THE BLOG
05/22/2013 06:22 pm ET | Updated Jul 22, 2013

Broccoli Is Your Best Bet In Rudy Baylor's ObamaCare Marketplace

Right now, in every state across America, teams of people are building websites that will change the health care landscape in this country. These "Health Insurance Exchanges" will offer Americans government-run health insurance plans. The online marketplaces begin accepting applications October 1. New York already launched its exchange site. On the other hand, some states, like New Jersey, are handing control of their exchanges to the federal government.

So, what's on the menu? Dozens of health insurance options. Your employer may even give you cash in lieu of benefits to choose a plan. The policies range in price, from buffalo wings to caviar. Deductibles are a la carte, pay higher premiums upfront or defer costs until medical needs arise. Portion sizes vary, from meaty policies filled with juicy services to skimpy policies wrought with coverage exclusions. Broccoli won't be on the menu.

The veggie, known for its antioxidant powers gained national attention when Florida's challenge to the ObamaCare legislation, also known as the Patient Protection and Affordable Care Act of 2010, reached the Supreme Court of the United States in 2012. The nation watched as the Highest Court decided whether a mandate requiring Americans to purchase health insurance or face a penalty was constitutional. The government argued that requiring Americans to buy health insurance would prevent the uninsured from burdening the insured, since every American will inevitably need health coverage one day. During oral arguments, Supreme Court Justice Antonin Scalia threw back a slippery slope proposition, asking, "Why do you define the market that broadly? Everybody has to buy food sooner or later, so you define the market as food. Therefore everybody is in the market; therefore you can make people buy broccoli." From that moment on, frustrated moms across the country waved their children's' forks as broccoli single-handedly became a de-stigmatized vegetable and at the same time, a symbol for the holes in the ObamaCare legislation.

But in the end, SCOTUS gave the government the go-ahead, declaring the mandate constitutional under Congress's power to levy taxes. The Court reasoned that Americans will still have a choice as to whether to purchase health insurance. Those who do not will face a tax.

One of the lauded features of the PPACA is that it prohibits insurance companies from denying coverage to people with pre-existing conditions. The idea behind the restriction is sound, why deny the people who need health care the most? But, the restriction and other restrictive tenants of ObamaCare will still pummel every insurance company's ability to manage risk and in the end either drive up premiums for the rest of us or force the government-run policies to limit the services they cover just like "Great Benefit" in the legendary film "The Rainmaker." Albeit, Great Benefit was pure evil, and arguably the government is well intentioned. Perhaps, the authors of ObamaCare were idealistically naïve just like heart-warming Rainmaker protagonist Rudy Baylor. When Great Benefit denied a claim to cover a young man's life-saving bone marrow transplant, Baylor came to the rescue. He found a whistleblower from the company who revealed that Great Benefit's elaborate moneymaking scheme was to deny, deny, and deny claims under the guise of "pre-existing conditions." Those evil denials are what kept Great Benefit in business. It kept the money pouring in and limited the outlay. Denying claims and refusing to cover high-risk applicants is a cornerstone of the insurance business. Sure it's shady and usually inhumane, but economically-speaking, a certain level of risk management is necessary for any insurance company to survive.

Under ObamaCare the tables have turned. The choice, and rightly so, belongs to the insured. The pool of insureds now becomes a lottery. Insurance companies are purchasing the tickets. Each company has to pray that the selection process grants it a steady pool of healthy and young applicants as opposed to a majority of high-risk applicants. Under the President's plan, everyone, young or old, pays the same, which further frustrates the economic underpinnings of the insurance model. So, pre-existing conditions are off the table. In the book version of The Rainmaker, Great Benefit tried another risk-management tactic. The company contended that the bone marrow transplant was never covered in the first place. This begs an overriding question, will insurance applicants understand the menu? Some may just hop on the exchange and select the cheapest plan. Buffalo wings look good and they are simple and affordable, so why not? Only one day, when the applicant needs a life-saving surgery, he or she may discover it isn't covered. Will insurance companies entrench exclusions into their plans to control costs, now that risk management is limited? For now, the PPACA requires "basic coverage" as defined by a list of services in the legislation. The requirement is noble but by no means inclusive of all of the medical possibilities.

The government may think it's got the economic model nailed. An estimated 30 million Americans who do not have insurance will enroll, fattening the spreadsheets of insurers. Covering the uninsured will cut down on unpaid hospital bills by about a quarter and thereby lower costs for the rest of us. On the right, opponents say this is a model that will ultimately mimic the "socialized system" of Medicare. Reimbursements to doctors will become flimsy and fixed, and costs will have to shift somewhere. The demand to pay claims will outweigh the ability to pay them, and the government will inevitably limit the procedures and services that its plans cover.

These arguments are all fine and dandy but there's one giant wild card in all of this. The power of choice that has now been handed to Americans makes the outcome unpredictable and possibly as volatile as the stock market. In the end, insurance companies are beholden to their lots. Their successes or failures depend on whether they draw winning white balls. It's a lottery. Whoever is dealt the best hand wins. When and where and how much a company will have to pay for an applicant has always been a gamble when it comes to health insurance coverage. But, at least in the past, the companies at the poker table could heighten their odds by selecting their pools or by making their policies so complex that innumerable exclusions went unnoticed at the time of purchase.

Now, many of the immoral risk management tactics are off the table. If a majority of high-risk patients chooses a particular insurance company, the premiums will logically rise on all of those it insures. But, the PPACA puts a cap on how high premiums can rise. Plus, higher premiums means fewer people will choose the plan, creating even less revenue for the now embattled hypothetical insurance company which will eventually have to severely limit what it covers or go out of business. Its high-risk patients will then shift to another pool leading to high premiums under a different policy. Plus, don't forget those necessary premium build-ins to fund safety nets for tort liability. Denying one claim in bad faith, could lead to a $50 million dollar verdict against a government-run plan and put it out of business, just like Great Benefit. On the flip side, those with good luck will ride the wave and lower costs for all, until the house begins to win. It seems the President, justly advocating for the American people, left the cold hard economic realities of the insurance business on the back burner to figure themselves out.

The public exchanges won't be your only choice. There will be private health care exchanges, many of which exist today. At first, the government's ability to borrow at lower rates and offer lower premiums may freeze them out. The private exchanges also won't offer government subsidies to help low-income applicants pay premiums, like the public ones. Conversely, they also won't be subject to as much regulation. The private plans could end up offering lower premiums for more inclusive plans way down the yellow brick road, which would bring us right back to where we started before ObamaCare.

The bottom line is, we don't know how ObamaCare will fare. How high will premiums rise? What will be on the menu? Will the restaurant come under new management one day? Because of these uncertainties, your best bet is to start eating broccoli. At least, those antioxidants will be hard at work and hopefully you won't need as much medical attention. Your fellow Americans will thank you for lowering their premiums.