Obamacare: A Mess of Unintended Consequences

It keeps getting worse…this litany of consequences, all very expensive, all very disruptive, all unintended, but all entirely predictable.   Unintended because it is, in so many respects, the antithesis of the transformation of American health care Obama promised. Predictable because the President outsourced the legislative development of his grand vision to two highly partisan ideologues, former Speaker Nancy Pelosi and Senate Majority Leader Harry Reid.  Together they engineered one of the greatest wrecks since the Great Train Wreck of 1918 when the Nashville, Chattanooga and St. Louis’s train Number Four collided head-on with the line’s Number One in Nashville, Tennessee on a stretch of track known as Dutchman’s Curve.

It didn’t have to turn out this way.  The President could have focused exclusively on providing adequate health care for the 15% of Americans who were either uninsured or inadequately insured.  That would have been doable and it probably would have cost no more and, quite possibly, a lot less.  But, alas, the President had grander plans.  He wanted something more, much more. He wanted something that would, in short order, affect everyone’s healthcare.  He wanted Obamacare. And like the disaster that took place nearly 100 years ago at Dutchman’s Curve, this engineered train wreck might, someday, be remembered as Obama’s Curve.

The centerpiece of Obamacare was, after all, all about curves.  It was going to bend down the deficit curve, and bend the cost curve down.  The cost curve attributed to health-care providers would bend down. The cost curve attributed to hospitals would bend down. The cost curve attributed to insurance premiums would bend down. In short, the cost curve for what America collectively spends for healthcare would bend down.  It seems, however, that we’re really not bending a metaphorical curve.  We are, instead, squeezing a metaphorical balloon.  We can squeeze it here but it will expand there.  And so it has and so it will.

There appear to be some major miscalculations in assumptions (as there always are) that will seriously exasperate the problems inherent in Obamacare.  Perhaps, the greatest miscalculation has been that we could do away with traditional actuarial underwriting of medical insurance and use age compression, which is nothing more than transferring to the young and healthy much of the cost of insuring the elderly and not-so-healthy by bringing all of the uninsured young adults into the system.   The assumption that the uninsured young adults have the same health profile as the insured young adults of the same age turns out not to be correct.  The previously uninsured young have higher morbidity rates than their insured peers.  The higher health costs associated with this higher morbidity will cancel out much if not all of the assumed benefit of age compression.

A study reported in the Journal of the American Academy of Actuaries concludes that of the 11.2 million uninsured young people between the ages of 21 and 29 nearly 4 million (36%) will pay more out of pocket for single coverage than they otherwise would, even given the availability of premium assistance provided by Obamacare.  The penalty for not buying insurance, which next year will be $95 or 1 percent of modified adjusted gross income, is not expected to have young adults flocking to buy insurance if their out of pocket expense exceeds the penalty.  In other words, age compression as a substitute for real underwriting may not bend the premium cost curve down at all.

The much-heralded insurance exchanges, which are supposed to provide a market for individuals who are not part of a group has been so burdened by complexities within the Obamacare bureaucracy that implementation has been pushed back at least a year.

The unintended potential-job-killing consequences of the 2.3% excise tax on manufacturers and importers of medical devices resulted in thirty-three democrats voting to repeal the tax in an amendment to the Administration’s budget bill.  It is no wonder members of congress, democrats and republicans alike, have begun to dig in their heels.  Their concern that the law will result in job outsourcing and hourly job cutbacks in their districts is well founded.  Stryker, a maker of medical devices, implants, and supplies shed 5% of its work force because of the impact of the 2.3% medical device excise tax.  The company estimates the move will save $100 million annually.  This absurd tax isn’t levied against profits.  It is levied against revenue.  Medtronic, the world’s largest medical device manufacturer is hiring up to 1,500 people, but most will be foreign workers.  Another unintended consequence, of course, is the rush to convert from full time to part time workforces.

The reader might recall that an early criticism of Obamacare was that people would wait until they were facing medical bills before they would apply for insurance given the guaranteed coverage provisions of the law.  Obamacare tried to counter this with a Pre-Existing Conditions Plan (PCIP).  The Administration estimated that nearly 400,000 people would enroll in this plan, but by the end of last year barely 100,000 people had enrolled and the claims were reported to be 2.5 times greater than the Administration had anticipated. Result? Enrollment in the plan has been suspended.

President Obama insisted during the run-up to the passage of Obamacare that insurance premiums would have been substantially slashed by now. Actually, the reverse is true.  Premiums have increased by more than Obama promised they would decrease.  In fact, earlier this month the Society of Actuaries (a generally conservative group if ever there was one) estimated that non-group claims will increase by over 30% over the next four years. Their reasoning should be a surprise to no one given the addition of higher risk patients to the coverage pool, employers dropping group coverage, and higher morbidity levels caused by patients who would previously have been uninsurable due to pre-existing conditions.

Little seems to have gone according to plan. The estimated $898 billion cost of Obamacare has now soared to $1.6 trillion and counting.  The 2300 page law has spawned over 20,000 pages of regulation (and counting), and the promise that it wouldn’t add a dime to the deficit and that the President would veto the legislation if it did…well, that was an Obama Curve.