July 7, 2013

Obamacare prognosis: It’s Worse Than We Thought.

by Hal Gershowitz

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In a move to delay the almost certain train wreck of the Obamacare Express until after the 2014 mid-term elections, the Administration last week announced a postponement until 2015 of the requirement that employers of more than 50 employees provide coverage for their workers.  The Announcement should have surprised no one.

Look at what Obamacare’s strongest supporters have been saying:

Montana Sen. Max Baucus, a Democrat, has called it a “train wreck.” A Democratic colleague, West Virginia’s Sen. Jay Rockefeller, described the massive Affordable Care Act as “beyond comprehension.” Henry Chao, the government’s chief technical officer in charge of putting in place the insurance exchanges mandated by the law, was quoted in the Congressional Quarterly as saying “I’m pretty nervous . . . Let’s just make sure it’s not a third-world experience.”

Two weeks ago we were visiting with undergraduates at a large Southeastern Conference school with a 34,000+ student body, and we listened to complaints about what has become a rapidly growing reality; most of the kids who are working part-time summer jobs, (like part-time workers of all ages all over America) are having their hours slashed to no more than 28 hours a week.   That’s because under Obamacare a 30-hour workweek defines full-time employment and, hence, who is covered.

“The term ‘full-time employee’ means, with respect to any month, an employee who is employed on average at least 30 hours of service per week,”

It’s happening throughout the country. Take the restaurant industry whose 13 million workers represent about 10 percent of the entire American labor force, or the retail industry that employs about 16 million workers, all largely young men and women under age 30.  Huge numbers have had their working hours cut or are facing the prospect of a 28-hour limit on their work week by employers who simply can’t afford, or won’t subject themselves to, the added costs of complying with Obamacare for employees who work longer shifts.

Other small business employers are becoming members of the so-called 49’ers club by cutting their full-time workforce to 49 in order to escape the Obamacare requirements of those companies employing 50 or more employees.  Obamacare does not cover those companies employing fewer than 50 employees.

It’s all because of a little-known section in the Obamacare health reform law that defines “full-time” work as averaging only 30 hours per week, a definition that will affect many employers who utilize part-time workers to trim the cost of complying with the Obamacare rule that says businesses with 50 or more workers must provide health insurance or pay a fine.

Cutchall Management of Omaha Nebraska is a good example. It operates 50 restaurants in five states and employs 1400 men and women, a thousand of whom are part-time employees.  At Cutchall’s, all new part-timers will be limited to no more than 29 hours a week.

Those employees who aren’t covered by their employers are supposed to have access to health insurance through the Obamacare insurance exchanges. Well, the next ninety days will be quite interesting because on October 1st those insurance exchanges are supposed to be up and operating.

It isn’t going to happen.  At least the Government Accountability Office is signaling that there’s trouble on the immediate horizon.  The GAO didn’t mince words, explaining that implementation remains months behind schedule.

In ninety days an estimated seven million Americans (increasing to an estimated 22 million) will be eligible to begin enrolling in the Obamacare exchanges.  Ready or not here they’ll come.  Given the abandonment of actuarial underwriting for health coverage in favor of Obamacare’s risk transfer philosophy of younger and healthier men and women subsidizing with higher premiums, the costs to older and less healthy Americans, the entire program depends on the young and healthy signing up in big numbers. Of the first seven million anticipated enrollees, Administration officials say 2.7 million must be young and healthy. But will these young Americans embrace the higher costs imposed on them?  It seems doubtful.  They can decline the high-premium coverage and face a mere $95 penalty next year; a fraction of the premium cost Obamacare will impose.  They’re smart enough to know that under Obamacare they can simply apply for insurance should they get sick.  Here’s how the generally Obama-friendly, New Republic expressed the dilemma.

Health insurance needs lots of healthy people to sign up for coverage. Their premiums cover the big bills for the relatively small number of sick people. So if the exchanges don’t enroll enough young, healthy people, insurers will have to raise everyone’s premiums. In the worst case, this could create what actuaries call a “death spiral.”: Rising premiums prompt people to drop out, causing premiums to increase even more.

 As Supreme Court Justice Alito observed a year ago, young, healthy adults currently spend an average of $854 a year on healthcare. However, Obamacare would require them to purchase insurance policies expected to cost roughly $5,800. These added costs do not stem from additional “services that they are going to consume,” he stated. “The mandate is forcing these people to provide a huge subsidy. . . to subsidize services that will be received by somebody else.”

Given that the entire system will depend on young people making an expensive decision that most cannot afford (even with the subsidies that low earners will be entitled to) it’s all a bit of a crapshoot.

According to consultants from Oliver Wyman (whom we quoted in our recent essay on the subject (“Obamacare: Unintended Consequences”) around six million of the 19 million people with individual health policies are going to have to pay more—and this even after accounting for the government subsidies offered under the law. For example, single adults age 21-29 earning 300% to 400% of the federal poverty level will be hit with an increase of 46% even after premium assistance from tax credits.

Ken Jacobs, of UC Berkeley’s Labor Center, advised that those at highest risk are workers in predominately low-wage industries that are right on the cusp of what is considered full-time work under the law.

The industries with the highest concentration of at-risk workers according to Jacobs are restaurants, accommodations and building services. The 3.6 million workers who report that their “work hours vary” could have their hours jeopardized as well, according to the Berkeley Labor Center study.

