Why The Affordable Care Act Will Make Healthcare UnaffordableSubmitted by SONICMASD on Fri, 06/29/2012 - 14:08
Why The Affordable Care Act Will Make Healthcare Unaffordable
By Marc El Merica
A quick note on economics: Often it is perceived that economics is a matter of opinion. This notion is false. Economics is a science and like all sciences there are laws. Laws as strict and universal as those found in physics, chemistry, etc. and it is of no consequence where these laws are applied - the result will always be the same. Secondly, economics may be the most needed piece of education that exists in the world today. After all, money is one half of every transaction and that transaction is taking place within a market place governed by economic law. And yet, no one seems to know anything about this subject. We all have bills, we all require property, we all need to earn a living and to plan for retirement, and somehow we graduate from high school with barely a semblance of a financial education. If we are going to be forced to participate in a government run education system then the least we could do is petition for a more applicable curriculum.
The Price System
Central to capitalism is the principle that prices must be the set by the market. Prices represent a balance of several components including: supply and demand as well as the allocation and production of scarce resources: land, labor, and capital. Obviously for a price to exist it must be sustainable for the producer. If it costs a company $10 to make a widget, then it must sell that widget for more than $10 to make a profit and remain in business. Also, for a price to exist it must provide a justifiable value to a consumer. No one is going to pay $10 for a widget that they believe only provides $8 worth of value. Then factor in the dynamic of competition. Whenever a price seems too high and a person figures out that they can produce a similar product for less, whenever a product doesn’t provide enough value to command its price to a large enough group of consumers, whenever someone believes that a product could be improved or replaced altogether - competition will arise. Because of these phenomena, prices in a free market are fair, as low as possible, and sustainable. In other words, every transaction is win – win. Side note: Greed is Good. It may sound heartless but consider that even if a businessman is motivated solely by greed he still cannot sell his product unless it makes his customer’s life better because every transaction is voluntary. The only way greed can ever be damaging to an economy is when it is forced upon people. The only entity that can get away with force is government.
Altering any of the factors mentioned above destroys the price system. For example: If a government mandates, for the good of the poor of course, that widgets which previously cost $20 (and cost $10 to make) must now be sold for $5 then a multitude of things will happen. Producers will stop making widgets or go out of business entirely since they lose $5 for each item they sell. As manufactures go out of business the number of widgets will decrease, people won’t be able to find widgets in stores as easily, and this will increase demand. Soon a black market will appear (black markets can only exist in a restricted society). Those lucky enough to still have widgets will be able to sell them for astronomical prices given their scarcity and desirability. In the end, the poor will neither be able to find, nor afford the widgets that government sought to make more available to them in the first place. At the same time, just try to imagine some of the greater economic damage done: Closed widget factories, closed widget raw material supplies, commercial land lords with empty real estate, unemployed widget makers, suppliers, retail sellers, etc. - and future widget research and development will cease as well.
Here are just a few ways in which Obamacare upsets the price system’s balance which will result in higher prices and diminished quality.
1. Preexisting conditions I will cover this topic in the next section.
2. Children must now be covered for 3 more years (26 instead of 23) under their parents’ healthcare plan. For an insurance company to figure out the price of its premiums it must factor in many things: What are the odds that a parent will get sick and require coverage? How much will that coverage cost? What are the odds that their children will get sick? How much will their children’s care cost? What will be the loss of revenue in the 23 to 26 year old market as many young adults choose to remain on their parents’ plans rather than purchase their own? What is the cost to insure children under 23 vs. those under 26? The bottom line is that because of the increased costs associated with covering 3 more years of healthcare for children, insurers must now obviously raise their prices to cover the increase. Companies do not simply accept margin decreases – they find a way to make up that margin either by A. Raising Prices or B. Reducing Costs (usually the only way to reduce cost is by reducing quality). So while a 25 year old may cheer at not having to pay for health insurance for the next 2 years, he will then have higher premiums for the rest of his life in order to make up for it. To add insult to injury, you can bet that the rise in his premiums from 27 on will more than cover the costs of his additional 3 years under his parents’ plan. This is because the reward must always be higher in order to justify higher amounts of risk and commitment of scarce resources.
