Even Obamacare’s Pros Turned Out to be Cons

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In March of 2010, we published the article “ObamaCare Is the Worst Legislation in 75 Years.” Seven years later, every criticism of the legislation has proven justified.

Recently, I was reading the supposedly “balanced list of advantages and disadvantages of the so-called Affordable Care Act. The article written by Kimberly Amadeo in October 2017 for theBalance.com. It made me realize that everything she lists as Pros rightfully should be listed as Cons instead. Here are her ten arguments in favor of the legislation and how they are actually cons.

Amadeo writes:

1. The biggest benefit of the ACA is that it slows the rise of health care costs. It does this by providing insurance for millions and making preventive care free. This means people receive treatment before they need expensive emergency room services. In 2016, the cost of health care services increased 1.2 percent for the year. That’s much less than the price increase of 4 percent in 2004.

There are at least three major errors with this first so-called benefit.

First, Amadeo’s statistics are contradicted elsewhere on the very website where the article is published.

The National Health Expenditures 2016 report writes, “U.S. health care spending increased 4.3 percent to reach $3.3 trillion, or $10,348 per person in 2016” not the 1.2% Amadeo reports. Furthermore, her own site, TheBalance.com , an article she wrote has a table of rising health expenditures, both nationally and per person, where they report that 2004 had a percent growth of 7.20%. Amadeo seems to have gotten all her numbers wrong here which calls into question her objectivity.

Second, Amadeo is only quoting two years, just 2004 and 2016, another ding against her objectivity.

Third, there is a great difference between cutting health care costs and cutting health insurance costs.

President Obama in his 2007 speech “A Politics of Conscience” promised, “I will sign a universal health care bill into law by the end of my first term as president that will cover every American and cut the cost of a typical family’s premium by up to $2,500 a year.” That is a promise to cut the cost of health insurance, not healthcare services.

In 2010, my monthly health insurance premiums cost $322 for a family of three, and we received a monthly quote of $41 for my then 24-year-old son to leave our plan have his own health care. Then, I had my premiums rise 24.6% in 2011, 76% in 2013, 51.5% in 2014, and 24.6% in 2015.

In 2018, the cost of the cheapest HSA health insurance for a much younger family of three is $1,826.57 per month or about $22,000 per year. The cheapest plans for middle aged families of two cost about $36,000 per year. And the cheapest plan for older couples such as my wife and I costs about $48,000.

From $322 per month for a family of three in 2010 to $4,000 per month for a family of two in 2018 is a 1,142% increase in eight years.

Oddly enough, the rise in the cost of health insurance is not even listed as one of the ten Cons in Amadeo’s article.

2. It requires all insurance plans to cover 10 essential health benefits. These include treatment for mental health, addiction, and chronic diseases. Without these services, many patients wind up in the emergency room. Those costs are passed onto Medicaid and therefore the taxpayer.

The financial planning purpose of insurance is to pool protection against a large unlikely loss.

If the likelihood of the loss is 100%, it isn’t insurance. Any procedures that everyone needs should not be covered by insurance. As I wrote in my original article, “You can compare the current legislation to having grocery store insurance that pays for the first dollar you spend. Everyone in our risk pool will order filet mignon. First the costs will skyrocket. And then the meat will be rotten.”

On average, having insurance loses money as the cost for doctors to submit for reimbursement and insurance companies to ensure that the reimbursement is justified waste about half the cost of insurance. The economic principle is that the person who pays for a service, the person who decides to have the service, and the person who benefits from the service should all be the same person. Having all three jobs of paying, deciding, and benefiting require that person to ask the important question, “Is this service beneficial enough to justify the costs?”

A third party payer system (where someone else pays for a service than benefits from it) combined with regulation from the government destroy any incentives for thrift and value in healthcare.

If a procedure can truly save money, consumers ought to be willing to pay for that procedure out of pocket. No subsidy should be required. But despite all the propaganda, screening tests rarely, if ever, save money.

The worse effect is that the Secretary of Health and Human Services now has the discretion to declare what services are classified as essential. This type of regulatory fiat allows medical professionals to rent-seek that their own specialties be declared essential services to increase profits, perhaps at the expense of health.

One problem with giving government control of health insurance is that it has great incentive to say yes to groups lobbying for additional coverage but little incentive to those asking for it to spend less money.

Currently essential health benefits include routine pediatric dental care as part of adult insurance packages. Why is the routine care of children’s teeth (which are teeth for which nature has provided backups) more important than the routine care of adult teeth ? The answer, of course, is because anything “for the children” provides a better lobbying result.

