Obamacare Predictions: Part I

Here are some things I think will happen if Obamacare is passed. When I say “you” or “your”, I mean “people on average.” Obviously, some people will benefit. This is only a two-part post, as we’re all growing weary of discussing this topic.

Your insurance costs will increase

Democrats are ever lamenting that those with pre-existing conditions have difficulty finding insurance. Obamacare mandates that insurance companies “cover” these people.

Mandating “coverage” of those who have are known to have maladies translates to mandating that insurance companies decrease profits, perhaps to the point that they are guaranteed to lose money.

I have tried many times to show that insurance is a bet. You are betting you will get sick and the insurer is betting you won’t. If you do get sick, the insurer pays. If you don’t, you pay. This bet is remade monthly. If you bet you’ll get sick and you already are, you are, in effect, cheating. The insurer has to pay and there is no way that the money you give him will make up for his loss.

That means that mandating insurers “cover” those who are guaranteed to win their bets—those with pre-existing conditions—necessarily increases companies’ costs.

Those costs will be passed along in two ways: to you (possibly through your employer), and to the employees of the insurer. Insurance companies profits—now hovering at 3 to 4 percent—must drop. There is a real danger that small insurers will fail.

This will lead to the direct opposite of the what was intended: when these small insurers fail, people will lose coverage. They will be able to find new coverage, but from larger companies with higher rates.

This new crop of “insurance homeless” will provide leverage for “progressives” to suggest, and probably win, complete government control of health.

Your health costs will increase

Your insurance costs are guaranteed to rise. Note carefully: as just shown, this is certain to happen. It is not merely probable, but inevitable. This is true even if you believe Obamacare is a good idea and that people with pre-existing conditions should be “covered.”

That euphemism is misleading: they are not “covered.” What really happens is that their health costs are subsidized by everybody else.

You or your employer will face higher insurance premiums. Thus, the extent of your coverage will be shrunk. To keep costs down, you will see higher deductibles, lower limits on payouts and such forth.

The costs of insurance paid by your employer will be offset by either cutting pay, reducing future raises, or most likely by hiring fewer workers in the future. That later will be especially true of large employers.

Small- and medium-sized companies will hire fewer people, too. While the influence of any one company is small, the effect in aggregate will be large. Small- and medium-sized business will either have to pay for insurance or pay a penalty for not buying it. So will individuals (it’s now just under $500 per year).

Businesses but not individuals will be offered a tax incentive offset. This tax incentive will be whittled away slowly and surely.

Since most businesses will hire fewer, or they will cut payrolls, or not increase them, tax revenues to the government will decrease.

Your taxes will increase

The government will expand. Obamacare will create a massive new bureaucracy, which will suck funds from the public teat.

Taxes are already guaranteed to increase to pay for many of Obamacare’s provisions: this is in the bill. But they will increase more than estimated because the bureaucracy must be fed. All experience shows that bureaucracies grow fatter in time, consuming more tax dollars as they do so. There has never been an instance in history where this was not so. Health bureaucracies especially grow quickly.

Because payroll and income tax revenue will decrease, because businesses will hire fewer and pay existing employees less, and because small- and medium-sized business are initially allowed a tax incentive, the deficit will increase at a faster rate.

Since you will have less money, you will spend less, and this will have its normal effects.

Social security revenues, for the first time this year, fell below payouts. With our inescapable demographics, this trend is guaranteed to continue. Congress has also stolen a massive amount of money from the Social Security trust fund.

Couple to this the situation of Medicare, and the deficit due will soar to, as Mr Obama likes to say, “unprecedented” levels.

Incidentally, the majority of the so-called savings to the deficit to the Obamacare bill are made by the government takeover of student loans. This measure was tacked onto health care so that the House could cheat and use reconciliation to pass the Obamacare. And so are a host of—so far unknown—additions to the House reconciliation “fix” package (which the Senate might not pass).

Lastly, for the first five years people and businesses pay the new tax but receive almost none of the new entitlements. Those start after year five, when costs begin to escalate. This appalling accounting trick means that after about fifteen years, health care will run a magnificent deficit on its own.

Taxes must increase at a dramatic rate.