3. Preventive Care. A physical may not cost you anything but that doesn’t mean it doesn’t cost anything to administer. It still costs time, it still requires a doctor, it is still a service which must be purchased and whose price must be set by the market. Much like the widget example above, mandating that a physical or mammogram’s cost is $0 doesn’t actually make it so. The doctor is still going to bill the insurance company and the insurance company must in turn raise the cost of their product. Sure, physicals will be “free” but insurance plans will be more expensive overall. At least before, you had a choice if you wanted to buy preventative care. Now you’ll be paying for it in the form of higher monthly premiums regardless of whether or not you ever take advantage of those yearly checkups.
4. Maximum Lifetime Benefits The price of an insurance plan takes into account what that company stands to lose if something tragic happens to one of their customers. It takes a lot of monthly premiums to cover a single lifetime payout. Let’s say that a company averages $50 million in claims per year and that it is able to price its premiums at $50 per month for each of its 100,000 customers. But what happens when Obamacare strips the maximum lifetime payout away from the company and suddenly their average payouts rise to say $58 million per year? That extra $8 million dollars must now be passed onto the company’s 100,000 customers. The new monthly premium will go from $50 to $56.66, an increase of $80 per year for each customer.
The same interferences that will cause insurance premiums to go up will also cause every other healthcare cost to go up as well. Physicals will be more expensive if a doctor knows that the law requires insurance companies to pay for them. X-ray machines will be more expensive for doctors to buy if the x-ray machine manufacturer knows that doctors have to have them for checkups and that they don’t care how much the machines cost because they’re just going to pass the cost onto the insurance company…who will then pass it onto the consumer. Additionally, the quality of the x-ray machines will go down because the manufacturer has more demand than he can keep up with and also because the doctors won’t mind replacing the machines more often because they aren’t the ones footing the bill. Also, why would the x-ray company invest in improving their designs and inventing new machines when their current line is selling so well? But it won’t just be gravy for the x-ray machine company because their raw material suppliers will do the same thing to them as they’re doing to the doctors who buy their product. And what will happen to wages as people are forced to spend higher and higher amounts on healthcare costs? They’ll of course have to go up which will drive the costs of manufacturing and finished goods even higher. It’s an endless cycle of misallocation, malinvestment, and decay that will ultimately destroy an economy. Most empires have not collapsed through war but instead because of unsound economics. We never had to fight the Soviets to win the Cold War. Rather, their centrally planned system absent of a free market bankrupted them into defeat all on its own.
Insurance is a different animal. It not only operates on the same free market principles as mentioned above but also on a set uniquely its own. Here are some of the key principles that dictate how insurance works. If even one of these principles is missing the insurance system is not sustainable.
1. Insurance is perhaps the only thing you buy and never hope to use. No one hopes that their house catches on fire. No one hopes they get cancer. Insurance exists only for negative occurrences. You don’t buy insurance in case you win the lottery.
2. Insurance pays for unforeseen events that would be too great for the individual to cover on their own. We don’t have magazine insurance programs or chewing gum insurance because even if we experience a loss, these low cost items wouldn’t represent an unbearable financial loss. We wouldn’t need the help of others to replace a copy of the Economist or stick of Doublemint. Insurance is only for expensive things that should never need to be replaced but unfortunately, sometimes do.
3. The odds of an individual ever needing his insurance benefits are low. Most of us never experience a house fire. Most of us will never contract a deadly disease. Which is good, because those things suck. But it’s also good that these disasters won’t happen to most of us because we’re going to have to pay for the unfortunate people who are affected and as we established in principle 2, whatever happens to our fellow insurance payers isn’t going to be cheap.
4. The majority of payees will never recover their contributions. Insurance is not an investment and it’s not an asset; its function is to protect against catastrophe, not to enrich. I hope I can redeem my stock portfolio for at least what I put in; I don’t hope to cash in on my insurance benefits.