Additionally children will receive free x-rays. Making dental x-rays free will increase the routine use of x-rays on children. Sadly though children are more sensitive to radiation exposure and the cumulative effect may do more harm than good. Other less destructive methods of diagnosis are available, but those may not be free. Even if you do not believe the procedure to be beneficial , government regulation may still incentivize the procedure every six months and require you to pay for others’ foolishness.

The same questions can be asked about every procedure declared as essential by the government.

Amadeo ends this so-called benefit with the claim that “without these services many patients wind up in the emergency room.” She should certainly concede that patients seeking pediatric dental x-rays or even mental health services less patients would be unlikely to wind up in the emergency room. Instead with those services covered as part of essential health benefits, there is likely to just be more healthcare services purchased.

That makes her final statement completely partisan, “Those costs are passed onto Medicaid and therefore the taxpayer.” First, they are only passed onto Medicaid if the person visiting the emergency room cannot pay. And second, if Amadeo were truly worried about costs to the taxpayer she’d admit that the additional cost of covering these benefits is much greater on average to taxpayers than the services save. These additional costs alone ought to put this so-called benefit in the Con category instead. Finally, a study by the New England Journal of Medicine shows that the expansion of Medicaid in the ACA caused a surge in more expensive taxpayer-funded ER visits, the opposite of what Amadeo claims.

3. Insurance companies can no longer deny anyone coverage for pre-existing conditions. They can’t drop them or raise premiums if beneficiaries get sick.

This is also a disadvantage.

Amadeo does not understand the purpose and economics of insurance and risk management. The financial planning purpose of insurance is to pool protection against a large unlikely loss. If the loss has already occurred, you can’t pool protection, you just have to accept the loss and pay for it.

Home insurance pools protection against the unlikely event of a fire. But once your house has burned down it is too late to buy insurance. Imagine if we passed a law that said that insurance companies can no longer deny anyone coverage when their house has already burned to the ground.

Obamacare requires all Americans to have health insurance and imposes a $900 fine for not having it. And all health insurance companies must insure people for the same price regardless of any preexisting conditions.

In the past, people would pay thousands of dollars for health insurance so it would be there if they needed it. Now they are able to pay a small fine or receive a health insurance exemption and still be guaranteed insurance even after they develop a serious illness. As a result, healthy people with insurance will do better to drop their coverage and pay the fine until they get sick and need health care.

Rather than increasing the roles of the insured, this legislation has actually encouraged many healthy people to opt out of insurance. If insurance can’t discriminate based on my health, why pay a dime until my out-of-pocket expenses are expected to exceed the cost of insurance?

No insurance system can survive such folly. Savvy consumers should only buy insurance if they anticipate that their expenses will exceed what they pay in premiums. Insurance companies will have no way to screen for a truly average risk pool. As a result, costs will go up until even the sick won’t want to buy insurance.

The ACA’s requirement that insurance can’t discriminate based on preexisting conditions makes it easier for people to wait until they have a serious condition to get health insurance or switch to a better provider.

Finally Amadeo’s wording makes it sound like those mean insurance companies can no long deny anyone coverage. But it would be more accurate to say that our mean and totalitarian government will no longer allow consumers to purchase pooled risk insurance that most of America wanted and was allowed to purchase it the past. The government made the voluntary trade that benefited both consenting parties illegal. Obamacare made pooled risk health insurance illegal.

4. It eliminates lifetime and annual coverage limits. Insurance companies used this to contain costs to $1 million per year. Beneficiaries who exceeded that limit had to pay 100 percent of costs.

Again, the so-called benefit could be stated as our totalitarian government that makes it impossible for you to purchase anything other than unlimited health insurance coverage even if you want to purchase a lower cost plan and insurance companies are willing to sell such policies.

Limiting lifetime and annual coverage limits provide a method for insurance companies to limit their risk of a single case bankrupting the company. This lowers the cost of insurance, a feature to some buyers.

Reports suggested that the cost of raising the lifetime limit from $1 million to unlimited would be small. If that is true then enterprising insurance companies will offer such plans at a reasonable price and consumers can decide for themselves if they want to purchase such plans. But Obamacare takes away both the freedom to offer alternate plans and the freedom to purchase these plans.

In no other type of insurance does the government set a requirement of unlimited coverage. We recommend that anyone with over $300,000 of savings have $1 or $2 million of umbrella insurance. We don’t recommend that everyone have an unlimited amount of umbrella insurance. Yes, you could get sued for more than $2 million, but we don’t think you necessarily need to purchase insurance for everything that might happen. As Volcker once said, “You can’t hedge the world” to which I add, “and even if you could, it would cost too much.”