A side effect will the creation of more “poor” people: I mean, “poor” people will become a larger percentage of the population because of the cuts in pay and in employment. Since these poor are the ones receiving “free” or reduced-cost health care, government payouts (and deficits) will be vastly larger than estimated. I’d say, after fifteen years, about twice what was estimated.

History is on the side of this prediction: it has happened with every entitlement.

Coming tomorrow: Part II and the best predictions.

31 Comments

  1. I agree with the basic thrust of your comments except for one fact that I am not sure of the effect of. Those with pre-existing conditions that are not insured, and the uninsured without pre-existing conditions are able to go into the hospital emergency rooms without regard to having insurance. The emergency room cost is much higher than normal medical treatment. The net result may be that total medical cost may not go up by insuring all. The insurance company cost would initially go up, but that would be passed on to the insured. However hospital coasts would go down by not having to cover uninsured emergency room costs. This would partially or may even reduce the increase back. I am not sure it would balance (or possible even do more that balance), so please give your take on that feature.

  2. People are all say that this will lead to single payer. Problem is democrats wont control congress or at least have anywhere near the majorities they do now. So how exactly does the GOP end up voting for single payer?

  3. We’ve all seen how “Wallmart” will no longer handle Medicaid prescriptions because they lose money on the transaction. This brings up another point. Government reimburses medical practitioners at a lower rate than the private sector. With lower reimburesments and lower profits, fewer people will go into the medical profession. Besides costs going up, medical care will go down.

  4. I may be putting this a bit crudely, but the concern I see here is with cost – a reasonable concern.

    Watching what happens with Medicare, I see the system buying new knees, hips, eyes for people who could well afford the entire costs out of their own wherewithal. I can give numerous examples.

    I don’t understand this at all. Why should the country be paying for new knees at $17k/side for people with tens of millions? It’s true that there likely aren’t that many new knees in the multimillionaire set, but it still seems wrong to me. Doubtless, those who don’t need knees are getting other parts at our expense.

    I agree with Leonard that we already are paying for a lot of the work needed by the uninsured and in very pricey venues, the ER, not the very clever little clinics like those that kaiser runs in the northwest.

    Matt, could you share some insight into how the insurance company death-spirals can be avoided if we leave system as-is, the cost to the insured continues to climb, the “immortals” – (read the 20-40 cohort) bail out and the policies become concentrated among the people who need all the work?

    I suppose I should also mention one other perhaps unintended consequence of adopting this messy program; Rush will leave the country.

  5. I know one can’t sue the government– however given that this will be passed by only the Democratic party could they be sued in the future for the damages— or fraud?

  6. Leonard Weinstein says:
    20 March 2010 at 7:44 am

    “I agree with the basic thrust of your comments except for one fact that I am not sure of the effect of. Those with pre-existing conditions that are not insured, and the uninsured without pre-existing conditions are able to go into the hospital emergency rooms without regard to having insurance. The emergency room cost is much higher than normal medical treatment.”

    The cost in the emergency room is only higher for people who pay. So in effect we already have national health insurance. The cost burden is shifted onto those with some means of paying who utilize the emergency room. For people with no means to pay the emergency room is free. The problem with the emergency room is that it is under-utilized by people who can pay and over-utilized by people who can’t pay.

    The only way to solve the health-cost equation is to have a mechanism that discourages over-utilization of medical resources and encourages lower cost delivery methods.

    Unfortunately, some of the ‘lowest cost’ delivery methods we have today were the highest cost delivery methods 20 years ago.

    The initial cost of ‘faster-better’ is almost always higher because it includes a huge R&D component in the cost structure.

  7. You have only to look at what happened in Tennessee with tenncare to know what will happen. After a few years tenncare became the largest line item in the Tennessee budget and was well on its way to bankrupting the state until coverage was drastically reduced i.e. rationed.

  8. This is a two by two matrix. You may have government insurance, or private insurance, and you may have government health care, or private health care.

    What makes sense, and what works in Europe, is government insurance and private health care.

    What works badly in the US is private insurance and private health care.

    What works badly in the UK is government insurance and government health care.

    Why is this? Because the government is the low cost provider of health insurance because it does not have to do screening because the insurance is universal. Screening is the main cost of being in the health care business.

    So what you need to do is nationalize insurance, and privatize care. As they do in Belgium, France, Holland, and it works.

