“If you think that health care is expensive now, wait until you see what it costs when it’s free.” These words are from PJ O’Rouke, political satirist. As I stated in a previous blog, the Affordable Healthcare Act (Obamacare) will be anything but affordable. First some background.
At the time of its passage, it was estimated that approximately 48 million Americans, 15% of the population, had no health insurance. To many, that was a considerable problem. I will say here what I tell my students, “Don’t just argue, argue well, and in order to argue well, you need to do your homework.” Let’s look at the demographic breakdown of those 48 million. -11 million are illegal aliens; personally, I feel that it is too difficult to immigrate to this country, however they are still illegal and the only thing they are entitled to is a ticket home
-18 million make more than $50,000, of those 18 million, 9million make more than $75,000. These people can afford health insurance however they choose not to have it. As an economist, I am generally against anything that eliminates choice (figures from US census).
-12 million are eligible for state Medicaid, however they have not applied for whatever reason (Pacific Research Institute, FOX news).
-there were more than 2 million marginally attached workers (these are unemployed workers who have not looked for a job in 4 weeks), my feeling is that if these people are unwilling to help themselves, than why should we?
Do the math, that leaves only 5 million who are falling in between the cracks. That can be easily covered by a 10 page bill increasing the level of Medicaid benefits.
At the time of its passage, it was estimated that approximately 48 million Americans, 15% of the population, had no health insurance. To many, that was a considerable problem. I will say here what I tell my students, “Don’t just argue, argue well, and in order to argue well, you need to do your homework.” Let’s look at the demographic breakdown of those 48 million. -11 million are illegal aliens; personally, I feel that it is too difficult to immigrate to this country, however they are still illegal and the only thing they are entitled to is a ticket home
-18 million make more than $50,000, of those 18 million, 9million make more than $75,000. These people can afford health insurance however they choose not to have it. As an economist, I am generally against anything that eliminates choice (figures from US census).
-12 million are eligible for state Medicaid, however they have not applied for whatever reason (Pacific Research Institute, FOX news).
-there were more than 2 million marginally attached workers (these are unemployed workers who have not looked for a job in 4 weeks), my feeling is that if these people are unwilling to help themselves, than why should we?
Do the math, that leaves only 5 million who are falling in between the cracks. That can be easily covered by a 10 page bill increasing the level of Medicaid benefits.
According to the administration, Obamacare care is estimated to cost $1trillion over the next 10 years. I think it is fair to say that the government has a history of overruns; but for arguments sake, let’s go with that number. Most people, myself included, have difficulty comprehending how large a number a trillion is. To put it in perspective, a million seconds is 10 days, a billion seconds is about 31 years, and a trillion seconds is approximately 32,000 years. It is a huge number and this will be added to our current debt of $16 trillion. This does not meet my definition of financial responsibility, but that’s for another blog.
Beginning January 1, all companies with 50 or more employees will have to provide some form of insurance that cover some “essential” services, including medication, maternity, and mental health; and they must cover at least 60% of the costs. If not, they face fines (taxes) that increase on a yearly basis. However, a company can apply for an exemption. Fall semester, one of my students asked me what would qualify for an exemption. I had to do some research and was appalled at what I found. Nancy Pelosi’s district that she represents in California has 1% of the nation’s population but had fully 20% of all exemptions that were granted. The answer to my students question is obviously political influence. (to confirm this, just do a google search, there are multiple web sites).
What happens if you don’t have an exemption? If you’re a big business, it’s not a big deal since most publically traded companies on the NYSE already provide insurance. However if you’re a small business, you have some decisions to make. What’s being mentioned more and more on both CNBC and CNN, is the concept of job splitting. Let’s assume you own a small business with 60 employees and currently, you don’t provide health insurance. You have 3 options, provide insurance coverage which could make many small businesses unprofitable, pay the penalty(which can also lead to a loss) or engage in job splitting. In other words, you reduce your workforce from 60 fulltime employees to 50, and you now have 20 part time employees. Is Obamacare contributing to the unemployment rate? No question. When Mass Care (very similar to Obamacare) was passed, it required that all businesses with more than 15 people had to provide insurance. If Mass care was passed when I owned my flight school/charter business with 19 employees, 4 would have become part time. As a result of Mass Care being passed, Massachusetts has had the highest health care premiums in the United States in 4 out of the past 5 years. All insurance companies are predicting an increase in premiums with some predicting an increase of over 50%.
