November 3, 2013


by Hal Gershowitz

Comments Below


Given the mountainous coverage of the failed rollout of the so-called Affordable Care Act (aka ObamaCare), one might assume the country has seen the worst of what ObamaCare portends.  Actually, the rollout mess has been a bit of a gift to the Administration.  The coverage has diverted much of the public’s attention away from the real issues that millions of citizens, most of whom were quite happy with their insurance, are (and will be) facing. For millions of Americans, President Obama’s assurance that if you like your current healthcare plan you can keep it has proven to be about as reliable as Fannie Mae’s old financial statements.

As we write this essay, millions of Americans are receiving cancellation notices from their insurance companies.  Trust us, the Administration knew this was going to happen when the President made those you can keep your current plan assurances to the American People.  They had to know. That’s because the Act relegated to the federal bureaucracy the job of deciding what insurance coverage would (and would not) be acceptable.  Millions of people have chosen coverage that the feds have since decided isn’t good enough. So the insurance companies are canceling those policies and offering policies that conform to the new federal standards.  The catch is (no surprise) the additional coverage requires additional premiums or higher deductibles.

So how did such a “minimum coverage” provision ever make it past Congress and the ever-so-diligent media?  That’s a good question, the answer to which is also a good lesson in what magicians call prestidigitation and what we common folk call slight-of-hand.  You see, the legislation provides that coverage that was in effect as of March 23, 2010 would be grandfathered.  But the devil is always in the details and that is especially true with federal legislation because the details are always left to the unelected regulatory bureaucrats.  So, buried deep in the bowels of the 20,000+-page manifesto of regulations is a provision that negates the grandfather clause in those cases where co-pays, deductibles or benefits have changed subsequent to that date.  This clever catchall is now estimated to snare well over half of all individual policies. One healthcare consultant, Robert Laszewski, of Health Policy and Strategy Associates, places the number of expected cancellations at 80%.  So, nearly 12 million people who were assured they could keep their policy (if they liked it) now could face substantially higher premiums and deductibles, or a fine (or a “tax” per Chief Justice Roberts).

The White House doesn’t dispute this shocker either.  Presidential spokesman Jay Carney explained, “What the president said…is that there are going to be changes brought about by the Affordable Care Act to create minimum standards of coverage, minimum services that every insurance plan has to provide…So it’s true that there are existing healthcare plans on the individual market that don’t meet those minimum standards and therefore do not qualify for the Affordable Care Act.”

“But”, you might be thinking, “the President said if Congress passed the legislation we could all keep our health insurance plans if we liked them.”  Well…that’s politics.

While individuals have been sucker punched because the Administration has, thus far, refused to delay the individual mandate, corporations have been given a legally dubious pass until 2015 to comply with the mandate.  Why?  Our best guess is that the Administration realized that the defection rate among companies (companies that would pay the fine and drop coverage) was going to be massive, causing a stillbirth of the Affordable Care Act.

Sadly, premium sticker shock for the individual market is but one of the problems with which the Administration must contend. There are other problems, and they are major.  In their infinite wisdom, the drafters decided to abolish the relatively brief actuarially sensible premium savings given to young and healthy Americans (we say “brief” because no one stays young and healthy forever).  The young and healthy (who incur much lower healthcare costs) are expected to pay more than they would traditionally be charged in order to subsidize the older and less healthy (who incur higher costs).  We won’t argue in this essay the propriety of this strategy (we’ll do that in a later essay), other than to observe that it represents a massive transfer of resources from the young to the old.  The young, however, have one defense against this assault on their ever-harder-to-earn income.  They can (and we predict will) simply pay the modest fine imposed on the uninsured and insure themselves when, and if, they get sick.  Should the young and healthy so dodge the mandate, ObamaCare will collapse of its own weight.   That’s because those who wind up participating will be disproportionately older, thereby incurring higher costs, which, in turn, will cause premiums to go through the roof.