It gets worse. In projecting future healthcare costs, the White House spinmeisters, it seems, are jumping through hoops in an effort to turn a sow’s ear into a silk purse.  The Congressional Budget Office (CBO) prepares two versions of its cost impact assessments.  One relies on the assumptions with which they are provided by the Administration or by Congress.  CBO, however, also prepares an alternate cost impact assessment, which often more accurately reflects anticipated reality.  Their alternate assessment for future healthcare costs is particularly disturbing given its greater probability of reality.

The Administration is crediting Obamacare with anticipated improvements in healthcare costs projected by Medicare’s Trustees.  The Trustee’s projections of a mere $43 trillion (yes, that’s trillion) in unfunded liabilities going forward into the indefinite future turns out to be rather chimerical when we look at the assumptions on which these projections are based. The granddaddy of these assumptions is that beginning January 1st physicians will take a 25% pay cut for treating their Medicare patients.  This is simply another rendition of “Play it again Sam,” as Congress has waived the mandated cut in doctors’ pay in 14 of the last 15 years, and, we believe they will continue to waive this nutty provision of the 1997 Balanced Budget Act.  The last thing the Administration (or the nation’s elderly) needs is to have any more physicians walk away from the Medicare system just as Obamacare is coming on line.

Obamacare also projects over $700 million in healthcare savings over the next decade (and beyond) as a result of various cost-saving efficiencies in providing health care.  But here too, CBO analysis shows that these “efficiencies” such as broader utilization of electronic medical records and coordinated care simply will not reduce costs. Baring the implementation of what Sarah Palin once described as  “death panels” (she was really referring to Obamacare’s best practices panels, which are to, in fact, determine what is and isn’t an allowable procedure given the cost efficiency of the procedure in terms of future added quality years of life it will provide) the only way the government can possibly hope to reign in these long-term future expenses will be drastically to slash what Medicare pays physicians.

Already the nation’s physicians, sick of current government squeeze tactics and fearful of even more costly government interference staring them in the face, are “selling out” to hospital groups that are acquiring private physician practices all over the country. Make no mistake about it; this will make healthcare less competitive and more costly to the consumer.  America will, sooner or later, wake up to the high cost of the largess of services the government “is providing”.  Government provided benefits will grow, costs will mount and the wherewithal to pay for it all will diminish.

So if we consider the CBO alternative scenario to be more realistic than the Administration’s Hail Mary scenario, we find, long-term unfunded healthcare liabilities of over $100 trillion. Add to that the present value of  running, well, everything else in our rapidly expanding government, then CBO long-term projections point to an overall revenue shortfall (expenses minus tax and other federal revenues) of a whopping $222 trillion.

Assuming we don’t make a major course correction from the tipping point we now face, Obamacare along with Medicare and Medicaid will account for nearly half of what could well become a jaw-breaking fiscal tsunami. Is anyone listening?

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7 responses to “Obamacare prognosis: It’s Worse Than We Thought.”

  1. I am most appreciative of the time effort and thought which goes into this most informative series. Thank you both….

  2. Amy Lask says:

    Great article. Kids/young adults are working throughout the school year to help pay tuition or rent, not just to have a summer job to earn some spending money. Because of the cut back in hours caused by Obamacare they are now picking up extra jobs to make ends meet and stay in school.

  3. Mark J Levick says:

    The numbers never worked and never will. There is no way to actuarially insure pre existing conditions. The young are being asked to fund coverage for the poor and the uninsurable. They can’t and won’t so the taxpayers will cover the deficit by paying the interest on the ever increasing debt covering the shortfall. The efficiencies of forcing sole practitioners of medicine to retire so as to avoid receiving less and less compensation while incurring more and more costs for record keeping and paperwork means assembly line medicine provided by nurse practitioners. The wealthy will do fine. The indigent will do better. Everyone else will do worse. The politicians and big Pharma will continue to smile as they reap votes and profits.

  4. Rosemary Lenners says:

    I am already seeing the cutback in services. I have failing kidneys and had been seeing a renal specialist since 2007. Last year the specialist group practice assigned me to a nurse practitioner. I was told I would only see the doctor if my condition worsens. It is impossible in the locale where I live to find a doctor in private practice. Presbyterian and the university hospital are the only shows in town. Talk about being treated like cattle–we have to schedule our appointments three months in advance and if we happen to become ill, it’s impossible to see our doctor. We are told a nurse practitioner will call us back! That’s really comforting.

  5. Jerry Kaufman says:

    Well done. Now, how do we get this into the NY Times and Washington Post. How do we get our liberal friends to open their eys and minds? Jeremiah had it right: “Now hear this, O foolish and senseless people, who have eyes but do not see… have ears, but do not hear.” And, assuming we can find young people who can actually read, how can we get this in front of them?

  6. M Kaback, MD says:

    SINGLE PAYER HEALTHCARE SYSTEM ANYONE???? Think about it….Makes a lot more sense than this Obamacare business and gets rid of enormous wastes of dollars. Might even provide better health care to everyone but the very wealthy, which is what the current system does.

  7. eugene krasnow says:

    m kaback, H Gershowitz, S porter; The present system is unsustainable. Is it possible that once ACA is in effect and the problems are realized, that the country might be able to go in the right direction of Single Payer System? gene krasnow

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