President Obama won himself a second term by scaring the hell out of Americans and suppressing voter turnout for Romney. Having successfully won the election, we must now face the looming disaster that is the Affordable Care Act (AKA, Obamacare).
While there are always unintended consequences which flow from new legislation, it’s not always a sure thing a new law will solve the problem(s) it was created to solve. Unfortunately for us all, Obamacare will cause many more problems than it ever hoped to fix. Here are just a few of the problems you can expect to see…
A Mass Employer Exodus
One of the central promises made by President Obama was, “If you like your healthcare plan, you can keep it.” For millions, the first thing they’ll lose is the healthcare plan they had hoped to keep. Why? Because Obamacare offers an incentive for companies to drop employee coverage.
In July, Deloitte released a study indicating that 10% of companies would likely drop coverage and send employees into the new government-run exchanges once Obamacare was fully implemented. Unfortunately, that number is low. The actual number will likely become 30% and more within the first two years of Obamacare’s implementation.
As the president has often said, “do the math!” Today, most companies pay, on the low end, $8,000 to supplement healthcare for each employee. While there is a tax incentive involved, it still amounts to a significant burden for every business operating in the United States. On the other hand, if the company were to drop coverage and send employees into the exchange, under Obamacare, they would pay a yearly penalty of just $2,000 per employee.
While most companies want to offer healthcare to employees as a benefit, once some companies begin to drop healthcare, other companies will be forced to follow simply to remain competitive. The cascade effect, which no one seems to be discussing, will create a huge wave of workers who will lose their employer-based plans. Will the public exchanges be able to handle this demand? That is uncertain.
Fewer People Insured
Another of the president’s stated goals for the creation of Obamacare was to help insure the estimated 30 million currently uninsured in this country. In the short run (two-to-three years after Obamacare is fully implemented), that number will rise; perhaps even to 50 million or more. Why would that happen? There are a few reasons.
First, as employers begin to drop coverage and send employees into the exchange, there will be a backlog of those seeking coverage. The system is government-run, therefore it will be slow and inefficient, especially at the beginning. While the government plans to subsidize healthcare for those making roughly $80,000 per year and below, it will still require time to acquire even the lowest level of care through an exchange.
At the same time, in the first two years, the tax penalty for carrying no insurance is very low; just $285 per family in 2014 and $975 per family in 2015. In 2016, the tax penalty is still only $695 per adult and $347.50 per child (up to $2,085 for a family) or 2.5% of family income, whichever is greater.
With such low penalties, and a requirement that insurance companies accept pre-existing conditions, there are millions who will seek insurance only when necessary rather than bearing the personal burden of finding and paying for medical care. Even without this incentive to forgo health insurance, the CBO recently projected that, by 2022, 30 million non-elderly Americans will remain uninsured.
So, in ten years (eight years after full implementation) 30 million Americans will remain uninsured. This leaves one of the central goals of Obamacare unfulfilled. Thus we know, even before Obamacare is fully implemented, that it has already failed in a fundamentally important way.
A Vast New Federal Expense
One of the greatest burdens borne by European nations with socialized healthcare is the vast expense involved in funding and managing levels of care for citizens. The financial burden, even of US-based plans such as Medicare and Medicaid comes from the fact they are “defined benefit” plans rather than “defined contribution” plans.
Employers in the US offer defined contributions to employees’ healthcare. That is, they pay the lion’s share of the cost, but do not cover the entire cost. The additional expense is born by employees, which creates some market pressure on insurance companies to offer the best care possible. If an employer does not like the coverage employees are receiving, they can choose another company.
With the defined benefit system, the government covers all expenses except for possible co-pays. This means that, as healthcare costs increase, government bears the burden of the increase. While government does what it can to keep costs under control, they tend to go up much faster under defined benefit plans because of the lack of downward market pressure on doctors, hospitals, and insurance companies.
At a time of record deficits and national debt, President Obama and Democrats have chosen to add this vast new burden to the federal and state budgets. While there were initial claims that Obamacare would be “revenue neutral,” these claims have since been debunked as even the CBO has reported. The fact is, Obamacare will cost even more than predicted by the CBO.
Just as the Republican “Medicare Part D” plan cost roughly twice as much as promised, Obamacare too will cost more than anticipated and calculated by Washington number crunchers. In some ways, it already has, with health insurance premiums still rising sharply, even with partial implementation of Obamacare.
Beyond all of this, in 2013, a series of new taxes will go into effect to fund Obamacare. These taxes will have a negative impact upon the economy, as can already be seen by a recent wave of layoffs as well as additional layoffs to come. The burden of Obamacare has many companies struggling to find ways to deal with its new mandates. For many employers, this will mean a reduction in the size of their workforce.
Will employers choose to end healthcare coverage in favor of keeping their workforce? They may. But, one way or another, Obamacare will add significant disruption to an already-shaky economy, and significant debt to an already-historic deficit.