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Why Obamacare Makes Us Sick

Tue, Feb 1, 2011

Fiscal Policy, Healthcare Reform

This is a detour from my current research on monetary policy/fiscal policy.  However, I just got done doing some research on this topic as well and also a friend posted his viewpoint on healthcare reform, so I’d like to retort.  This will mostly likely be a brief and too the point post.

Couple of things.  Going forward I will refer to healthcare reform/Obamacare as HCR.  Second, the title is Obamacare, but my target is really any socialized healthcare, regardless of which party it comes from.  Obama is the one proposing it, so it opens him up for criticism. I have not researched GOP version of the bill, so I cannot comment on that at this time.  Regardless, it will most likely be just as bad as the Donkey version.

I’ll start with some excerpts from an article in Economist March 2010:

“What will it mean for America? The short answer is that the reforms will expand coverage dramatically, but at a heavy cost to the taxpayer. They will also do far too little to rein in the underlying drivers of America’s roaring health inflation. Analysis by RAND, an independent think-tank, suggests that the reforms will actually increase America’s overall health spending—public plus private—by about 2% by 2020, in comparison with a scenario of no reform (see chart). And that rate of spending was already unsustainable at a time when the baby-boomers are starting to retire in large numbers.”

“recent studies done by the Cato Institute, a libertarian think-tank, which, they claim, are early warnings of trouble to come. Cato recently examined the impact of introducing health reforms similar to Obamacare in Massachusetts a few years ago. It estimates that the law has not improved people’s health, but has led to a “substantial crowdout of private coverage” and to 60% fewer young (and presumably healthy) adults moving to the state. It claims that the “leading estimates understate the law’s cost by at least one third.” Premiums have also risen.”

“If coverage is the new law’s strong point, cost control is its weakness.”

These three quotes come from:  Economist March 2010.  http://www.economist.com/node/15769767

I bolded the last quote because it is extremely important. After all, the battle cry for reform is that insurance cost too much.  Yet,  HCR doesn’t even address these costs.   Right now, $5 out of $6 of healthcare costs are paid by someone other than the patient (insurance companies, govt, employers). (WSJ February 24, 2010) This completely insulates the patient from the actual cost of healthcare.  If you could go to the mall shopping for new clothes and you knew you’d only pay $1 for every $6 you spend, would you be conservative with your spending.  If you paid $5 or every $6, would your spending habits change?

Right now healthcare costs are rising faster than per capita GDP.  This means Medicare and Medicade (M&M) will continue to consume a larger portion of GDP.  Because healthcare costs are rising so fast, Washington has resorted to increasing taxes to fund M&M.  Both sides of the aisle are guilty of this.  Under HCR, Medicare taxes will increase from 1.45% to 2.35% for upper income filers ($200,000 individual/$250,000 couple).   It doesn’t stop there.  HCR will include a 3.8% tax on unearned income.

If allowed to stand, the new health-care law will tether America’s middle class to the federal government in ways that will fundamentally alter — and not for the better — the relationship between citizens and the state. The result will be worse health care, distorted politics, less medical innovation and economic vitality, and depleted wealth.”  Heritage Foundation April 2010

Democrats are praising the closing of the ‘donut hole’ in Medicare, however they fail to answer two fundamental questions.  First, who is going to pay for this?   Right now, the President is marching too the drum beat of ‘tax the rich’.   However, taxing the rich suppress a key GDP driver: investment.  Thus hindering economic growth.  The real source of funding will be higher payroll taxes for the youth as well as additional government debt.   That was really the only question I had, however Glen Hubbard, Dean of Columbia Business School and former economic advisor to President W) brought up another great question in his book “Seeds of Destruction”:  Why are we offering such benefits to every senior citizen regardless of income level?  Glenn points out that Social Security (SS) and M&M were only suppose to be safety nets, not entitlements.   HCR has no answers to these questions.

Also, do you remember the promise that HCR would reduce our federal deficit by $138 billion (per the CBO)?

“In reality, if you strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges: The health care reform legislation would raise, not lower, federal deficits, by $562 billion.” – NYT  March 2010.  Written by  DOUGLAS HOLTZ-EAKIN former Director of the CBO (2003-2005)

What does Holtz-Eakin consider ‘gimmicks’?  He lays them out well in his article, so I’ll summarize:  The bill front-loads revenue and back-loads cost. This is something Enron did and it didn’t workout too well for them.  Projected costs of $114 billion to run NCR is left out of the projections.  $70 billion in premiums collected in the first 10 years do not include the cost of the entitlements that those premiums fund.  He continues on so if you’d like more, the link has been provided.

