Already a wreck, the worst is yet to come with Obamacare

August 3, 2013
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In this post on Obamacare in Indiana, I argue why the law will fail. You can read my argument for why Obamacare will succeed here. A third post, arguing why Obamacare will be a “non-event,” will be published on Aug. 8. No single post should be read as my personal view on Obamacare, but rather as my best attempt to analyze the available evidence for three potential outcomes of the law.

Obamacare is destined to fail for one key reason: it will make health insurance cost more and buy less.

Consider other sectors where prices rose sharply while the quality of the product sank. Suburban housing circa 2006. Your daily newspaper since 2006. How’d those work out—for both businesses and consumers?

Well, expect Obamacare to do the same thing for health insurance.

Obamacare has created millions of pages of new rules and billions of dollars in new taxes—all of which contribute to driving up the cost of health insurance.

That will be true of the 685,000 Hoosiers that are expected to buy insurance through the newly created insurance exchanges. More importantly, it will also be true for the 3.7 million Hoosiers that continue to get health insurance through an employer.

That’s about three-quarters of the population. Repeat the same story in all 50 states, and there will be a lot of angry people out there. Enough to spark a political backlash.

Employers should expect to see their health benefits costs rise at the same pace they have for the past half decade, plus an additional 20 percent as some Obamacare icing on the top.

Why? Because Obamacare taxes health insurers, who will likely pass that on to employers as a 2-percent to 3-percent premium increase. Because employers must pay new taxes to help the federal government pay for new kinds of medical research and for a “transitional reinsurance” fund to offset the liklihood that the exchanges will attract more sick people than healthy ones. And because penalties on individuals who don’t buy insurance will push more people into employer plans, also driving up overall costs.

The increasingly unaffordable insurance that Obamacare will produce will push numerous employers into Obamacare's “Cadillac" tax. In 2018, any employer or health insurer will be forced to pay a whopping 40 percent excise tax on the cost of their health plan that exceeds $ 10,200 for an individual and $ 27,500 for a family.

Companies such as Columbus-based Cummins Inc. have been raising their deductibles in order to keep their benefits from triggering the tax. Obamacare is also pressuring many union health plans to shift significantly more financial risk onto workers.

Indeed, one of the oddest sights this year has been the calls by several unions—some of Obama’s staunchest political supporters—for the outright repeal of Obamacare. Why? Because they know the rich health benefits they have negotiated for so diligently for the past 30 years will vanish.

That’s the future Obamacare will bring: pay more, get less.

The changes to employers are important because they affect more people. But it’s Hoosiers in the exchanges that have the most to worry about.

New rules in the exchanges will make health insurance more affordable for those with very expensive conditions, such as cancer, and will most likely make insurance cheaper for older patients, childbearing women and those making below-average wages.

But for everyone else, there will be rate shock, as Obamacare drives up the average cost of insurance in Indiana by 72 percent. And it could get far worse than that.

That’s because Obamacare requires health insurers offering plans in the exchanges to cover everyone, with no consideration of anyone's health status in the price of the product (other than factoring in tobacco use and age).

That is a sure-fire recipe for the exchanges becoming a magnet for sick people and a no-go zone for healthy people. In insurance speak, that’s called a death spiral.

The only thing standing between Obamacare and death spirals in all 50 states is a tax on individuals that tops out at $695 in 2016. That fine is expected to force young, healthy patients to buy expensive health insurance, so they can cover the costs of all the older, sick people who will flood into the exchanges.

Imagine you’re just out of college and you can only find part-time jobs paying $10-$12 an hour—an increasingly common reality since Obamacare, by requiring employers to look back 12 months to determine their number of full-time workers on Jan. 1, 2014, has already begun to discourage the hiring of full-time workers.

You’ll still have to pay $1,100 to $1,600 for health insurance—even after Obamacare’s subsidies. And that’s for a plan with a good-sized deductible—meaning you’ll pay out of pocket for the first $2,000 or so of your expenses.

If you were young, poor and healthy, would you spend $100 a month extra on something you don’t use or which, if you do use it occassionally, still makes you pay the doctor’s bill anyway? I don’t think so.

But let’s say, by some miracle, Obamacare avoids death spirals in the exchanges. Even so, the real-value of health insurance will actually go down. That’s because insurers believe that in order to have any chance of signing up healthy people, they need to keep the price as low as possible. So they are offsetting the increased costs created by Obamacare’s rules and taxes by sharply limiting the number of doctors and hospitals their policyholders can visit.

Oh, and the health plans are paying those doctors and hospitals less, too.

Indianapolis-based WellPoint Inc. expects the health plans it sells through the exchanges to pay health care providers at close to Medicare rates—which are typically about 30 percent less than what individual insurance policies pay now.

