What It Means That The Health Insurance Industry Saved Obamacare

DrRich | August 5th, 2010 - 7:00 am

Why Big Health Insurance Supported Obamacare, Part IV


In the past few posts (in particular, here and here), DrRich has shown why the health insurance industry embraced Obamacare, and indeed, took extraordinary steps to assure that Obamacare became the law of the land. This, of course, is especially interesting in light of the common perception that Obamacare constitutes a major defeat for the greedy health insurance industry. But the fact that big health insurance gave critical support to Obamacare is far more than merely interesting. It has major implications both to supporters of Obamacare, especially the ones who hope for an eventual single-payer outcome, and to opponents of Obamacare, many of whom hope to repeal it after the 2010 mid-term elections.

For the health insurance industry to have supported Obamacare, especially in the manner that it did, leads us to three conclusions.

First, while almost nobody realized it at the time, the passage of healthcare reform – in some form or another – turns out to have been inevitable. Quite simply, the insurance industry was telling us in every way they knew how that they just could not tolerate the status quo any longer. And since the insurance industry is critical to maintaining the status quo, then one way or another, the status quo had to end.

Second, the health insurance industry has just succeeded in demonstrating its great and continuing worth to the Progressive agenda, a fact that might make it more difficult than many think for Progressives to achieve their real goal – a single-payer healthcare system. If our Progressive leaders have been paying attention, the health insurance industry has taught them two important lessens in this regard.

The insurance industry has taught them that running the American healthcare system, especially under a covert rationing paradigm, is a messy, ugly and painful job, and further, that it is destined to turn out badly. This, indeed, is the chief lessen that the health insurance industry has learned over the past 15+ years. DrRich believes that many of the Progressives who are now in a position of leadership, and who are on the brink of achieving at long last a primary goal of the Progressive agenda – government control of healthcare – are aware of this fact. So they are probably not quite as self-assured about their ability to achieve healthcare nirvana, for instance, as the insurance executives were in 1994. They can see, from the experience of the insurance industry, that even draconian efforts to covertly ration healthcare are very likely to fail to slow healthcare inflation over the long term.

Furthermore, the insurance industry has taught them, if such a lesson was even necessary, just what a great boon it is to have at one’s disposal a ready villain, especially a villain which assumes the form of a business, and in particular a villain which is satisfied to play its assigned villainous role whenever called upon to do so. When things go south with Obamacare, as things will, it will go a lot easier for our Progressive leaders if they still have the insurance industry – even in a greatly diminished form – to blame. Having a foil to absorb the blame will not solve the problem, of course, but it will buy the Progressives more time, during which they can do what Progressives always do, and institute another round of “tough regulations” to hold the villains in closer check. So keeping the health insurance industry around, rather than going to a single-payer system, will indeed provide a critical level of additional insurance – albeit to our political leaders, and not to patients.

One need only look at the mortgage crisis to see another good example of the great utility of having an evil foil at one’s disposal. As readers may recall, the mortgage crisis resulted when the government instituted a free-wheeling easy-loan policy that defied every known rule of free markets, engaged Fannie and Freddie to make the easy loans, and then recruited private businesses to absorb, distribute and hide the risk. When the excrement predictably hit the fan, the investment banks (which, like the health insurance companies, did indeed behave very badly in response to fundamentally unsound governmnent policies) were offered up as the bad guys. It proved so useful to have serviceable villains during the mortgage crisis that the taxpayers were called upon to bail the villains out lest they disappear, and then, most recently, financial regulations were completely overhauled to make sure the villains will always be there. (DrRich calls this policy “Too Evil to Fail.”) In this way, Fannie and Freddie can continue making unsustainable loans, without ever having to take the blame for the consequences.

In other words, villains who reside in the domain of private enterprise are extremely useful to the Progressive program. The health insurance industry has just graphically demonstrated that it is every bit as helpful to the government’s takeover of healthcare as the investment banks were to the government’s takeover of the housing market. So DrRich, for one, bets that the health insurance industry will have a long – if unhappy – life as a government-regulated public utility, which can be called upon, whenever necessary, to display its fundamentally evil nature, in order to prove yet again that the problem is (even now!) not enough government regulation.

