Skip to comments.Peter Schiff: Affordable Care Act Will Backfire
Posted on 09/25/2012 7:24:18 PM PDT by 2ndDivisionVet
Now that the Supreme Court has given its narrow blessing to the Affordable Care Act, the big question is whether it will deliver the benefits that its proponents promise. Unfortunately, as it is now constructed, the plan will backfire causing fewer healthy people to buy insurance, raise premiums for those who do, destroy employment opportunities, cripple the health insurance industry, and weaken the economy.
In order to guarantee insurance to all, regardless of age, health or pre-existing conditions, the framers of the plan concede that it is essential that the young and healthy (who are less likely to be heavy users of health care) pay into the insurance pool. The surplus generated from their premiums compensates for the money lost to those receiving more in services than they pay in premiums (e.g. older people and those with medical conditions). But the ACA has given these healthy people a Get out of Jail Free card that many of them are sure to play.
Most healthy young people know that they are losing money to insurance providers, at least in the near term. That is the nature of insurance. You pay to prevent costly exposure to an unlikely event. And just as homeowners wisely pay for fire insurance even though they dont expect their homes to burn down, given the high cost of medical care it is also practical that healthy young people buy health insurance.
But, the ACA makes it illegal for insurance providers to deny coverage to anyone for any reason. This allows healthy people to drop insurance until they actually need it without incurring any risk. Its like allowing homeowners to buy fire insurance after their houses burn down. To counteract these new free rider incentives, the law imposes no insurance penalties (also defined as taxes by the Supreme Court). The problem is that these penaltaxes (for lack of a better word) are insufficient to the task. In fact, Chief Justice John Roberts ruled the law constitutional precisely because the burdens were not high enough to compel behavior. (In other words, he thought the law was constitutional because it will be ineffective.) The numbers support his arguments.
On average, in 2010, a typical healthy young person paid at least $2,500 per year for insurance (for a plan that would still involve significant out of pocket expenses). In some areas of the country, premiums were more than twice as high. When the program takes effect in 2014 the penaltaxes will be the greater of $95 or 1% of household income. A single person earning $40,000 per year who chooses to go uninsured would then be subject to a $400 penaltax. The decision would be an easy one: drop the insurance, incur the penaltax and pay for any routine medical services out of pocket. In the unlikely event that he gets cancer or is hit by a bus, he can always buy insurance in the ambulance on the way to the hospital. Even in 2016, as the penaltax increases to the greater of $695 or 2.5% of household income, it will still not make sense for many people to buy insurance. The penaltaxes are capped at levels that equal the full cost of an average health plan. So even high income individuals are no worse off financially for not buying insurance. In addition, the IRS ability to actually collect these penaltaxes is limited to garnishing income tax refund checks. If an individual is not getting a refund, the IRS is impotent.
The law places no requirements for businesses with fewer than 50 employees to offer insurance. So when younger workers realize the benefits of dropping insurance, they will naturally gravitate to savvy businesses that offer higher pay instead of insurance. This will drain more premiums from the insurance pools.
In contrast, the burdens placed on employers with more than 50 workers are complex, onerous and unpredictable. Those that dont offer insurance would be subject to substantial (and open ended) penalties if at least one employee receives an insurance tax credit or a government subsidy to an insurance exchange. If they do offer insurance, they will also be subject to substantial (and open ended) penalties if the plan fails to cover 60% of employee health expenses, or if premiums for any employee are more than 9.5% of family income. It has been left wholly unexplained how employers are supposed to accurately determine these triggers which involve knowledge of family income, not just employee income.
Smaller employers will look to avoid these headaches by staying below the 50-employee threshold. Though it should be obvious, there is plenty of evidence to support this tendency. French law involves significant regulatory requirements for businesses that have more than 50 employees. As a result, there are currently 2.4 times more French companies that have 49 employees than there are with 50. Incentives for businesses to stay small will hurt the economy and will further shrink the numbers of people paying into the health insurance pools.
Employers will also be incentivized to avoid hiring lower paid workers who would be more likely to trigger the penalties tied to household income. As a result, many small companies will likely look to replace lower rung employees with temps, automation or outsourcing, further raising the barrier to workforce entry for lower skilled workers. The unemployable workers will then qualify for free health insurance, further draining the system.
Unless the penaltaxes are raised significantly, far too many needed premium payers will drop out. As they do, insurance companies will try to recoup the lost revenue by raising premiums for the customers who remain. As the gap between the relatively low penaltaxes and the high cost of health insurance premiums increases, so too will the incentive to drop coverage. This self-reinforcing dynamic will render the entire plan non-viable.