If exchange plans pay low rates, expect hospitals and doctors to find ways to avoid those patients. They have lots of options. Some doctors are simply leaving the third-party insurance system altogether, setting up concierge practices that run primarily on cash retainer payments. That’s a problem for anyone that wants to pay with health insurance.

Other doctors are splitting their practices into two sides—one that takes insurance and one that operates on cash. If you’re paying with insurance, expect the wait times to grow—and grow and grow. In Massachusetts, which enacted a law similar to Obamacare in 2006, it still takes about six weeks to see a doctor—and half of physicians aren’t accepting any new patients at all.

Hospitals, especially in Indianapolis, have been quite adept at following the migration patterns of customers with employer-sponsored insurance, making the best health care abundant in Hamilton County but non-existent in Haughville.

And I haven’t even talked about the access problems that patients with Medicaid—if Indiana even decides to expand the program, as Obamacare calls for—will have seeing a doctor or finding a convenient hospital facility.

Obamacare may expand the number of people with health insurance, but it will leave those people fighting to actually get care. And once Hoosiers and Americans realize that, they will turn on the law.

The only question is if the Obamacare train wreck happens in high speed or slow motion. Said another way, Obamacare is certain to tarnish the president’s legacy, but will it fail so hard and so fast that he is literally chased from the White House in 2016, sort of like George W. Bush was in 2008, by a candidate promising over and over again to reverse “the failed policies of Barack Obama”?

The answer lies in how bad things go with the nitty-gritty technical functions of Obamacare. So far, the Obama team has an awful track record on implementation. Almost no part of the law has been rolled out smoothly, if at all.

Obamacare’s long-term-care insurance program was scotched because its actuarial assumptions were so bogus (the entire thing was used to help the law get a better budget score from the Congressional Budget Office).

Obamacare’s high-risk pool got going but only helped a fraction of the people it was supposed—and, in a harbinger of things to come, incurred costs far higher than projected.

In May, the Obama team delayed a plan to offer a choice of health plans to workers at small businesses that buy through the Obamacare federal exchanges. And in June, Obama’s IRS simply decided to take a year’s break in enforcing the tax penalty against employers that don’t offer health insurance.

Not only that, but the Obama team is not actually going to check if your income qualifies you for one of exchanges’ tax credits. They’re just going to take your word for it initially, and then let you sort it out on your taxes. Which means you could end up having to write a multi-thousand-dollar check back to the government in 2015.

So with that inspiring record, the Obama team has promised—and promised and promised and promised again—to have exchanges up and running by Oct. 1 in 33 states—including Indiana. And God bless them, they just might do it—if they change the definition of the word “running.”