Beginning January 1, all companies with 50 or more employees will have to provide some form of insurance that cover some “essential” services, including medication, maternity, and mental health; and they must cover at least 60% of the costs. If not, they face fines (taxes) that increase on a yearly basis. However, a company can apply for an exemption. Fall semester, one of my students asked me what would qualify for an exemption. I had to do some research and was appalled at what I found. Nancy Pelosi’s district that she represents in California has 1% of the nation’s population but had fully 20% of all exemptions that were granted. The answer to my students question is obviously political influence. (to confirm this, just do a google search, there are multiple web sites).
What happens if you don’t have an exemption? If you’re a big business, it’s not a big deal since most publically traded companies on the NYSE already provide insurance. However if you’re a small business, you have some decisions to make. What’s being mentioned more and more on both CNBC and CNN, is the concept of job splitting. Let’s assume you own a small business with 60 employees and currently, you don’t provide health insurance. You have 3 options, provide insurance coverage which could make many small businesses unprofitable, pay the penalty(which can also lead to a loss) or engage in job splitting. In other words, you reduce your workforce from 60 fulltime employees to 50, and you now have 20 part time employees. Is Obamacare contributing to the unemployment rate? No question. When Mass Care (very similar to Obamacare) was passed, it required that all businesses with more than 15 people had to provide insurance. If Mass care was passed when I owned my flight school/charter business with 19 employees, 4 would have become part time. As a result of Mass Care being passed, Massachusetts has had the highest health care premiums in the United States in 4 out of the past 5 years. All insurance companies are predicting an increase in premiums with some predicting an increase of over 50%.
Why is this? Because half of all the individual plans on the market do not meet the standards of the 2700 page 4500 provision bill (how many Congressman/women who voted for this actually read it). Here are some of the provisions that will increase cost: children can remain on the parents policy until age 26, you can’t be denied coverage for a pre-existing condition (I don’t necessarily disagree with this, but it’s like buying house insurance that covers you after your house burns down), a $3 billion tax on pharmaceuticals (which will be passed on to the consumer), an increase in Medicare payroll tax to 2.35%from1.45% for both employers and employees, medical devices taxed at 2.9% and the list goes on. I have seen nothing in the act that makes it affordable unless of course the government provides it to you for free.
What I find to be very disconcerting, is that any individual making up to $45,000 or $92,000 for a family of four will get some form of federal subsidy to defray the cost. That’s right, a household making $92,000 will be eligible for federal aid. There are also state costs that will be passed on to consumers. Each state must establish an insurance exchange to insure people without insurance, even tho they may not want it, get it. I have not seen any estimates of the costs, but rest assured, tax dollars will be paying for it. As a result of the mandatory coverage of what the administration thinks is essential, many people will be paying for coverage that they don’t want. For instance, I can guarantee you that I will never need counseling for alcohol or drug abuse, yet, I have to pay for that coverage (I’m paying for maternity coverage also and that’s not going to happen again). Unions do not have to pay a luxury tax for their “Cadillac” insurance plans (those plans with premiums over $27,000/yr) until 2018. Why is this? Because unions help constitute the backbone of democratic support.
Enough criticism; what would I recommend to keep healthcare costs in check? First and foremost I would abolish Obamacare and institute Tomascare with the following representing some of the provisions.
1 Allow interstate insurance competition. Right now if you live or work in a state you must purchase insurance from a company within that state and you cannot cross state lines. This limits competition and when competition is limited, costs increase.
