- - Sunday, October 27, 2013

ANALYSIS/OPINION:

There are three basic arguments against Obamacare. And none relate to the catastrophic unveiling of the HealthCare.gov website in recent weeks, which has seen Americans getting 404 pages, inadvertently signing up multiple times or with multiple spouses, or unable to find out basic information on their premiums. While the website is unacceptable, a technical fix is doable (though it still should caution us about the overconfidence of government technocrats).


SPECIAL COVERAGE: Health Care Reform


The problems are far more fundamental and embedded in Obamacare’s very structure.

First, the insurance premium benefits are not and will not be as attractive as they were originally advertised. In order for the Affordable Care Act insurance programs to reduce premiums, it requires the participation of all healthy young Americans.


The community ratings provision of Obamacare means that young people will be forced to pay significantly higher premiums under the law than they would under an actuarial based insurance system. This is especially true considering most healthy young adults only need catastrophic insurance, whereas the law demands that they have more comprehensive (and more expensive) coverage. Early empirical evidence supports the logic that the premiums for young people are significantly higher under Obamacare.

However, the Achilles’ heel of the act requires insurance companies to insure all applicants of the same age cohort with the same premium regardless of pre-existing medical conditions.

Consequently, an economically rational young person will not pay the high premiums unless and until he or she becomes sick. At that point, it is rational for them to purchase the policy. This means that only older and sicker Americans will buy Obamacare policies. If only older and sick people are participating, the cost of the premiums will skyrocket. The premiums for healthy older people will then increase, thereby creating an incentive for them also not to buy the policy until they become sick. Thus, there is a built-in death spiral that will lead to fewer healthy participants, higher premiums and the eventual bankruptcy of the insurance companies that must insure all applicants.

The second major problem is that Obamacare imposes price controls on the medical system in order to reduce costs. The act seeks to control the compensation of medical personnel, medical procedures and hospital costs.

The history of price controls is full of failure. Americans over the past generation have seen the failure of price controls imposed on housing, food and energy. Communist and socialist societies using price controls collapsed under the weight of the regulatory controls being overwhelmed by the black market and corruption. There is no reason to believe price controls will be more successful in the U.S. medical industry.

The third major problem is the negative effect on jobs and the economy. Small businesses with fewer than 50 employees have a disincentive to expand beyond 49 employees, because they will incur health insurance costs on all 50 people once they hire their 50th employee or be fined.

This will act not only as a ceiling on employment for small businesses, but it also will put a brake on successful business expansion and resulting economic growth. It will make no financial sense for companies to hire more than 49 full-time employees unless they can hire another 50-plus at once.

In addition, employers have an incentive to hire part-time workers rather than full-time workers, for whom they are not required to provide health insurance for part-time workers. Since an employer’s share of insurance premiums on a low-wage, full-time worker is 15 percent to 20 percent of his total compensation, the employer can save a lot of money hiring part-time workers. Part-time workers seeking full-time jobs must work two part-time jobs to make up the hours needed for full time employment. And they still will not have employer-provided insurance.

Businesses currently employing more than 50 uninsured employees will see their per employee costs increase $5,000 to $10,000. A business with 51 employees could have an insurance bill of $500,000. For all but the largest corporations, it will be cheaper and make more financial sense to pay the fine and not insure any of its employees.

Whether they offer insurance or pay the fine, the higher balance will be financed out of profits, necessitating higher prices to customers or a reduction in employment. If it comes out of profits, there is less money for the business owner to invest in expansion, assuming he has the profitability to pay the additional costs. Higher prices to consumers result in less money spent on other goods. Reduction in employment means higher unemployment.

None of this is good for an anemic economy that can barely grow 2 percent annually since the 2008 recession.

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