It is a foregone conclusion that the Obama Administration and its congressional allies are already planning to raise the penaltaxes. Although such increases would render the plan unconstitutional if they compel behavior, according to Robertss analysis, I do not expect the Supreme Court to ever rule on this case again. The Court has a history of opening small cracks in the Constitutional barn door for the bureaucratic horses to stampede.
Unless we can summon the political will to repeal the poorly conceived law, we should all brace for higher health care costs, many more layers of impenetrable federal bureaucracy, a significantly weaker economy, diminished employment opportunities, and lower living standards.
Does the VA hospital take non veterans in the ER? Just curious.
“...causing fewer healthy people to buy insurance, raise premiums for those who do, destroy employment opportunities, cripple the health insurance industry, and weaken the economy.”
In other words, it will do exactly what the muslim marxist wants it to do.
And all that leads to single payer - which is what the Progressives wanted all along.
Great analysis on the flaws of Obamacare
Exactly - ACA was designed to fail & then we Sheep are supposed to beg for Guvmint to take it all over.
Good post. Thanks for the info.
I’m sorry to hear that you waited seven hours without any treatment. Hope things work out good for you.
Thanks for the ping.
Fall in line, Comrades.
Cause and effect laws break down when voters are offered freebees for their vote and are told they deserve it.
so here is what I heard from an insurance agent: you can buy it in the ambulance on the way to the hospital. The premium for you at that time will be over $15000 a month or something like that.
That's what might happen under current law.
Today, insurers must quote a price to you for coverage, no matter what is wrong with you or when it started.
Under ObamaCare, there will be a maximum premium, which will be much less than your $15,000 quote, but I don't know the new law well enough to say how much less.
Great article! Ping for later use!
The fatal flaw of this Ponzi scheme.
Every generation will need to attract tens of millions of new younger immigrants just to pay for the older generations.
When does it fall apart? 500 million immigrants? 1 billion immigrants?
When do potential immigrants say, “We may be poor, but we aren't stupid!
In nanny state NY, Bloomberg and others are trying to remove all junk food from hospital cafeterias and waiting rooms and provide healthier food and snacks. No more late night soda and chips while waiting in the ER. Now there will be fruit, nuts, and whole grains.
Exactly. The commies want a total control, single payer deathcare system like Cuba.
It did nothing to increase the pool of physicians. Therefore, the wait times will increase exponentially. Just look at Apple. When they come out with a new I Phone, the masses line up to purchase a new phone, even if they already have one that works fine. The stores run out of product, leaving those poor saps empty handed. Take a number, get in line.
Did they draw any connection between those three dots? Is there any to be drawn?
Except in Apple's case, they'll do their damndest to fulfill the order pipeline, because each additional iPhone delivered is another boost to Apple's bottom line.
Unfortunately, that is not the case for health care: each additional patient is a further dent in the bottom line. Recall that the First Lady's last private sector job (at $317K/yr), before she got into school lunches, was to help the University of Chicago Medical Center dump its emergency room patients on less well connected providers.
even if they already have one that works fine.
But why wouldn't they want one that works even better? If it's a free-market, arms-length transaction, not coerced by the government, it is beyond your criticism!
Ping for later reading
The new young illegals being no more stupid than their older cousins, they'll stay off-balance-sheet on a cash basis, too, and avoid the whole steenking mess ..... and just go to the ER and plead poverty (concealing the $40,000 cash stash under the living-room couch) when they need medical attention.
The flip side of this is known as the Gaming Industry in the real world.
Oh, just QUIT with all that math stuff!
Obama PROMISED it would work!
Sorry about your wasted time at the VA. I hope you will be seen soon. This article nicely describes the various pitfalls and shortcomings of the looming clusterf&%k headed our way. I’m curious...Has anyone gleaned any inkling, other than burocracies and new taxes, of just what kind of care an insured might expect under this plan? Keep in mind that most goverment officals and accountants tend to view healthcare rather like assembly lines...one size fits all. Never mind that each individual needs specific treatments and regimens. I see a large wall in the not too distant future and we will all go splat...just like Wily E Coyote
The deeper fatal flaw: Every generation will need to attract tens of millions of new younger immigrants who earn enough to pay enough taxes to pay for the older generation. Letting in millions of unskilled immigrants who consume more in government benefits than they pay in taxes is counter-productive.
This is a travesty. Our vets deserve better treatment than this.