2 Tort reform: Put a limit on the amount of malpractice lawsuits. There are too many frivolous suits and insurance companies will often settle in order to avoid the cost and aggravation of a long trial. Many doctors face insurance policies of over $100,000/year, which of course is passed on to the consumer.
3 Disallow advertising of prescription drugs. The FDA allowed this in the late 90’s and it added to the cost of drugs by 35%. What do I know about which drug is best for me? I’m an economist, that’s why I pay my healthcare professional.
4 Require hospitals and doctors to publish their rates for various procedures. We require McDonald's to publish calories why not hospitals to publish rates. For instance, in a recent article from the Eagle Tribune they reported the following:
For a heart attack without complications, Parkland Medical Center, Derry, NH; $25,723 whereas Eliot in nearby Manchester was $17,442; Lawrence General was $13,297 and Mass General $31,265. This is just an example. There are vast differences in all procedures. Recently, a friend was taken to the hospital via ambulance for a minor problem, a 17 mile ride, the cost was $1100. As an economist, I shudder to say this, but price controls may be an option.
What I find to be very disconcerting, is that any individual making up to $45,000 or $92,000 for a family of four will get some form of federal subsidy to defray the cost. That’s right, a household making $92,000 will be eligible for federal aid. There are also state costs that will be passed on to consumers. Each state must establish an insurance exchange to insure people without insurance, even tho they may not want it, get it. I have not seen any estimates of the costs, but rest assured, tax dollars will be paying for it. As a result of the mandatory coverage of what the administration thinks is essential, many people will be paying for coverage that they don’t want. For instance, I can guarantee you that I will never need counseling for alcohol or drug abuse, yet, I have to pay for that coverage (I’m paying for maternity coverage also and that’s not going to happen again). Unions do not have to pay a luxury tax for their “Cadillac” insurance plans (those plans with premiums over $27,000/yr) until 2018. Why is this? Because unions help constitute the backbone of democratic support.
Enough criticism; what would I recommend to keep healthcare costs in check? First and foremost I would abolish Obamacare and institute Tomascare with the following representing some of the provisions.
1 Allow interstate insurance competition. Right now if you live or work in a state you must purchase insurance from a company within that state and you cannot cross state lines. This limits competition and when competition is limited, costs increase.
2 Tort reform: Put a limit on the amount of malpractice lawsuits. There are too many frivolous suits and insurance companies will often settle in order to avoid the cost and aggravation of a long trial. Many doctors face insurance policies of over $100,000/year, which of course is passed on to the consumer.
3 Disallow advertising of prescription drugs. The FDA allowed this in the late 90’s and it added to the cost of drugs by 35%. What do I know about which drug is best for me? I’m an economist, that’s why I pay my healthcare professional.
4 Require hospitals and doctors to publish their rates for various procedures. We require McDonald's to publish calories why not hospitals to publish rates. For instance, in a recent article from the Eagle Tribune they reported the following:
For a heart attack without complications, Parkland Medical Center, Derry, NH; $25,723 whereas Eliot in nearby Manchester was $17,442; Lawrence General was $13,297 and Mass General $31,265. This is just an example. There are vast differences in all procedures. Recently, a friend was taken to the hospital via ambulance for a minor problem, a 17 mile ride, the cost was $1100. As an economist, I shudder to say this, but price controls may be an option.
But what of President Obama’s initial plan, where the government would have paid for all healthcare costs. What happens when healthcare is free. There is always a rationing process and it is usually money. If money no longer matters, with health insurance the rationing process now becomes time. We’ll look at this next month, but here’s a teaser chart that shows wait times for various procedures in Canada.
There are many improvements that can be made to the healthcare industry, but the Affordable Care Act isn’t one of them and watch how healthcare premiums will skyrocket.
There are many improvements that can be made to the healthcare industry, but the Affordable Care Act isn’t one of them and watch how healthcare premiums will skyrocket.
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