  9. Comparisons to Europe are not helpful. Generally the comparisons are made to Sweden, Canada, Costa Rica, and other similarly tiny population nations, of greater population homogeneity than the US has.

    Demographically, the US population is shifting to persons of non-European origin. This makes a huge difference in terms of system utilisation and in terms of self-help behaviours. Europeans and North Americans of European ancestry are more likely to take care of themselves, health-wise, and are generally less likely to run to the clinic at every sniffle.

    Obamacare is doomed by this demographic shift alone. Comparisons to Europe are also non-sequiturs in the discussion for the same reason.

  10. Health insurance currently is minimally a real insurance product and primarily an administrative process designed around amassing buying power to negotiate preferred rates.
    Currently the program is designed to spread costs across the insured in a given year rather than across multiple years for a given insured. The market is further distorted because it is made up largely of employers where the employment contract period is not the same as that needed by the employee – which in reality is a life time contract.As a consumer I need essentially a lifetime agreement – equivalent to long-term level term life insurance.

    In a true insurance program, the tough reality is that if I smoke or I drink or I have the wrong DNA I should have to pay more than the non-smoker, non-drinker and individual with healthy genes. Each social entity has to decide whether to off-set these non-discretionary and discretionary risk factors. The bleeding heart solution is to off-set them all. This will produce the misery Matt describes.

    Over the years my business went from a self-insurance program with group cap of about $250000. Then it became more advantageous to go with a straight BCBS PPO plan and then two years ago the introduction of HSAs made it feasible to go to a high deductible plan holding employees neutral by contributing to their HSAs. Unfortunately the creation of a single payer system is inevitable so long as there is a commitment to essentially cover everbody’s health expenses regardless of ability to pay. I see no way to create much of a multi-tier system. Sure you can offer private, semi-private and non-private bed arrangements but this is hardly the core cost of the system.

  11. “Your insurance costs will increase”

    Aren’t they already going up to the point where many are force to let go of their insurance because they can’t afford these increases.

    Healthcare is probably the bet that the insured is certain to win over time. If you consider the ever increasing longevity and the relatively rare accidental death compared to illness death.

    This is why a public option, medicare style should be available to all.

    “Your health costs will increase”

    Several thing should help reduce health increase. In Canada, there is a no fault. Physician who give care, do it the best they can and they are not expected to be perfect. Occasion for malpractice lawsuit are rare and pay out much less higher.

    Like insurance cost, health cost is also rising without the help of Obamacare.

    With many more insured, clinical centre and hospital will see an increase in their market and revenue. With more costumer are able to pay their care faster, it should reduce collection department and overhead fees.

    “Your taxes will increase”

    That I agree with. But since most of the US deficit was caused by the Bush tax cut of 2001 and 2003, it is simple restitution of these tax cut.

  12. Another important effect of this is we will increasingly become a culture of envy and snitches. This is being reinforced by the corrupt deals in the process. What are we complaining about? The corruption? No, we are complaining because “we” did not get the same corrupt deal as someone from Nebraska, or Florida. One of the postings here is to complain about people who are using Medicare coverage to get artificial hips, when they have the means to pay out of pocket. Never mind they have made premium payments for more than 40 years before reaching eligibility age. But not to worry, your new healthcare coverage will soon include allotments for each ind of procedure. Each year, when the allotted number of hip replacements is reached, there will be no more. So when your 80 year old Granny falls and breaks a hip, she will be denied many years of fulfilling life and will be consigned to bed and a blue pill for her remaining years. Every national health system reaches this solution. In Britain dental allotments are typically gone for the year sometime in May. People pull their own teeth, or go to Poland and pay for treatment.

    People will be happy because they have ‘universal coverage’ and only the relatively few who need actual access to healthcare at any given time will recognize the duplicity.

    Older folks, who remember better times will soon be gone, in fact, with this legislation, their demise will be accelerated.

  13. So, Sylvain:

    I’m curious, do what do you attribute the uncontrollable increase in costs and how does government intervention address that.

  14. kdk33

    First, Is it possible that there is more than one solution? yes.

    Second, like I said in the previous healthcare post, Canada has a single payer system. Yes, there is a cost increase in our system also. That I know of, the rate of increase is much lower in Canada than in the USA, and this is even though 100% of canadian are covered, which is not the case in the USA.

