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Maybe it's time to pull the plug on health insurance

  • With the Obamacare repeal effort dead, Senate Republicans & Democrats are scrambling to save subsidies for health-insurance companies.
  • But the insurers are flush with massive profits and renewed arrogance thanks to Obamacare.
  • Instead of keeping the subsidies, we need to ask whether we really need the insurance companies at all.
pull the plug
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There's nothing like the sight of Republicans and Democrats working together and scrambling to save big time government aid to super-rich corporations. Whether it's a bailout for major banks, tax credits for Big Oil, or big subsidies for large agriculture businesses, this kind of crony capitalism seems to anger almost everyone but nobody really does anything about it.

Now, we're about to witness another scramble to provide our hard-earned taxpayer money into the pockets of an industry that's already raking in the big bucks. The Senate Health Committee is going to hold hearings in September to find ways to keep the Obamacare subsidies sent to health insurance companies alive so the insurance exchanges don't implode as so many people are predicting.

And the preservation of those payouts to the super-profitable insurers is a pretty good bet considering even the Republicans couldn't round up 50 votes to repeal Obamacare and do what they had promised for seven years running. It's also a good bet because the pressure is rising to save Obamacare from all sides. There's even a warning from some liberal advocates not to dare call the insurance subsidy preservation effort a "bailout" because it's such a loaded term and it's the people we'll be bailing out and not some rich CEOs after all, right?

Whatever happened to those familiar Democratic Party mantras of "paying their fair share" and "those millionaires and billionaires don't need our money!" Whatever happened to familiar quasi-socialist/left wing calls for price controls? We certainly hear all of the above when it comes to Big Pharma for one thing. And why is the insurance industry getting not just a pass, but an enthusiastic, code red style, protection? In other words, the government has provided the big insurance companies with a policy that's led to massive profits for their industry. Why isn't anyone in a major leadership position, even a Democrat, responding to this problem by demanding those same insurers give something back and accept slimmer profits to keep the exchanges alive?

"So why are we so addicted to insurance as a solution? One hint is insurance companies are big political donors and heavy lobbyists."

And it's not like the insurance companies and their CEOs don't make themselves an easy target. Aetna CEO Mark Bertolini sure made himself look like a good potential political punching bag Thursday when he confidently told CNBC's Closing Bell program that, "The ACA cannot be repealed, period, end of sentence." Really? The last time I checked, even Constitutional amendments can be repealed. But a major health-insurance company boss is telling America a program that's made his company and industry much more powerful just happens to be untouchable. So much for democracy. Oh and by the way, Aetna shares are up almost 30 percent year to date.

Here's the kicker: Are we really even sure we need this industry in the first place?

Hey, we may hate the banks, the drug companies, the oil producers, and giant agribusinesses. But we know we truly need the services they provide. So what services do insurers provide? Do they provide health care? No. Do they make vital drugs? No.

Industry advocates will argue that while they do not provide any care or treatments, health-insurance companies make them more affordable by spreading out risk and providing economies of scale. And many insurers say their administrative costs are growing faster than premium increases or that the kinds of customers they cover now because of the ACA are more costly. But if that's still their argument, it's getting stale. The cost of insurance, even with millions more Americans on insurance plans because of Obamacare, keeps going up. And again, the major insurers have enjoyed better stock price growth than the overall market since 2010. Even if Obamacare plans are not the source of those profits, the industry is doing so well overall that perhaps it's long past time to stop giving it so much government aid.

And here's a thought, if the insurance industry cannot handle covering all the people who want their product without furiously raising prices, maybe their industry isn't the right place to turn to in order to improve health-care accessibility in this country in the first place. Maybe "health" and "insurance" simply don't mix, considering the fact that poor health is basically a certainty for all of us and the insurance model is based on hedging against less likely outcomes. Other than the old "major medical" plans that could help defray the cost of unexpected emergency care, health insurance doesn't really make sense if the goal is to reduce costs and/or improve access to care.

So why are we so addicted to insurance as a solution? One hint is insurance companies are big political donors and heavy lobbyists. The OpenSecrets.org watchdog site shows that the insurance industry overall has spent $78.6 million in lobbying this year alone, with the health insurance giant Blue Cross/Blue Shield the top overall spender at more than $9 million.

And even without all the lobbying, it's likely many politicians wouldn't be able to see a way of paying for health care using anything other than the insurance model. After all, even Medicare and Medicaid follow a similar structure as they act like insurance companies in covering some procedures and not others and reimbursing different aspects of care at different proportions, etc.

What if all the health insurers suddenly disappeared tomorrow? Would your doctor, hospital, and drug store disappear too? Of course not. What would disappear is the ability of all our health care providers to mask their true prices and costs. Remember that most of us only find out the list or sticker price of every procedure and treatment only after the fact when we get our statement from the insurance company. Without that masking, consumers would be able to shop around for better prices and better care and take at least some of the money spent on insurance and now use it for actual care.

This would help the government save money too. Instead of relying on insurers to "cover" people with expensive pre-existing conditions, and shoveling subsidies their way to cover those costs, the government could put the sickest patients in dedicated risk pools and figure out how to make economies by cutting out the insurance middleman.

And without insurance or with a much reduced role for insurers, doctors and hospitals would be able to decide more for themselves how to care for patients, instead of almost always consulting and sometimes begging and arguing with insurers over what they will and won't cover.

To be clear, government subsidies and aid would still definitely exist. The public would go into understandable panic mode if insurance disappeared without another way to pay for sometimes expensive care in its place. The point is, it would be less expensive and more logical to focus that taxpayer money on the actual health-care providers, not the insurers.

This isn't about bashing an American industry. It's about removing a series of unfair political, financial, and cultural advantages health insurers have enjoyed for too long. Like all conservatives, I cringe when we hear the "pay your fair share!" shouts from the left. But when the government is the primary source of a particular industry's massive good fortune, the call to remove that unfair advantage is truly justified.

If the insurance companies can find a way to be profitable without undue and unfair help from Uncle Sam, God bless them. If they can't, it shouldn't be the taxpayers job to keep them afloat.

Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

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