In contrast, once the government assumes full, direct control of healthcare (or any other aspect of the economy), then there will be nobody to blame but the government when things go wrong. (This is not strictly true. All-powerful authorities can always find somebody to blame. Historically, for instance, they often begin with the Jews, though today one must speculate that the obese will also be near the top of the list. DrRich, and, he suspects, most of his American Progressive friends, would much rather submit corporate villains to an *auto de fe* than go once again down this well-trod historical path.)

The role of Court Villain may not be exactly what the health insurance executives had in mind when they saved Obamacare, but since they had no choice in the matter, it will have to serve.

And finally, the third conclusion. Since the health insurance industry has been telling us that they are at the end of their rope, to the point that their best option was selling themselves out to President Obama and his ruthless refomers, then the idea that Obamacare can simply be repealed, or de-funded, or de-featured, or declared unconstitutional, so that we can just go back to the healthcare system we’ve had since 1994, is absurd.

Indeed, even though Obamacare is now law, the health insurance companies are by no means out of the woods. There remains a real question as to whether the provisions of Obamacare will be sufficient for the short-term viability of the health insurance industry.  Most of the provisions of Obamacare – in particular, the individual mandates the insurance companies are relying upon for their One Last Windfall – do not go into effect until 2014.

At least until then, the insurance companies likely will need to keep increasing their annual premiums at astronomical rates in the attempt to remain sufficiently profitable. Can the system sustain such increases until 2014?  Or, will the provisions of Obamacare have to be accelerated? Or, will Obamacare have to be revised, for instance, to add the much reviled (or much desired, depending on your political views) “public option?”

But while Obamacare may need to be accelerated or further radicalized, it cannot just be repealed. For the same reason that healthcare reform was inevitable, we can’t just go back. The insurance industry simply will not tolerate it.

What we all have to remember – and the main point of this series of posts – is that we can’t just get rid of Obamacare and go back to the way things were.  If we think we need to substantially change Obamacare, so as to shed ourselves of the extremely disturbing spectre of government-controlled covert rationing (which will be far more destructive than the insurance-company-controlled covert rationing we’ve painfully endured for 15 years), we’ll need to have another solution in hand.

DrRich, of course, knows such a solution, and he has described it in detail elsewhere.


Why Big Health Insurance Supported Obamacare

Part I – Another Reason He Should Have Kept the Bust

Part II – Why the Health Insurance Industry Supported Obamacare

Part III – How the Health Insurance Industry Saved Obamacare

Now, read the whole story.

DrRich explains it all in, Fixing American Healthcare – Wonkonians, Gekkonians and the Grand Unification Theory of Healthcare.

Now on Kindle!

4 Responses to “What It Means That The Health Insurance Industry Saved Obamacare”

  1. Chad says:

    The public option is already back, sitting in a house subcommittee;


    After reading your book Dr Rich, I’m still fuzzy on how insurance co’s would be eliminated. I assume your HSA’s & Tier II pool would do the job?

    • DrRich says:


      The plan in my book does not eliminate insurance companies, but restores them to actually selling insurance (a product meant to protect one against financial disaster in case something unexpected happens) instead of selling soup-to-nuts healthcare services. They would do that in Tier III.


      • Karl says:

        How do you plan to restore the insurance companies to such a state?

        As far as I can see, it would limit their income, which means the companies will surely resist such changes.

  2. Praveen says:

    Dr. Rich, interesting set of posts.

    I know this is meant as analogy, but it’s both simplistic and incorrect: “As readers may recall, the mortgage crisis resulted when the government instituted a free-wheeling easy-loan policy that defied every known rule of free markets, engaged Fannie and Freddie to make the easy loans, and then recruited private businesses to absorb, distribute and hide the risk.”

    The implosion of the financial industry occurred around instruments not backed by GSEs – all of the Alt-A paper, CMBS, synthetic CDOs, CDS etc. While Fannie/Freddie did throw away taxpayer money with poor lending standards and with encouraging bad loans, they simply didn’t participate in any way in the structuring of instruments whose ultimate value was found to be, in some cases, 0. No one has ever lost a penny on GSE-backed loans due to default – and if that’s what Lehman and Bear Stearns had had on their books, they would still be flying high today.

    No, the story of the government as most responsible for the financial crisis sounds good, but it’s not particularly true. Financial booms and busts are features of a market economy, and the government simply tries (and usually fails) to smooth them out. In this case the government has actually done a decent job smoothing out what would otherwise be a Depression, primarily as a result of longstanding programs like food stamps, unemployment, FDIC, and Social Security. Whatever one thinks of those programs, they do form a safety net.

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