    In Canada, an homeless person as the right to the same care as the richest man. Unless the richest man decides to pay for is care himself in the USA or in Europe.

    Do we have problem? Yes.

    There are waiting list. The list are set by the priority of case. Urgent care are done urgently. Yes, some people may have die on a waiting list, such cases are rare and incomparable to the number of people who are denied care in the USA.

    Is there money that could be saved? Yes.

    The main part of our health system that I would like to change. Yes. I would like our system to be less centralize, giving more independence to each hospital. I would also like that physician be able to work for both the private and public system. This is not allowed at the moment which create some problem.

    I guess the best system would be a mix between public and private where physician and nurses would have some sort of quota to respect in public and be free to make more money in the private.

    As for your question. I don’t know enough about the USA system. But what I know is that the USA system cost more and increases faster than most developped countries.

  15. To Leonard Weinstein & Harrywr2
    Free healthcare is a honey pot to attract new bees. It is designed to attract a new group of consumers, and potential voters, from outside the US, into the US. That’s why there is unseemly haste to get it passed. It’s electorally driven. If illegal immigration was curtailed your suggestion that medical cost might not go up could be correct. However, that will not be the case. With a slight lag it will boom again
    and the emergency rooms will be overwhelmed again. A non-virtuous cycle.

    Once the honey pot is in place it will be time to jamb through amnesty. I expect that it will take a while for new bees to get into the US. On this basis, look for amnesty to contain some provision that it will not be just those in the US on X date that will be eligible. It will be available to those in the US by some “X future date” thereby providing an addition incentive towards a sudden rush of new illegal immigrants. That’s when the “Chicago voting method takes over”. Multiple votes from a single voter and demonize anyone that challenges it as racist. Whether this is in place by the 2012 election or the one thereafter is almost irrelevant. It will irrevocably change US electoral politics and also increase the number of those dependant on government and/or not paying taxes- effectively the new priveleged class – subsidized of course by those that dopay taxes.

    Mike – I’m afraid you all to correct.

    kdk33 – simplistically, government intervention makes it worse. The best thing they can do is get their sticky fingers out of it. I know that takes time but here’s a few starting actions

    1. Tort reform and cap damages
    2. get the government and their noxious mandates out of the business
    3. Allow across state border insurance competition
    4. Give current employer tax breaks to individuals or small groups buying health insurance
    5. Increase the range of co-pay options and deductibles ie. put buying power back into the hands of the US consumer – clearly a force to be reckoned with 🙂
    6. Allow insurance companies to continue to charge higher premiums to people who display irresponsible behaviour [only way to discourage some is the pocket book – of course there’s a block in Congress that will bleat, but let them defend enabling and subsidizing “bad health” behaviour.]
    There’s others but the power of the US consumer is the one that needs to be released. That will drive real reform.

    All government action will do is institutionalize progress [ie. kill it] and set up more
    inefficient allocation of resources via increased structural costs, cross subsidies and special deals for “some”. It’s a power game not a medical game.
    Finally, when the government has a conflict of interest between the cost of your or your aging mothers health care VERSUS fiscal constraints or the ability to help one of their special interest groups, who is going to win? I can sue an insurance company or medical provider. That will not be possible under what is proposed.

  16. sylvain

    1. The US’s consummers, medical community and drug companies subsidize medical developement and innovation globally. US consumers effectively subsidize the Canadian system and every other one globally.

    2. Canada is relatively homogeneous as are many other places. This can be a very significant benefit when it comes to healthcare.

    3. The results of US healthcare are better than those of any other system. The stats you see re life expectancy are non-causal nonsense. Life expectancy is heavily influenced by behaviour and here thigs like life style, obesity, auto accidents, guns
    homogenous nature of the population and many other factors count. As examples,
    an emergency room in Detroit or Washington probably has more gunshot traumas in a month than the countries of Australia, Canada or Japan have in an entire year,
    Japan has relatively low heart attacks and that’s most likely a function of their low obesity and historically inculcated sensible diet..
    4 Contrary to popular belief a lack of insurance in the US does not mean no health care. The poor and indigent get health care and are subsidized by those that have insurance.
    5. I have experience healthcare on 4 continents, including my home country Australia, which has a good system. Australia does not have to deal with the demographic or behavioural issues that the US deals with. Overall I think the US is well ahead the rest and the level of service is very high.
    6. There’s no free lunches in this equation. It is always about trade offs.