ObamaCare provides subsidies to those individuals and families with incomes below 400 percent (and above 133 percent) of the federal poverty line if they are enrolled in insurance plans offered through the ObamaCare exchanges. Families with incomes below 133 percent of the federal poverty line will be subsidized through Medicaid. The way the subsidy works households at 150 percent of the federal poverty line pay no more for insurance than four percent of their annual income. The balance will be subsidized. Those families whose income is at 400 percent of the federal poverty line are required to pay up to 9.5 percent of their income toward insurance premiums.  The government under ObamaCare pays the balance of the premium cost. These subsidies are quite generous, but few in the media have focused on their cost.

The availability of these subsidies raises an interesting question. Won’t employers of lower-wage workers be encouraged to direct their employees to the new ObamaCare exchanges where these subsidies are available, thereby benefitting both the employees and the employers?

Former Congressional Budget Office (CBO) Director Doug Holtz-Eakin estimates that employers will have strong incentives to move as many as 35 million workers who will be eligible for premium assistance out of employer plans and into subsidized coverage provided through the exchanges.  This would add an estimated $1 trillion over the next ten years to the cost projections for ObamaCare over and above the projections provided by CBO, according to Holtz-Eakin.  Hopefully, the Chinese and Japanese may still be willing creditors, and, of course, the young and healthy and others will be there to fork out additional tax revenue should such a “hit” impact future budgets.

Then there are the dual problems (that have already begun to surface) of employers reducing workers hours to less than 30 hours a week to avoid the new definition of full-time worker (those who must be covered under ObamaCare) and ObamaCare’s taxation of so-called Cadillac plans.  No one is more furious about these issues than organized labor.  The unions now realize that it is many of their members who will see their hours reduced, and it is many of the healthcare plans they fought for that are going to be taxed.

Terry O’Sullivan, president of the Laborers International Union, said he wanted the law “fixed, fixed, fixed and, if not, I believe it needs to be repealed.”

All in all, the rollout fiasco may be the least of the problems inherent in ObamaCare.

All comments regarding these essays, whether they express agreement, disagreement, or an alternate view, are appreciated and welcome. Comments that do not pertain to the subject of the essay or which are ad hominem references to other commenters are not acceptable and will be deleted.

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  1. Stevemarcus says:

    This is a very good explanation of the unintended consequences that happen when legislation is passed that no one has read, and then implementation (via regulations) is left to a bunch of 25 year olds with little life experience regarding how people react, out of self protection, against what is happening to them.

  2. susan duman says:

    I sure learn a lot on Sunday mornings.
    As always,

  3. Janice Marcus says:

    I just finished an article in this weeks NYT magazine. It’s about Tom Scully. He was a principal health policy adviser under President George H.W. Bush. He remains a Republican. He states that ” the Affordable Care Act wasn’t simply a law that mandated insurance for the uninsured. Instead, it would fundamentally transform the basic business model of medicine…..the changes in the law designed to address cost could be a bigger and longer lasting change…..Improved coordination (post acute care)as a way of saving hundreds of millions of dollars ……it wasn’t until the passage of ACA that the incentives where in place….. what the affordable care act brings to medacine …..IT’S CALLED CAPITALISM…..Which doesn’t exist in health care, really. ” I suggest you and your readers read the whole article. Change is hard, and some of those who have profited before ACA may be on the losing end after. But let’s keep in mind what the goal of ACA is, and work together to get the kinks out of it!

  4. Mark J Levick says:

    The ACA was intended to provide affordable coverage for those with uninsurable pre existing conditions and the poor. The cost was of no concern as it would be covered by new ACA related taxes and premiums for excess coverage mandate by the Act and by the Government printing press. The casualty is the doctor patient relationship and a private healthcare system. The winner is progressive socialism and that is why elections have consequences. Freebies are in, responsibility is out. Rather than crying for Argentina we are emulating that nation’s destructing of it currency, control over its populous and decimation of its middle class.

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