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  • Compromise
    The dysfunction that is the US healthcare industry is explored to in a NYT article today ("In need of a new hip, but priced out of the U.S.). Given all the arguments listed in this post, which are parroted endlessly by opponents, and the very real problems we face, how about this. De-link health insurance from employment(where the vast majority of us get insurance). Of course, your employer will be happy to give you the money as a tradeoff for not administering this benefit. Since everyone seems to think they're such savvy consumers of healthcare, picking the most appropriate plan for you and your family will be a snap. And with all the unleashed consumer freedom, costs will undoubtedly drop like a rock, as true market forces kick in. In order to keep costs down, we'll have to abolish Medicaid, and hope hospital charity care can keep up. Otherwise, it's gonna be hard to keep the streets clean.
    • I've said it before
      Our additional premium costs will go for Health Insurance companies to pay lawyers to find ways around this. As well as most corporations who will be pouring money into lawyers to find ways around the law. The middle class will suffer (as with any socialization plan) in order to carry the non-working poor. You can say what you want about me now but in a couple of years you'll be forced to call me a prophet! Or a harbinger of the obvious!
    • NIMBY Brains
      Someone else's health isn't your problem. Until it is. The extreme need to drive up healthcare costs far past the needy didn't work. The profit motive kicked-in, and we arrived at ghastly costs. Will universal coverage kick the legs from under some overly-ripe costs? That's my hope. People seem to only care about themselves these days. Attempts to try and make things like universal health care work are thwarted with invectives, ad hominems, and if that doesn't work throw up your hands and bribe the legislature. The US didn't arrive at its spot as the greatest nation on earth by quitting. Instead, fortitude and fraternity got the job done. Then we go our own ways. Now it's all for one's self. Find every possible reason to maintain the non-working status quo. But for the grace of God go you and I into vagueries of hideous health costs. Time to make a change. Time to open the wallets again. Time to invest in a healthy country.
    • thanks JK...
      ...for proving once again why universal single-payer health insurance (ie; Medicare for all) is the BEST, easiest and most economical way to provide health care for ALL Americans...of course the insurance monopolists like Anthem are going to make HUGE profits from this and drive rates up so fast they'll have even MORE execs cashing out for millions as they fleece the American public with their greed
    • I've said it once
      The fraternal idea of helping people works better on a more localized level. How much of the taxpayers money is being spent on beuracracy to do this. Wouldn't that be better spent on a local level with less beuracracy? Personally, I'm raising my great nephew to keep him from going to a foster home and purchased a car for my brother and sister in-law so they can continue to get to work. I work extra overtime to help out those in need. The overtime has fallen away (due to our poor economy) and my wife is a furloughed government worker (due to our poor economy). What we are doing is helping LOCALLY and my family is doing with less in order to do this. We are also being asked to pay higher insurance premiums and higher taxes. This is where I have a problem. All of the money I am putting into helping those close to me in need is going to HELP THEM. Much of the money I'm paying in premiums and increased taxes is going to pay buerocrats and office holders who really don't care about THEM. Big Government can't fix this! It costs too much additional to facilitate it at that level. It has to be done locally.
    • Interesting but Flawed
      As usual, J.K presents an interesting discussion. However, there are a few points that need to be made. First, the prediction that only sick people will enroll in the Exchange, so all Exchange policies will be in death spirals, is unlikely to pan out. Death spirals happen in the current market because there are so many people with preexisting conditions who get stuck in policies where they have guaranteed renewal (thanks to HIPAA). They would lose their guaranteed renewal if they left he policies, and are not likely to find insurance elsewhere because their conditions don't allow them to shop around for a better deal. So, as healthy people with options leave those policies (because they can), the policy risk pool gets sicker and sicker and premiums "spiral" out of control. That won't happen under the new framework because 1) Premium rates cannot consider health status; 2) When preexisting condition exclusions go away, everyone will be able to shop around for policies and no one will be "stuck." 3) Risk will not be pooled by policy. An Obamacare provision requires insurers to pool all the risk for all policies in each market (individual and group) sold in the entire state -- both through the Exchange and outside of the Exchange. So, purchasing outside of the Exchange will not add any advantage for healthy individuals because they will be in one statewide risk pool with those purchasing within the Exchange, and if they purchase outside of the Exchange they won't be eligible for premium subsidies and advanced tax credits. So, even if only sick people purchase from the Exchange (highly unlikely) their risk will be combined with all policies sold in the relevant market by that insurer in Indiana -- inside or outside of the Exchange. Making the likelihood of a death spiral slim to none. A couple of more comments: Young adults who can't find a job after graduation can seek coverage on their parents' policies, as 3.1 million have done since Obamacare became law; and the 72% rate increase information is suspect at best. All the blue states (most of which are establishing their own exchanges) are seeing moderate increases or even decreases in Exchange policy premium rates, while in the past few weeks there has been a rapid succession of gloom and doom announcements by red states about steep increases. It's difficult to sort out, but one has to wonder how states like Maryland, Oregon, Rhode Island, New York and others are able to do so well by their constituents and the others aren't.
      • Predict when you will need insurance
        Why do articles constantly refer to 'young healthy' people who presumably do not need insurance? How does anyone know when they will need insurance? You are required to carry auto insurance without knowing when you will 'need' it. People caught without health insurance when they suddenly 'need' it is a primary cause of bankruptcy filings, not to mention hospital writeoffs (which indirectly get charged to those with insurance).
      • Very good points
        Sally, You raise really, really good points, which everyone should consider, about how the pooling of risk will work under Obamacare. It is clearly an improvement over the present system, where insurers seemed eager to shunt healthy individuals into their new products and leave sick patients trapped in older risk pools. That said, the argument I was making in this post was slightly different. I was saying that the Obamacare exchanges will become death spirals not because healthy people find other kinds of individual insurance, but because they simply go without insurance at all. If insurance does, indeed, become much costlier and yet buys less access to health care services, then there is strong incentive to go without it. And there may be many health care providers who seek to cater to such patients, making it more feasible than now to get health care for a reasonable price without health insurance. If employers also move in greater numbers to self-insure, then it's possible even the inclusion of fully insured groups in the risk pool will not be enough to balance out the concentration of sick patients in the exchanges. Anyway, your argument is at least as plausible as mine. We'll see what happens.