5. All prices are highly influenced by risk. A person who chain smokes a pack of cigarettes everyday has a higher risk of lung cancer than a nonsmoker. As a result, they are more likely to cost the insurance company (and their fellow payers) more than a nonsmoker. Therefore, their premiums must be higher in order to offset their increased risk and cost. This is discrimination, but it is discrimination based on actuarial data. Women cost more than men to insure. Teenage drivers cost more than adults. A heart condition has a higher risk or costing more money than a dental condition. Insurance is governed by risk and risk cannot be separated from insurance.
Can you spot how many pieces of our universal health insurance law don’t fit into the 5 insurance principles above? I’ll just name a few to get you started:
Using insurance to pay for a physical is akin to using car insurance to pay for an oil change. There’s a reason GEICO doesn’t cover routine auto maintenance: premiums would skyrocket because oil changes violate every one of the 5 principles listed above.
Can you sign up for homeowners insurance after your house has burned down? Can you call Allstate from the scene of a car accident and ask them for a rate quote? So how can you sign up for health insurance when you already have heart disease? The inability of an insurance company to cover preexisting conditions is such a no-brainer that it actually questions my faith in humanity – it’s that stupid of a premise. Forcing a company to cover someone who already has a condition represents a loss for that company. It completely removes the risk factor out of the equation. The company already knows that they are going to lose money by covering that person. No company can operate on a business model forced to maintain losses. Likewise, a furniture store wouldn’t last very long if the government forced it to buy broken chairs that previously no one wanted.
It’s amazing that Democrats are demanding that women shouldn’t have to pay higher premiums than men but are okay with teenagers paying higher car insurance premiums than adults and smokers paying higher premiums than nonsmokers. Maybe it’s because teenagers don’t vote and smokers support evil tobacco corporations? If liberals are so obsessed with their distorted vision of fairness then I guess they wouldn’t mind if we made all social security premiums the same too right? Oh what, you’re not cool with that?
Figuring out a budget isn’t very difficult; it’s just some simple arithmetic. And yet, we find ourselves living in a country with a national debt of over $15,000,000,000,000. A deficit that has tripled under the Obama administration, which is really an accomplishment when you consider just how terrible George W. Bush’s deficit was. The Bush deficits were larger than all previous presidents combined…and Obama still managed to spend three times as much! Paris Hilton’s checkbook is more fiscally sound than our own government’s. I love it how the United States goes around the world and advises developing nations on economic matters whilst sitting on the largest pile of debt ever accumulated in human history. It’s like the pot calling the kettle a pot.
The point is, even if Obamacare was projected to cost just $1.00 it would still be too expensive. When you’re as broke as we are, the government cannot afford to pass any new expenditures. Its main focus should be to cut spending and restore our fiscal house before it comes crashing down. The SCOTUS upheld Obamacare because they deemed that it was in fact a tax…not a mandate. Obviously, it’s both. If you’re taking money out of people’s pockets and making them send it to the government that’s called a direct tax. If you’re making people do it against their will that’s called a mandate. Remember, the real cost of government isn’t what it taxes, but what it spends. Because every dollar that it spends is the responsibility of its citizens to pay. So in order for government to pay for what it spends it must either raise taxes, borrow the money, or print the money. So be it through increased taxes or inflation, costs will rise for all Americans.
When Obamacare was first signed into law, the Congressional Budget Office projected that it would cost $940 billion over the next 10 years. Now, just 2 years later the CBO has doubled it’s projection to $1.8 trillion. (http://news.yahoo.com/cbo-obamacare-price-tag-shifts-940-bil...) Once again – government is by definition: the people. That $1.8 trillion will be paid by you and me.