Reports about how cheap unlimited plans should be do not take into account the unlikely event of a single unlimited claim bankrupting the company. And it does not take into account the very real risk of governmental fiat requiring them to pay for care they did not anticipate when setting rates.

By comparison, there are very short limits for many Medicare benefits in order to limit costs. Any single hospital stay, for example, is limited to just 90 days. This seems a little hypocritical of the government.

5. Children can stay on their parents’ health insurance plans up to age 26. As of 2012, more than 3 million previously uninsured young people were added. This increased profit for insurance companies. They receive more premiums from these healthy individuals.

I am not sure why Kimberly Amadeo would consider this a benefit. Increasing the profit of insurance companies is a disadvantage. Insurance company profit is a cost to the payer (parents, children or the American people). And government legislation requires that the cost of health insurance for young people be higher than what market rate would normally be.

Health insurance for young people used to cost about $50 per month. As we wrote in “Do New Healthcare Plans Cost More?,” “The ACA requires that premiums for people over 64 be no more than three times higher than the rate for those age 21. As a result, rates are more than double free market prices for young people.” Since we wrote that article, rates have skyrocketed even higher.

There is no benefit to allowing children to stay on their parents’ health insurance up to age 26, some other age, or start on their own plan. There is no intrinsic cost savings or benefit to pooling a family’s coverage. There may be a financial gain to young people because of government regulations which artificially force their solo insurance higher, but this has nothing to do with free markets.

Why punish young working adults whose parents can’t or won’t subsidize them by requiring they purchase health insurance while hiding the costs from the youth of wealthy families? Legislatively proponents of the ACA may not have wanted those age 18 to 26 to see the real costs of the legislation. Therefore, they might be trying to hide those costs from the wealthy voting block. Leaving costs lower by being on their parents insurance insulates young liberal voters from the unfair shifting of costs from seniors to young people inherent in the legislation.

6. States must set up insurance exchanges or use the federal government’s exchange. Either method makes it easier to shop for plans.

As though we were trying to solve a shopping problem! First, Healthcare.Gov was so poorly designed that it did not work. Then, the site required that you provide a massive amount of personal information simply to get a quote. Then, the site (which we were assured was secure) was hacked. And most recently, everyone who failed to complete their application by December 1, 2017 was automatically signed up for Silver plan and sent a bill. Had any private company acted like Healthcare.Gov they would have been sued and gone out of business.

It is the government that makes it illegal to sell insurance across state lines. And it is the government that makes it illegal to sell the limited coverage that consumers actually want. And it is the government that makes it illegal to sell disaster-only insurance. And it is the government that requires young people who are just starting out in life to pay more than their insurance ought to cost in order to subsidize rich older Americans. Nothing in Obamacare has made it “easier to shop for plans.”

7. The middle class (earning up to 400 percent of the poverty level) receive tax credits on their premiums. It expands Medicaid to 138 percent of the federal poverty level. It provides this coverage to adults without children for the first time.

Amadeo mistakenly assumes that ever expanding government entitlement handouts is a good thing. As we wrote in our 2014 article “How To Bilk Obamacare,” “The Affordable Care Act (ACA) provides subsidies to Americans making up to 400 percent of the poverty level, about $94,200 for a family of four. A study by Families USA suggests that 71% of those in the individual market will be eligible for a subsidy.”

In our article we went on to show that a couple with two children running a family business could produce an income of about $140,000 and still qualify for completely subsidized healthcare.

This year, we are dealing with a large number of people who can qualify for massive subsides but only if they reduce their productivity. The unintended consequence of Amadeo’s so-called Pro #7 is that a large number of working people are choosing to earn less to qualify for subsidies. These subsidies result in the government giving great sums of money to health insurance companies many of who have both a captive audience required to buy their product and a monopoly in the area.

None of this should be considered a benefit of Obamacare.

8. It eliminates the Medicare “doughnut hole” gap in coverage by 2020.

Again, Amadeo mistakenly assumes that government taxing people to give others more free goodies always deserves to be put in the “Pro” category.

Back in 2005 I wrote, “Monopolistic demand is just as detrimental to a free-market as monopolistic supply.” Eleven years later, CBS News was shocked to report in their news story “What’s behind the sharp rise in prescription drug prices? the following: “Prescription drug prices are skyrocketing in the United States due in large part to government regulations, a new analysis finds. These regulations allow drug manufacturers to charge monopolistic prices that aren’t opposed by competing market forces, the researchers believe.”

