Obamacare Loses the Bet

Sometimes I hate being right.

I’ve been talking about the “arithmetical absurdity of Obamacare” and the common version of health “insurance” for nearly eight years. Not long ago, I pointed out that the insurance that was available from the exchanges, for individuals, was excessively expensive and had poor coverage.

Since then, about half of the Obamacare co-ops — nonprofit insurance companies created with startup funds from the government to provide insurance on the exchanges — have failed and either have gone out of business, or are in the process of doing so. What’s killing these co-ops? Oh, there’s some fraud, and there’s some Democratic Party cronies who made some big money, but what’s really killing the co-ops is something much more unrelenting than fraud, much more insidious than cronyism.

What’s killing the co-ops? Arithmetic.

I won’t go into great detail about how insurance works here. I’ve done it before, both laying it out mathematically and in a little parable appropriate to the season. The basic thing is that insurance is a bet: you bet someone that something bad is going to happen, and that someone takes the bet.

People accepting bets from the public used to be called “bookies” but now they’re respectable and they’re called “insurance companies.” But it’s the same business: the bookie takes bets from everyone, and tries to make sure that the bets and the odds work out so he makes a little money, or at least doesn’t lose his shirt. But if the bets go bad — the Broncos beat the Patriots; or a glue-factory candidate is spooked by a firecracker and outruns the field, the jockey barely clinging to the saddle, and pays off 100 to 1 — the bookie can find himself with the momentary embarrassment of lacking the funds to pay off the bets.

Well, all but one of the Obamacare co-ops is currently running in the red, and about half of them have failed, because they lost too many bets: too many sick people signed up, too few people who weren’t sick thought it was worth the money. And the Obamacare co-ops are dealing with it in exactly the way that has been traditional for bookies since at least the time of the Romans: they’re welshing on the bet. New York’s co-op, Health Republic, is shutting down at the end of the year. According to news reports, it currently owes New York hospitals more than $160 million, as well as owing doctors tens of millions. What’s more:

The state has told Health Republic to stop paying some claims so it can conserve its assets and facilitate an orderly shutdown. Even though some providers are not getting paid, they are still contractually obligated to deliver services to patients, said Matt Anderson, a spokesman for the state Department of Financial Services. [Emphasis added.]

Swell deal, huh? If you’re a doctor or a hospital, you don’t know if you’ll be paid, but you’re still required by the terms of your contract to continue to see patients.

Now, to be fair, there were some contributing factors: Congress acted to force Obamacare co-ops to work on the funds actually allocated to the co-op, instead of allowing the administration to arbitrarily shift funds, and the state insurance regulators cut the premium increases requested by the co-ops, because — well, because:

[S]tate regulators are often under political pressure to keep health insurance rate increases down. “Sometimes that can conflict with the goal of keeping companies financially strong,” he said.

Which is, honestly, the story of the whole process. Insurance can be a legitimate business — just as bookies can be legitimate when they set the odds to match reality. When a government tries to fudge the odds for political reasons, though, arithmetic takes over.

Complain about it as much as you like. Arithmetic won’t listen. Arithmetic doesn’t care.