But wait, that’s not all! The CBO is a governmental agency producing government numbers. Government numbers are always skewed to make things seem better than they are. You can bet the farm that the actual 10 year projections are a lot higher than $1.8 trillion. Here are a couple examples of government math: Consumer Price Index – The CPI is used to measure the affects of inflation on items we buy at the store. However, core CPI excludes the two categories most important to Americans if their costs were to rise. The same two categories are also especially susceptible to the effects of inflation: Energy and Food. There’s no point in looking at the government’s measurement of inflation if it doesn’t take our necessities and the things we buy everyday into account. Secondly, lets talk about unemployment numbers. You might have heard that the current unemployment rate is about 9%? It’s not. The government’s unemployment rate doesn’t take people into account who got so frustrated trying to find a job in this economy that they have since given up. It also doesn’t take into account workers who can’t find full time employment and have to rely on part time work. Actual unemployment is closer to 15%, much higher than the government’s official number. As of this writing (June 2012) the actual rate of unemployment for 18-29 year olds is 16.9%. Governments don’t want to be exposed or overthrown, lying to their constituents is the rule not the exception and Obamacare’s costs are not any different.
And we can’t forget the impact that this law will have on state governments who have to help administer the madness. Just two years after its passage Obamacare is already causing premiums to soar and most of its provisions haven’t even been implemented yet.
Health Insurance Premiums Rise Sharply in 2011
Obamacare – Pain For States
Health Insurance Premiums to Rise Up to 20% for 1 Million Californians on May 1
The average American works half of the time to pay taxes. That’s right, the tax rate for the average American is about 50%. If that sounds expensive to you - that’s because it is! It’s usually surprising for people to learn that they pay that much in taxes because our government does a pretty good job of hiding the taxes. For most of us, taxes are our single biggest expense; greater than our rent/mortgage, greater than our cars, greater than the amount we spend on food. Don’t believe me? Add them up: Federal Income Tax, State Income Tax, Medicare, Social Security, Luxury Tax, Gift Tax, Capital Gains Tax, Payroll Taxes (yes, you pay both of them.), Corporate Taxes (yes, you pay these even if you don’t own a corporation.), Property Taxes (yes, you pay these even if you don’t own a home.) And then there are the consumption taxes: State Sales Tax, Cigarette tax, Alcohol tax, Cell Phone taxes, Rental Cars, Airline Tickets, etc. Oh and don’t forget about the Inflation Tax – the CPI says it’s 2-3% per year but I estimate that it’s at least double that and moving higher everyday. And now we can add Obamacare tax to the list. The Affordable Care Act is the largest tax increase in US history. (http://www.fox19.com/story/18910419/reality-check-if-afforda...) Individuals will pay a tax of $695 or 2.5% per household annually (whichever is greater). As for businesses, the tax is $2,000 for every employee that isn’t provided with company paid health insurance (If I ran an insurance company, I’d be raising my prices to businesses: “New Affordable Care Act Special: Just $1,999 per employee!” Hey, it beats paying the government tax.) Making matters even worse, every dollar that a corporation has to pay in taxes, is one less dollar it can pay in wages, dividends, or reinvest in production. Anyway you slice it: the economy suffers.
The number of examples where government intervention resulted in increased costs for its citizens are more numerous than I could ever possibly assemble. I’ll just a pick a few recent ones from US History.
1. Education Not too long ago an American could go to college without having to take out student loans. College was affordable and most students paid for tuition by working a part time job after class or by working a full time job during the summer. Then in the early 1950s and 60s the federal government started to poke its nose into education. Then in 1970s the Department of Education was established and within a few short decades here we are. The costs of No Child Left Behind are estimated in the hundreds of billions of dollars and today, student loans now make up more of our nation’s debt than credit card debt. Kids are going into debt to get liberal arts degrees that will never recoup the tens of thousands of dollars they cost. Meanwhile, in the one place where the Federal Government has complete control over all education, Washington DC, we find the worst schools, lowest test scores, highest drop out rates – along with the highest costs in the union (even when compared to fancy private schools!) Taxpayers spend over $24,000 per student in D.C.; more than double the cost per student in neighboring Prince William County, Virginia. (http://www.allamericanblogger.com/2627/how-much-does-dc-spen...)
