Money Mathemagics

Wednesday, September 15. I've been trying to reach Sarah Kyle (I'm not sure about the spelling) at Senator Bayh's DC office. I've spoken to her in the past, and she asked me to call back when I learned what kind of rate increases we would be seeing for health insurance. I've been trying to reach her for about a week. Today, I decided that I would speak to whomever answered the phone if she failed to answer again. She was there, but she had just stepped View Bloginto a meeting, so the lucky fellow on the other end got to talk to me. Here's what we discussed.

I've posted it before, but here's some information from the White House website regarding healthcare reform. I've copied it below, direct from the site. (Or read it here.)

Q: Will I pay more than I am paying today?
A: No.

• You will likely pay less---perhaps much less. If you buy coverage like you have today on your own, premiums are expected to drop by 14 to 20 percent. If you get coverage through your job, premiums could decline by up to 3 percent.
  
• In addition, many Americans buying coverage in the individual market will qualify for tax credits that reduce their premiums by an average of nearly 60 percent – and they will get better coverage than what they have today.

Of course, I didn't have this in front of me when I was talking to him, so I couldn't quote it verbatim, but I knew I could come close. I explained, "Sarah asked me to call back when I knew what to expect from health insurance rates for next year. I have that information, and they are going up. I'd like to know what Senator Bayh is going to do because President Obama has promised people on his website that rates will be going down."

As usual, I'm at a loss for words to describe how I felt after he answered me. I'm not sure who makes the worst arguments in DC. He explained that President Obama meant that rates would go down in 2014. Boy, thanks for clearing that up. I must be an idiot for thinking that the president's answer sounds like it would take effect immediately, particularly since neither bullet point even mentions 2014. Apparently, anyone who reads it should just know that. Who knows what other obvious mistakes I've missed since I didn't read all 2000+ pages of the legislation.

But Bayh's staffer explained it this way: "Well, it's a pretty broad statement." It's a broad statement. Now I feel so much better.

I continued to push that this was misleading information at best -- a lie at worst -- and that Senator Bayh should fix this problem. That's what I called it, a problem. And his answer to that: "It's a concern, but not a problem." I don't care what you call, it's not correct and it's confusing people. Sarah Kyle told me months ago that she would be contacting these agencies to tell them just that. Furthermore, the White House hot line even told me that couldn't be right when I questioned them about it. (By the way, I told the guy that when I hear a politician say that something is a "broad statement," it's just "a way of covering their behinds." Yes, that's the language I used, although I'll admit I wanted to use much stronger language than that.)

Somewhere during the conversation, I admitted that I worked for an insurance company, but I'm not an insurance expert. I work in IT, not in the health, sales, or actuarial departments. When I told him that, he became a little accusatory, claiming that the reason insurance rates are going up is because the insurers want to make a profit. (I guess it's wrong to try to make a profit nowadays.) Of course, I countered with the fact that the Congressional Budget Office predicted that insurance rates would be higher under Obama's plan than if nothing were done. Now I'm not so sure this guy read the report because he tried to make me believe that the CBO predicted rates would go up because insurers would try to make a profit due to the changes the government was enacting.

Let's set the record straight. I've read the report twice regarding individual health rates, and nowhere have I found that to be the case. Perhaps I missed it, but I'm pretty sure it's not there. (I did eventually point that out, and he recanted his statement.)

As for profits, insurance profits are nothing out of line. (Read the articles here and here.) Allow me to summarize. Basically, insurance companies don't really make any more than Target or Wal-mart does when you look at profit margin. But, ah, there's the catch. Any articles you read that accuse insurance companies of huge profits fail to mention profit margins. They only look at dollars and cents.

He answered those comments by stating that if you put all the bonuses that insurance companies pay back into the pot, then the profit margin is more like 30%. First, I have a hard time believing that. Second, I haven't ever read that in any article, either for or against insurance profits. (I'm not saying it isn't the case, but I haven't read about it.) Third, if you're going to use that argument, then you must take those same bonuses into account for companies like Target. Otherwise, you're not really comparing apples to apples. Fourth, I don't know that states would allow that much profit. In other words, you would have to pay all your regular wages, utilities, maintenance, taxes, and CLAIMS from the remaining 70%. Plus since insurance companies make a profit of 4% or less, that would mean that insurance companies are paying 87% of their profits (4% leftover profit divided by the 30% profit before bonuses are paid) to their employees as perks and bonuses.

I also mentioned that not all insurance companies make the profits that the large companies make. That's when I told him that I work for a small insurance company, and we don't make near those profits. I'm sure I even sounded a little bit offended. He changed his tune and pointed all further accusations toward the five biggest insurance companies because that's what he really meant. He was referring to them "in general." Is that anything like a pretty broad statement?

But where did we leave our debate? It was left open, to be finalized four years from now.

You're probably asking yourself, "What is he talking about?" Remember how he said that those rate decreases would come in 2014? I ended our discussion by asking the staffer, "So what you're saying is that in 2014, rates will be less than they are today?" He answered affirmatively. Just to be clear, I added, "If rate increases average around 10% per year, in four years, that would be over 40%, but for ease of argument, let's just say the rates will be 40% higher than they are today. [Actually, it would be 46% higher, but we'll skip that for now.] And since Obama mentions that these rate decreases are before tax credits are added in, you're actually saying that in four years, our rates will be lower than we're paying right now." And again he agreed.

Let's look at those numbers. For ease, let's assume that a current rate is $1000. According to the staffer, Obama means that rates will be 14% to 20% lower in 2014 than they are today. So that means this rate would be around $860 in 2014. However, if we've had a 40% increase over that time period, rates would be at $1400. But one magic day in the year 2014, the mathematical equations will change and there will be a decrease of $540, or a 39% drop from $1400 to $860.

I used to do simple magic tricks for kids, and I graduated with a degree in mathematics, so I do have some experience in both areas. And if this happens, our president ranks up there with Einstein.

But I'm suspecting something more like Houdini.