• Why Obozocare Can’t Work

    I call it ‘Obozocare’ not because I want to be disrespectful to the office of the president, but because the 2,000 page monstrosity known as the “Patient Protection and Affordable Care Act” has nothing to do with protecting patients or making healthcare affordable. Like most laws passed in Washington, it has a euphemistic, nice-sounding name that nobody should be against: protecting patients and making healthcare affordable. As if the government could just wave a magic wand and reduce costs or force others to supply you a product/service at less than the market price. But such nonsense is what you get when you have lawyers and bureaucrats with no knowledge of economics or finance writing laws that affect 1/6th of the American economy.

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    Look, nobody in this country was ever denied healthcare. Everybody got it, even if the costs were indirectly subsidized. Some people say this was unfair – that the costs of emergency room service or bad debts to poor people who had no insurance were tacked onto the costs the rest of us paid – and there is some truth to that. I say some truth because it doesn’t necessarily follow that a more efficient healthcare system is one where everybody has health insurance (see below). You wouldn’t scrap a free market economy because 100% full-employment has never been achieved, and is not achievable as any economist would tell you. A ‘frictional’ rate of unemployment – anywhere from 4-6% -- means that full-employment is really when you have 94-96% of the working age population working (it may even be lower today, but that’s a topic for a later article).
    Healthcare spending relative to government spending and the GDP took off as soon as Medicare was enacted in 1965:

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    The point is: you wouldn’t get rid of free market capitalism because 100% of the people aren’t employed. Similarly, you don’t scrap the existing healthcare and insurance system simply because a few million people don’t have health insurance. For starters, many (about 20%) are illegal aliens and other non-citizens who don’t have insurance because they don’t want it. Second, many are U.S. citizens who don’t want to pay because they either can’t afford it, they think their money is better spent on other goods and services, or they self-insure. As someone who has had numerous job searches in his life, I can attest to going without insurance when an easily-affordable COBRA option wasn’t available. It’s not ideal, but barring catastrophic medical expenses (which few encounter) it’s a perfectly rational choice, especially by healthy and/or young people.

    Ideally, you would like low-cost catastrophic health insurance to be available nationwide. This would cause individuals to not over spend on healthcare because they would pay most small expenses themselves. If the tragic sad cases involving bankruptcy and monstrous medical bills were the main flaws of the previous system, then insuring against that is readily solvable at an affordable cost. Of course, that means that all the special interest groups who want their products and medical services utilized – everything from mental health advocates to birth control broads – can’t have their items covered.

    Think about it. We don’t have a life insurance coverage problem in the U.S. We don’t have an auto insurance coverage problem in the U.S. We don’t have a homeowner’s insurance coverage problem in the U.S. But the one insurance market that is politicized and where the federal, state, and local politicians want to spend, we do have an insurance problem. The end result is this:

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    Much of that spending increase since the 1960’s is healthcare related, much of it Medicare and Medicaid. Federal government spending on healthcare alone has gone from 1% of GDP in the 1960’s to 6%. Healthcare has gone from 4% of the economy pre-Medicare to 18% today. It’s not the military industrial complex that Ike would be warning us about today; it’s the welfare and entitlement social justice complex that is the cause of our spending problems. Partly that is our fault – we consume too much unnecessary healthcare spending – but that’s another article.

    Back to healthcare. Why did we need a 2,000 page monstrosity of Rube Goldberg-complexity to deal with healthcare? Why is it imposing price controls and monopsonistic purchasing mandates ? Why force the rest of America to pay higher premiums? Why make it uneconomic for collectively-bargained union healthcare plans to continue, which is why labor unions are up-in-arms?

    Here’s why.

    If you wanted to insure 30,000,000 Americans (forget the higher figures, they’re inflated) who are allegedly without health insurance through no fault of their own, just give them a voucher for a catastrophic health insurance plan or something close to it in the existing health care market.

    The average healthcare plan for a single individual costs about $5,000 a year. 30,000,000 Americans Need Healthcare X $5,000 Insurance Per Year = $150,000,000,000!!!

    So that’s $150 billion a year to provide insurance to all those Americans without insurance. A 2,000 page bill could be downsized to 2 pages. But here’s the problem….

    While this is the transparent and honest way to provide healthcare, the costs -- $150 billion a year -- are directly visible. The costs are borne by the American taxpayer, and not squeezed out of dozens of industries, millions of their employees, consumers of healthcare and insurance products, and healthcare providers like nurses, doctors, etc. The costs are borne by the burgeoning investor class, who now face a 3.8% Medicare surcharge on investment income. And too many people having access to healthcare via insurance leads to a mispricing, which this Financial Analysts Journal article highlights:

    “A fundamental problem with health insurance is that participants regard premiums as a fixed cost; hence, they perceive a marginal price for health care that is well below marginal cost (a common copayment is only 20 percent of what providers receive). The result is far higher demand for health care than would exist if its marginal price were its marginal cost. A low marginal price does not change the fact that health care must be paid for.”

    That is why those charts above are moving very sharply from the lower left to the upper right!

    Do suburban voters in Long Island want to pay higher premiums and have less access so poor people in New York’s ghettos can have free insurance/healthcare? Does the single person who is insuring themselves and paying a few hundred bucks a year out-of-pocket want to pay $7,000 a year because the guy down the street doesn’t have insurance because he/she wants to spend the money on new shoes, the Lottery, trips to Vegas and Atlantic City and vacation cruises? You can make the case that universal healthcare and the demand for single-payer are largely a desire by liberal Democratic (and inner-city, mostly black, Democratic officials) to force blue-collar Democrats, Republican, and Independent voters (who are healthier and do not consume as much healthcare on a per-capita basis) to subsidize their healthcare agenda. In other words, 75% of Americans are being forced to pay more so that a small minority can get free stuff.

    Obamacare can ‘work’ in Massachusetts only because Democrats outnumber Republicans 4:1. It won’t work in a more evenly divided state or nationally.
    Obozocare is a jumbled mess so that while there are lots of targets, there isn’t one big target. That’s why Obama backed off in mid-November after the rollout fiasco and lack of sign-ups. Deflecting blame is important for elected officials. When the government tried put a tax on seniors for catastrophic health insurance in the 1980’s, the end result was this:

    When the costs of something are direct and visible and onerous, that’s a prescription for disaster. That’s one reason why the GOP won back the House in 2010. Politicians – who are mostly lawyers (80% and higher) and not businessmen or economists or medical practitioners or folks who understand the insurance and healthcare industries – are nonetheless deft at deflecting blame and camouflaging costs so that they can engage in vote-buying. Screw large numbers of businesses and individuals, ding them a bit but not too much, and then concentrate the stolen largess on a small vocal minority (the uninsured and other large consumers of healthcare). Then have those whom you transferred money to vote for you in large numbers. Since most of the uninsured are largely in poor areas of major U.S. cities (i.e., Democratic Party strongholds), the math may not work but the politics do.

    Where Obama miscalculated is that interfering with the free market is like touching one of those calder mobiles: touch it here, it trembles over there. A few tablespoons of sand can clog up a 4,000 pound automobile’s engine. By going the opaque route of a 2,000 page Rubik’s Cube labyrinth of regulations, do’s-and-don’ts, and anti-market practices, Obamacare is not only not going to improve actual healthcare for the poor and uninsured, but he is going to drastically impact the quality and cost of healthcare that the Middle Class can afford and consume.

    That is the opportunity and opening for the Republican Party, common-sense Democrats, conservatives, and the Middle Class Alliance.

    © The Middle Class Alliance 2013
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