2. Cash For Clunkers In an effort to boost the failing car industry and to help Americans afford new cars in the midst of a recession, Obamanomics had the brilliant idea of giving Americans a tax credit if they destroyed their older but still fully functioning cars and bought new ones. What a great concept: destruction creates wealth. Too bad it’s not true. (http://www.youtube.com/watch?v=hunK56Jq-jY) Yes, new car sales increased in the months making up the program but in the months before and after the program dates new car sales were particularly bad. This was a result of people who were ready to buy a new car holding off on the purchase until the program started and people who were planning to buy a new car later in the year pushing up their purchases to take advantage of the tax credit. But overall, the average number of new cars sold didn’t change. Secondly, what we can’t definitively measure is how badly Cash For Clunkers hurt other industries. How many new TVs or homes didn’t get purchased during the program because people chose to buy cars instead? The net economic gain was zero because every dollar that was spent on a car came at the expense of a different sector. Actually, the economic net was negative because in the process we destroyed a lot of usable cars. Which brings us to the point: In the months following Cash For Clunkers the prices of used cars skyrocketed because of the government created scarcity. In the end, lower income people got hit the hardest because they are the most in need of cheap used vehicles.
3. Income Tax When the income tax was first proposed it sounded a lot like the way Obamacare was sold to the American public: Affordable! In fact, when the income tax was passed in 1913 it only applied to Americans making over $75,000 a year. The top tax rate was just 7% and it only applied to those with incomes greater than $10 million per year. (http://www.politifact.com/truth-o-meter/statements/2010/apr/...) But like all things governmental, the costs increased quickly and today we have an income tax that affects 50% of us with the top tier having risen from 7 to 35%. If Americans were told that within a generation or two the income tax would be what it is today, the 16th amendment never would have been ratified. Similarly, I don’t believe that the individual healthcare tax will remain at $695 for long. As the ancient Arab proverb goes: “Once you let the camel’s nose under the tent, soon the whole camel will follow.”
Now it may sound that rising prices are inevitable and that’s certainly true when government is involved. But in a free market falling prices are the natural outcome. In the 19th century we had a freer market, one much closer to true capitalism.
“Today our parents and grandparents talk about how cheap things were when they were children. But our great-grandparents used to complain about how expensive things were when they were young.” – Peter Schiff
The value of the dollar increased tremendously during the 19th century and prices fell accordingly. For reference, an item that cost $100 in 1820 cost just $63 in 1913. Today however, an item that cost $100 in 1913 would cost well over $2,000! (http://www.westegg.com/inflation/infl.cgi) It’s not surprising that prices have spiked so dramatically since 1913. That was the year that the federal government expanded it’s size and scope gigantically with the creation of the Federal Reserve and the adoption of the Income Tax.
We don’t have to go all the way back to the 1800s to prove this point though. Even today we can look at free market healthcare sectors exempt from government interference that produce lower costs and better products every year. Lasik eye surgery and cosmetic surgery are rarely covered by “insurance” so they are able to flourish under more capitalistic conditions.
A Few Other Things To Know Among Other Things
1. I’ve heard the justification that even though Obamacare is a tax, it’s not that awful because at least the money goes towards helping people and not fighting wars.