Sadly, I think this is coming soon to all hospitals, thanks to ZippyCare.
Now that Lord Roberts has declared ObamaCare a tax of the realm, Pacific Legal Foundation intends to call him out on it....
“Congress ignored the Constitutions Origination Clause when it enacted the Obamacare tax. Weve also asked the court to declare the Individual Mandate unconstitutional under the Commerce Clausethereby clarifying whether Chief Justice John Roberts opinion is binding precedent, or merely non-binding dicta, as some lawyers have argued.”
“The Origination Clause requires all bills for raising revenue to originate in the House of Representatives. But the Obama Administrations health care law did not originate in the House; it originated in the Senate, when Senator Harry Reid amended a bill the House had passed by striking out all of its text and replacing it with the Senate-written bill that eventually became Obamacare”
Interesting ideas in this article. The Law of Unintended Consequences is going to bite back.
The problem is, that once people figure out they can take advantage of the law by dropping insurance coverage, there will be yet another wave of coercive laws to deal with the situation. The most likely outcome will be that they will raise the “penaltax.”
When the IRS was started, income tax was low (1%-7%) and it was only on “the very rich” and it was temporary. Almost 100 years later, tax rates are sky high, and the middle class is bearing a heavy burden.
Like every other government tax, the camel’s nose gets under the tent by promising that the tax will be on “the other guy” not on you.
Like the sign in the bar: We cheat the other guy and pass the savings along to you.
Obamacare is NOT flawed. It is working exactly as designed.
You just don't understand its purpose, for which its design is flawless.
They should also look into the law’s equal application. We know theOne has given waivers to this law to favored, connected groups. We know further that Roberts’ upholding of the constitutionality of this law was specifically because he agreed with the administration’s characterization of the mandate as a tax. I don’t know the particulars of all laws, but I’m pretty sure that the executive branch cannot “waive” lawful taxes due from anybody without legislative action.
I have experience with those that support socialized healthcare, and think that ACA is IT.
They really do believe that all healthcare will now be free on demand, and they REALLY won’t listen to anything to the contrary.
I expect the pool of physicians to decline precipitously - those that can get out of the profession will go, and mid-level gatekeepers will try to fill the gap. Hillary was planning for this during her reign with Bubba. Remember when she said America has too many doctors and the medical schools were cut back. Simultaneously, foreign doctors were encouraged to come here, leaving their countries in the lurch.
” Unless we can summon the political will to repeal the poorly conceived law, we should all brace for higher health care costs, many more layers of impenetrable federal bureaucracy, a significantly weaker economy, diminished employment opportunities, and lower living standards.”
Wreck the middle class.....the goal all along.
Wait until the 1% tax on all your financial transactions hits your personal & business bank accounts!!
Just think: The golfer who won the Fed Ex Cup last Sunday won $10 million.
The fee to Red Ex for writing that check is $100,000 and the fee for that man to put the check into his bank account is $100,000!!! Whatever Snedecker does with those funds—even the income tax check he writes to the IRS will get another 1% fee on it!!
If he puts it into a Money Market or Savings-—another 1% fee. When he takes it out of savings in the future—ANOTHER 1% fee!!!
Think on this a little bit===
The airlines got $1.7 BILLION from passengers on extra bag fees in just the furst 6 months of 2012. When the airlines deposit that kind of baggage fee money after Jan 1st, that 1.7 Billion $$ would get tgged with fees of $17 MILLION to Obama!!!
Every one of you who have income or a business needs to think hard about this.
Even people like me on Soc Sec get dinged with the fee—on the money INTO my account every month & on every penny OUT of the account every month. I will cost me over $250 annually & I am scrimping now.
I see you’ve done your homework.
Re: “Immigrant Earnings”
You make a great point.
New immigrant citizens - that means LEGAL immigrants - are roughly divided into thirds.
One third, no high school diploma.
One third, high school diploma, maybe some college or tech school.
One third, college graduate.
The “college graduate” segment is utterly deceptive.
Most new citizens come from second and third world countries.
Their “degrees” are not recognized by American companies.
Most of them were employed by their governments.
Most of them have no work experience in the real world private sector.
My company employs a large Temp work force at $10 per hour.
I come into contact each day with 4 immigrant “college graduates.”
They are nice people, they are smart, and they work hard, but they can’t even get job interviews based on their education.
Their number one complaint?
“Why doesn’t the American government find us better jobs?”
Does anyone here at Free Republic have to guess who all of them plan to vote for in November?