The Medicare “doughnut hole gap in coverage” is currently the only point where seniors pay out of pocket. It is the only disincentive to spending and the only point at which Seniors ask how much their pharmaceuticals are going to cost. This so-called benefit subsidizes Big-Pharma with unlimited demand for their product. Of course prices will go up under these conditions.

9. Businesses with more than 50 employees must offer health insurance. They receive tax credits to help with the costs.

Put another way, Obamacare made it illegal for employers and employees to decide for themselves a fair compensation package. If employees preferred full time work and greater pay more than first-dollar health insurance and employers we willing to satisfy that compensation, the government made such an arrangement between consenting adults illegal. This is not a benefit since it removes choice.

Under Obamacare businesses with more than 50 employees must offer health insurance to their full time employees or pay a tax penalty. This resulted in a massive move from full time employees to part time employees. Many workers suddenly found themselves under employed. Small businesses vowed to never have more than 50 employees. Aggressive outsourcing or automation became a much more attractive option than hiring a 51st employee. And larger businesses simply cut back on their employees’ retirement benefits to pay for the increased costs of health insurance.

10. It lowers the budget deficit by $143 billion by 2022 according to the Congressional Budget Office. It does this in three ways. First, it reduces the government’s health care costs. Second, it raises taxes on some businesses and higher income families. Third, it shifts cost burdens to health care providers and pharmacy companies.

First of all, every increase in taxes will be scored as decreasing the deficit. If you asked the The Joint Committee on Taxation, “How much revenue would you collect if the tax rate were set to 100%?” they would have to answer, “You would collect the entire $15 trillion gross domestic product (GDP).” They fail to take into account that none of us would work if the government took all our money. Similarly, they ignore how much more we would work if tax rates were lowered.

The budget deficit is a spending problem, not a tax revenue problem. The question which should be evaluated is, “Did Obamacare lower the burden of government on people?”

It clearly increased the burden over government in three ways.

First, it increased the cost of healthcare. We covered some of Amadeo’s incorrect statistics in our comments on #1. The best way to evaluate national healthcare costs is by measuring national health expenditures as a percentage of GDP. National health expenditures have risen from 17.4% of GDP in 2010 to 17.9% in 2016.

Government spending on healthcare also rose as a percentage of GDP from 7.41% in 2010 to 8.25% in 2016, a relative 11.3% increase. As reported by US News and World Report , Obamacare increased healthcare spending and especially government spending on healthcare. It also increased rather than decreased administrative costs of health insurance .

Any claim that Obamacare “reduced the government’s health care costs” is verifiably false. Liberals often make claims about how they will save the government money by “monopolistic negotiating” or “reducing fraud” or “increasing efficiencies.” When these hopeful intentions do not materialize they are unwilling to be judged by what actually happened. Every system of government fails to achieve its lofty intentions because the incentives of government programs pull toward increased spending. The person who decides to do something, the person who benefits from the decision, and the person who pays for the decision should all be the same person. Only in this way will the decision maker stop to ask if the benefit is worth the cost. Anything else leads to unwise spending.

The second way Obamacare increased the burden of government is by raising taxes. Finding a reason to put “raising taxes” in the Pro column shows Amadeo’s liberal bias. She tries to soften the impact by describing the taxes as being on “some” businesses and “higher income” families. Years ago when Obamacare was young, I wrote articles entitled “The Ruse Of Healthcare To Justify Massively Higher Taxes” and “What Do You Mean I Owe An Extra $100,000 In Taxes?

What Amadeo misses is that taxes on businesses are not without impact on everyone else. When you tax a business they only have three choices: (1) Raise prices, (2) Pay workers less, (3) Pay shareholders less. Anyone who buys things, gets a salary, or has a retirement account will be impacted by the government taking a greater share of business income. This trickle-down taxation cannot be ignored.

The third way that Obamacare increases the burden of the government is by supposedly shifting the burden of health care to providers and pharmacy companies. There is no such thing as a free lunch. Shifting a burden from someone onto someone else simply impoverishes society as a whole. As one of Robert Heilein’s remarked, “Anything free costs twice as much in the long run or turns out worthless.”

All of these burdens should put this last supposed benefit back into the Con list.

For Amadeo to open her article with “Obamacare has a lot of benefits that most people don’t know about” and tout her list as “a balanced list of advantages and disadvantages” shows a decided lack of knowledge about economic and political thought. All of these ten supposed advantages are disadvantages. If these had been the original intentions of the legislation, we should have known that Obamacare would not be worth it.

Photo by Piron Guillaume on Unsplash

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.