Firstly, all funds are fungible. There is no way to know which dollars get spent on war and which get spent on healthcare. Secondly, these taxes aren’t paying for Obamacare. Obamacare was sold to the American public as being Revenue Neural, i.e. that the taxes would pay for the entire act and that the program wouldn’t increase the national deficit. Now that the CBO has just doubled its cost projections it means that these new taxes aren’t paying for anything - they’re only paying for half of anything. Unless the government doubles the tax rate, this program can’t even fund itself…before it has even started. As a tertiary, this law makes it more likely that the US government will be able to propagate war. With the economy faltering as a result of increased healthcare deficits and tax revenues falling as already overtaxed citizens refuse to comply or emigrate elsewhere; the government may look to war and conquest as a way of capturing income at the expense of other nations. It’s no coincidence that the century before the massive federal expansion of 1913 was a century of relative peace while the century after contains two world wars, Korea, Vietnam, two Iraq wars, and a War on Terror currently in its 11th year. Offensive and unconstitutional wars would not be possible in a free country because few citizens would be willing to pay for their costs. Do you think we’d still be in Afghanistan if there was an “Afghanistan Tax” taken out of your paycheck for the past 11 years? I don’t think so, people would have revolted long ago. Furthermore, the wars of today would also not be possible were it not for the high number of Americans willing to enlist in the armed forces. I believe that the main reason young adults join the military is for financial, not patriotic or political reasons. Obamacare will cost Americans more money and place an even greater burden on lower income citizens, driving even more of them into military servitude and thus bolstering our ability to fight needless and endless wars.
2. Governments are inefficient and incompetent. When the government administers anything there are huge amounts of waste as a result of red tape and bureaucracy (remember the $400 hammer and $200 toilet seat fiasco? http://answers.yahoo.com/question/index?qid=20090929033452AA...)
As much as 80% of foreign aid never reaches it’s destination because it’s swallowed up by government inefficiencies along the way. Compare this to private charity where waste rarely gets as high as even 20%. The larger an entity becomes the more waste there will be. With about 5 million federal employees there is no entity larger than the federal government. Think about this in everyday terms: My employer has a total of 5 other employees. If someone were to call and speak to any one of us not only would their call be answered by an actual human within a few rings, they’d get an answer to their question very quickly. Contrast that with trying to call a large company like Bank of America or even worse, a federal agency. Waste is a natural byproduct of growth and 500 pound gorillas make a lot of waste.
Let’s also examine money management:
The most efficient way money can be spent is when you use your own money to buy something for yourself. (You go to the store to buy yourself a camera.)
The next most efficient way for money to be spent is if you buy something for someone you know. (You go to the store to buy your friend a camera.)
Next comes someone you know spending your money to buy something for you. (You give your friend some money to go to the store and buy you a camera.)
And the least efficient way that money can be spent is when someone uses someone else’s money to buy something for yet another party. (Someone hands you a bag of cash and tells you to buy a camera for a stranger.)
Guess which option represents the way Government spends money.
3. Capitalism, Are You There? Something that is definitely worth pointing out is that even if Obamacare was never passed we still wouldn’t have a free market/capitalist healthcare system – we haven’t had one for a long time. Likewise, we haven’t had a free market in almost every other area of the economy for decades. In a way, I believe that we have the worst system possible: A mix of many systems trying to exist without adhering to any one particular set of rules. Even though I would never recommend it, I might concur that a full swing to 100% socialized medicine would be better than what we’re embarking upon today.
What we’ve had for the past 40 years is a mix of nationalized, socialized, manipulated, and privatized industry. The best term to describe this type of system is either “Corporatism” or “Fascism”. Typically, economists prefer to use the corporatism label because when people hear the word fascism they can’t seem to see past visions of Blitzkrieg in order to examine the internal economic activities that took place throughout Europe in the 1930s and 40s.
A few things that are rarely, if ever, found under true capitalism:
Unfair wages/exploited workers
Unchecked environmental damage/Pollution
Government Bailouts For Private Businesses
Runaway Inflation / Fiat Currency
Long / Deep Recessions and Depressions
Force / Violence / War
Inflating and Bursting of Bubbles
Waste / Widespread Inefficiency
It’s About The Economy, Stupid!
Despite reaching 11 pages of text you’ve got to believe me when I insist that I tried to lay out the most concise and brief argument possible. Entire books have been written about this subject and we’ve really just scratched the surface. I’m no economist, but I do consider myself as having a basic understanding of this dismal science – enough to know that Obamacare will not work. Remember, the only arguments found in this text are economically driven. Similar papers could easily be written about the horrors of Obamacare in respect to Civil Liberties, Morality, and Constitutionality.