Speaker Paul Ryan (R-WI), the Great and Knowledgeable Policy Wonk and Wise Knower of Many Things About Health Care, has no idea how insurance works.
The Great Wonk’s poor grasp of one of the most basic financial instruments was clear after a Power Point presentation he gave Thursday advocating for the House GOP’s embattled health care bill.
The problem with Obamacare, Ryan claimed in this presentation, is that “the young healthy person is going to be made to buy health care and they’re going to pay for the person who gets breast cancer in her 40s or heart disease in their 50s.” He then pointed to a pie chart showing a thin red slice cut into a larger blue pie.
The red slice here are what I would call people with preexisting conditions. People who have real health-care problems. The blue is the rest of the people in the individual market — that’s the market where people don’t get health insurance at their jobs where they buy it themselves. The whole idea of Obamacare is the people on the blue side pay for the people on the red side. The people who are healthy pay for the people who are sick.
Well, yes, that is the whole idea of Obamacare. It’s also the whole idea of any form of insurance of any kind whatsoever.
Think of it this way. Imagine that 1,000 people all buy the same car insurance policy. Over the course of the year, ten of them get in car accidents that cost $10,000 each.
If none of them were insured, the ten unlucky drivers would each be stuck with a $10,000 bill, while the other 990 drivers would pay nothing. The entire point of insurance, however, is to spread this cost around to everyone in the insurance pool. So each driver would instead pay at least $100 in premiums, regardless of whether they were in an accident, and then this money would be redistributed to the ten unlucky individuals with high auto repair bills.
All insurance works this way. Car insurance redistributes wealth from people who aren’t in accidents to people who are. Fire insurance redistributes wealth from people whose houses did not burn down to people whose houses did burn down. Flood insurance redistributes wealth from people who are dry to people whose belongings are soaking wet. And yes, health insurance redistributes wealth from people who are healthy to people who are sick.
After attacking Obamacare for doing the thing that all insurance, by its very nature, will do, Ryan proposed an alternative to traditional insurance — high-risk pools.
The idea behind high-risk pools is to create a special government program that pays for the most expensive health consumers’ health costs, while leaving other, healthier patients to buy insurance in the private market. That way, healthy individuals still pay for the health care of sick individuals, but they pay for them in higher taxes rather than in higher insurance premiums.
Theoretically, this is a viable policy, but it requires a considerable investment. In 2008, for example, Republican presidential candidate John McCain proposed spending $7 to $10 billion on high-risk pools (the House GOP’s health bill similarly calls for about $10 billion in annual spending on high-risk pools). But this was hardly enough to put a dent in the nation’s uninsurance problem.
As ThinkProgress has previously reported:
A national program “funded at $7 billion per year would cover only 875,000 people,” and that was in 2008. Alternatively, “even if participants had to pay half of their own premiums, as is generally the case today in state high risk pools, less than 2 million Americans would be covered.”
Obamacare, meanwhile, provides health insurance to about 20 million Americans.