  17. There is a market solution: increase the number of health care providers and force patients to pay as they go. The more doctors, nurses, clinics, hospitals, etc., the more the competition, and that will drive prices down. Also, increase deductibles until the consumer is paying the lion’s share of the costs.

    For comparison, consider the food provision industry, i.e. agriculture. Food is a necessity; no one can live without food. Everyone has a “right” to eat, without the government declaring it. The government pays the food costs for certain consumers — the very poor, but otherwise everyone pays for their own food. There is no such thing as food insurance.

    Ag subsidies are intended to keep the costs of food higher than they would be otherwise. That’s because there is so much agricultural capacity that without the subsidies farmers would go broke. Farmers would over-produce and the cost of food would plummet. There would be no profit in farming, and farmers would quit the business. Gyrations and chaos in food prices would ensue. Monopolies would develop. So some farmers (not all) get paid NOT to grow food, and some farmers (not all) get guaranteed prices for their crops regardless of the market (demand). If you are a farmer and don’t get a subsidy, you can still farm but the returns are so low you can’t make it.

    If everybody was a doctor, the cost of medical care would be rock bottom. Unfortunately for the consumer, doctors have a tight union that is difficult to get into. They have perpetuated a myth that doctoring is difficult and that only a select few qualify. That’s not true; doctoring is not that hard, and most doctors are not geniuses. The cost of doctoring is not subsidized; instead it is taxed to the max, by medical schools, tort lawyers, etc. The lack of competition and the various extortion rackets drive up consumer costs.

    The solution is to fund medical school tuition and force schools to turn out 10 times as many doctors and nurses as now. End the extortion rackets with tort reform. Reduce the costly regulations placed on hospitals. Make it so cheap and easy to provide medical care that everybody who wants to can get into those professions. Make the consumers shop, bear the costs, and allow them abundant choices.

    Then the problem will be over-production and rock bottom prices for consumers. If we did that, we might someday need to subsidize medical care providers just like we need to subsidize farmers. That would be a much cheaper problem to solve.

  18. Sylvain,

    If I take you at your word:

    “I don’t know enough about the USA system. But what I know is that the USA system cost more and increases faster than most developped countries”

    Whey then, with all due respect, do you advocating so eagerly for government intervention?

  19. Mike D

    Agree that consumers paying more of the costs would be a rational way to promote
    lower insurance costs and should exert some downward pressure on healthcare prices. However, that is currently too much a shift from the intrenched approach and can you imagine how it would be portrayed and demonized. In my 1st post above I mentioned

    “5. Increase the range of co-pay options and deductibles ie. put buying power back into the hands of the US consumer – clearly a force to be reckoned with”

    This would allow consumers to select the insurance level as appropriate to them and decide whether they want higher or lower “out of pockets” costs and risks. I think that’s about as far as we can expect to get any time in the foreseeable future.

  20. kdk33

    “Whey then, with all due respect, do you advocating so eagerly for government intervention?”

    1) Because, by my own experience government healthcare offer good service at a good price.

    2) I don’t say that the USA should chose a single payer system. But an insurance provided by the government would help many people.

    Where is the free market when many state tolerate monopole from insurance provider?

  21. Sylvain,

    I don’t endorse insurance mandates and I’d lobby to remove them; I”d settle for buying across state lines.

    I guess I don’t see a rationale in your response. How do you define good and how does that compare with the US – better or worse on both service and price. My rotary dial phone was good; is my full featured cell phone not better?

    How would government insurance help people, and what exactly do you mean by government insurance?

    So, let me try again. Exactly what government action do you support and exactly how is that going to make US health-care better.

  22. Let’s separate the cost of insurance from the cost of the care. Those are two different issues.

    I don’t have health insurance. But I do get medical care when I need it. I pay cash. Because of that, I get a much better deal than others do. Doctors like cash. So do hospitals. They don’t like dealing with insurance companies, public or private.

    The big debate is about insurance. Now I am going to get taxed because I refuse to purchase insurance, which is a ripoff in so many ways. The whole idea is to rob me one way or another. No thank you. No thank you very much.