        • Helpful and Thoughtful
          It is nice to see an issue like Health Care discussed in a more pragmatic light. I applaud the intent of this three part series and the way in can help in exploring answers that only time will tell. Thanks to Ms.McCarty for taking a deeper dive into what is more than likely a realistic outcome than any extremist version.
        • Obama
          Why don't they make the President, Congressmen and all legislative people who get their healthcare for free have to go thru this with the rest of us.
          • Same old BS
            Your argument is the same well point brought up prior to the passing of ObamaCare. Not answer this is well point not projected to make a mass killing off it the very product that it spend over a billion dollars to fight against? Dude you need to write about something else, because you just like WellPoint sound like koooks.
          • Can't Do It
            Other nations spend far less than we do on health care and achieve better outcomes than we do. Why is that? How did what was once a "can do" country became a "can't do" country? I sometimes wonder if we're even a country anymore. Secessionist movements in Alaska, Vermont, the South, even some cities - it's every person for themselves and devil take the hindmost.
          • Joe says it best
            The obvious solution is single payer, if we can get our reps to quit taking so much campaign money from the insurance companies. It boggles the mind to think on top of all the other "market based" solutions we have to put up with, some think paying an extra 20% to entities that don't provide any clinical services makes our system the greatest in the world.
          • Good Points
            Those are all good points, J.K., but not terribly plausible. It would take a lot of sun and moon and star alignment for the disaster you describe to occur. The term "Death Spirals" refers to a progressively more unhealthy risk pool. That's simply not likely to happen since all the currently fully insured individuals and groups will be included in the pool. An awful lot of people would have to choose to be uninsured for the risk pool to be THAT unhealthy. Death spirals -- one of the biggest problems for consumers of the current health coverage scene -- will become a thing of the past, which, in my opinion, is one of the biggest improvments Obamacare provides. What is likely is that people who are currently insured in the individual market will move to the Exchange if they are eligible for subsidies or tax credits. Many people who have remained uninsured, but need coverage because they can't afford premiums, also will purchase on the Exchange. I can't imagine that the fee-for-service population is big enough to support very many doctors; and to assume doctors will split their practice and favor the fee-for-service patients is sort of insulting to physicians. Finally, we've learned from experience that it is very dangerous for smaller employer groups to self-insure. I hope for the sake of their employees that there aren't a lot of them that choose that route and risk insolvency while robbing their workers of all the choices they will have on the SHOP Exchange.
          • Response to "Obama"
            I'm not sure what it is you "Have to go through," but with 40 votes to repeal on the record in the House of Representatives, it's not likely the House would go along with that. They have a large group plan with choices of providers, benefits, and premiums, just like those shopping on the Exchange will have-- for the first time ever for many of those individuals.
          • Congress persons an Obamacare
            All Congress persons do have to purchase care through the exchanges, There is some controversy that because of an oversight whether they will have to pay premiums out of pocket or whether health insurance will remain an employee benefit.
          • Re: Wreck
            Let’s return to a few basic truisms about health insurance: 1. It should be a foregone conclusion among the public at large that a healthier America is a good goal; 2. Medicare and Social Security DO work and work pretty well; 3. No successful scheme for health insurance coverage can exist without the application of the law of large numbers. Let’s take each of the foregoing, respectively, and expand, to wit: Public discussion of universal health insurance has been so distorted and demagogued by its detractors as to be almost criminal; Yes, it’s a meritorious goal to seek a healthier America, but, unfortunately, the foregoing circumstances prohibit large-scale, even-handed discussion and legitimate consensus on the issue. If Medicare works at age 65, why won’t it work at age 55 (and younger)? Medicare (and Social Security) work, obviously, because everyone is enrolled, sick or healthy, and that’s of course because, essentially, everyone is required to enroll. The Supreme Court couldn’t (and didn’t) overlook the Social Security law and the fact that people can be and are required to participate, thus affirming the premise and aims of Obamacare. Expanding on this last (third) point, it’s no doubt fair to say that the health insurance industry has done little in this country to merit praise when it comes to the management of risks and availability (access) to affordable health insurance for the public at large. If things continue as they are, only the wealthy will be able to afford coverage as the unhealthy will continue to be excluded, except for those among them who can still manage to afford it – a viscious, downward cycle that will increase the number of uninsured in this country. Further, and in efforts to overcome the foregoing scenario, Obamacare seeks to incorporate, indiscriminately, as many individuals as possible while requiring that they pay their way via a four- or five-tiered payment scheme. Seems fair enough, doesn’t it? And it will obviously over time obviate the issue often raised that “someone’s getting something for nothing”. Additionally, should the last mentioned finally be accomplished, it’s reasonable to assume that the underlying culprit in the whole scheme of things, i.e., the exhorbitant cost of health care in this country, will actually be brought down and thus, simultaneously, so will the cost of health insurance. Finally, and to sum it all up: Unless and until the detractors of universal health care/insurance are somehow tamped down and the proponents of it are allowed to have themselves heard, no legitimate, beneficial public concensus will be derived. There are still people alive in this country who believe Social Security is a communits/socialist plot - the calendar will have to be relied upon to make them and that kind of thinking disappear from the scene; Medicare and Social Security DO work, and it’s doubtful even their worst detractors forego cashing their monthly checks and/or declining the Medicare benefits they derive; And, finally, were there to materialize in the first place such a thing as nationwide consensus, i.e., admission, that a healthier America is indeed a positive goal to be strived for and accomplished, universal health coverage (and, ultimately, universal access to health care itself) would lead to the obvious conclusion that there must also be required something called “universal participation”.

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