality.

Buy low, sell high.

Mako out.