I’ll finish with one more flaw in HCR reformed.  This flaw is that the burden of funding HCR will be carried by our youths.  The term ‘youths’ includes me, at least for a couple more years.

“Beginning in 2014, most Americans will be required to buy insurance or pay a tax penalty. That’s when premiums for young adults seeking coverage on the individual market would likely climb by 17% on average, or roughly $42 a month, according to an analysis of the plan conducted for The Associated Press” Carla Johnson, Associated Press March 2010.  As printed in USAToday.

Adding entitlements does nothing but make a bad problem worse.  I’ve stated my case against the HCR bill as written/passed.  This is not ‘reform’ since I define reform the same manner as the dictionary: to amend or improve by change of form or removal of faults or abuses.  Based on this definition, Obamacare is anything but healthcare reform.

Christian Glupker, January 21, 2011
www.defuncteconomist.com

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2 Comments For This Post

  1. Dennis Murphy Says:

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    Great site, Christian. I will review it periodically. Good luck on your academic pursuits.

    Couple of thoughts

    a) reform- this law is indeed reform. "the dictionary: to amend or improve by change of form or removal of faults or abuses"

    Removing the abuse of kicking people off or not covering due to pre-existing conditions is reform, getting people covered that currently are not is reform

    b) you are quite right about the Dem vs Repub versions. Many elements of the current HCR are actually Republican ideas incorporated (despite their denial for political reasons).

    c) cost control- begs the question- costs have NOT been regulated previously- and I know you will find some "govt interference" to point to, but effectively we have had "free market" on health care costs and they have SKYROCKETTED. But I am sure a Mises advocate would also be chagrinned if the law actually used legislation to hold down costs too. I too think the legislation does NOT control costs, but I am not sure any legislation that did so would have passed Congress. The improvements of the bill outweigh this aspect which is perhaps best left for other means or legislation.

    d) finally for this morning- with regards to "crowd out" Check this website but here's a brief quote

    "Myth — With public options available, a “crowd out” will occur, shifting insurance from the private to the public sector.

    Fact — This has not occurred even slightly. The goal of the Massachusetts Healthcare Model is to make sure that employers are encouraged to offer private insurance options, while persons who are unemployed, or have difficulty finding private coverage, can use a public option. As mentioned before, almost half of the newly insured under this plan have gotten coverage through a private insurer, proving that the “crowd out” is indeed a myth.

    Myth — The current reformed healthcare system is not financially sustainable and will result in increased defecits over time.

    Fact — With federal assistance, and current offsets in full swing, the plan has thus-far proven to be quite sustainable over the long term. So far, healthcare reform has only comprised 1% of Massachusetts’ yearly budget. As efficiencies are improved, it is reasonable to conclude that this shouldn’t increase significantly, perhaps even declining. "

    http://mastersinhealthcare.org/2010/10-myths-fact

    PS: Obamacare = Romneycare LOL

    I will link your blog on mine- see you on the trail

  2. admin Says:

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    Thanks for the feedback on the site. Still some tweaks to be made. For some reason your comments needed approval. Maybe my host provider sensed deep BS coming from you. ;) Just kidding. :)

    There are still people that think crowd out doesn't occur with government spending. Yet the simple facts are hard to dispute.

    As for Mass.Health Care

    "In explosive emails released last week, Robert Dynan, chief of the financial analysis unit at the Division of Insurance, told Commissioner Joseph Murphy that the price caps would cause a "potential train wreck" and threatened "catastrophic consequences for the non-profit industry." Dynan warned that the non-profits, unlike national giants such as WellPoint (WLP, Fortune 500), operate on such slim margins that the controls could drive them into bankruptcy. Even now, four of the biggest insurers are threatening to stop taking new patients at rates so low they lose money on each new enrollee." June 16, 2010. Money.com (regarding Mass. Health Care system)

    Seems crowding out is an issue in Mass.

    The article goes on to explain the faults in Mass. Health Care system. You can read more at link below. Money.com is a CNN so surprised the main stream liberal media would say anything bad about HCR. :)

    http://money.cnn.com/2010/06/15/news/economy/mass

1 Trackbacks For This Post

  1. Raise my taxes | | Defunct Economist Says:

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    […] is not healthcare reform. It’s just healthcare for more people based on the same system. So the problems we have now, will be worse. “Right now, $5 out of $6 of healthcare costs are paid by someone other than the patient […]

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