  23. KDK33

    Government insurance = public option.

    Whether you are in the US or in Canada when you get to the hospital you should receive good care. In both country the personnel receive good formation.

    For me a better system is a system where the luck of money doesn’t interfere with the possibility care. For example: before the present system which started in the 60s my grandfather died because he wasn’t rich enough to either pay for a cardiac operation he needed (with or without insurance). His heart problem was a congenital one, but easily fixable. He died in his 30s leaving is wife and 2 kids to misery. My mom started working full time at thirteen years old in matter to survive.

    Now no one here live similar situation since the 60s. This is why access to health care to everyone is important. It doesn’t matter how it is accomplished, the important is that it is. If the USA are able to achieve that without involving the government, good. But, it is not evil if the government do get involved.

    Once again the system in the USA is great, for rich people, they receive great care. But what about these 30m-45m people who can’t afford it and are not lucky enough to work for a big company like GMC, Coke or Microsoft.

  24. Mike D,

    Paying cash for healthcare isn’t bad when you need a cast or one day hospital. What happen if you get cancer? Or need a heart bypass? We are talking a $100k plus in bill, are you still able to pay for it?

  25. Sylvain,

    The desire for all to receive excellent healthcare on demand regardless of ability to pay is laudable… utopian even.

    But healthcare is a collection of goods and services provided by some people to other people in exchange for those other peoples goods and services (money as a proxy). It’s a market. Government can’t mandate health care for all any more than they can mandate free yachts, big cars, big houses in the suburbs.

    You seem to be suffering a common liberal utopian malady: disconnection from reality. So, once again, what action would you like to see government take and how would that improve healthcare delivery in the US.

    And, since I was just a tad rude, I’ll let you have the last word.

  26. Sylvain:
    This is the nub of the issue. You need something that costs more than you can afford under any circumstances. You look to someone else to pay.
    Insurance can handle this expense under a shared cost/shared risk principle. But this is not a shared cost/shared risk notion. If you were an insurer would you insure a driver who has been in a number of accidents and traffic offenses. i.e., a bad risk? If you were a health insurer: Would you insure a heavy smoker? A heavy drinker? Someone who engages in unsafe sexual practices? Someone who plans on having a large family? It makes no sense to refer to a system that covers the health costs associated with these “risk” pools as insurance. Calling it insurance is an abuse of the language.
    What is happening is the creation of a new right to whatever health care is potentially available. The Democrats have managed to design the veritable camel. There is now no mechanism for managing costs except government fiat.

  27. KDK33

    Well it works pretty good in Canada and we don’t live in Utopia. This could be better it is just matter of adjusting.

    Keep in mind that many people get rich because their are poor people. Do you believe that people who makes low income work less harder than those that makes more money? It is more complicated than that. Many people live close to or under the poverty line because the capitalist system cannot provide equality of chance. For sure I don’t prefer communism which is even worst. The solution is in between where the richer gets a little less rich and the poorer gets a little less poor. This is where Canada and about 30 european countries stand.

  28. Bernie,

    In Canada, there is no difference between people with or without precondition. that a child win or lose the genetic battle everyone has access to health care.

    Of course, if you make a bet with an insurance, the insurance will make sure to win the bet more often than they lose it. Hence the denial of service ever more higher for ever more reason. As well as ever more reason to refuse to pay.

  29. sylvain:
    I must not have been clear about my point. Canada does not have health insurance it has a tax based health system akin to the UK. I suppose you can call it insurance but it isn’t.

    In reality individual States have distorted the insurance markets already. I would buy a policy that excluded certain diseases that are linked to certain kinds of behavior – assuming that the actuarial costs were meaningfully reduced, just as I would buy a non-smoker’s life insurance policy. In Massachusetts I cannot. The net effect is that there is no incentive to avoid discretionary risky behavior and to adopy healthy discretionary behaviors.

    The issues around pre-existing conditions and shedding emergent risks could all be handled separately. Portability is easy to create. What is more difficult to control and manage is the ever increasing expectations on the availability of expensive treatments.

    This is a huge unfunded entitlement. Me, I am looking for vehicles to protect me from the tax hikes and rounds of inflation that must come.

    Your and my children are going to have to pay for this.

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