Wednesday, September 25, 2013

The Obamacare Nightmare

If the thinking members of the Democratic Party (there's at least one) don't wake up soon and decide that Obamacare's individual mandate needs to be postponed for at least a year—in order to fix its many egregious elements or, better yet, start all over from scratch—then the country is on the verge of entering what could be its worst nightmare: a healthcare train wreck of epic proportions.

Let me list some of the biggest problems with Obamacare:

Monumental hubris: For starters, it is inconceivable that any government body could, by fiat, reorganize and re-regulate one-sixth of the U.S. economy and have the results be anything like what was promised or intended. (If government could work miracles, the Soviet Union would be eating our lunch today.) Government bureaucrats and agencies cannot possibly design a healthcare system that will function more efficiently than what could be achieved if the private sector and market forces were allowed free rein. The only way that healthcare could possibly cost less, while covering more people, is for the government to impose rationing, something that was explicitly not promised. The unintended consequences of this law, some of which have already appeared, are virtually impossible to overestimate.

Huge cost increases for many young people: The Manhattan Institute estimates that next year "Obamacare will increase underlying insurance rates for younger men by an average of 97 to 99%, and for younger women by an average of 55 to 62%."

Huge marginal tax rate increases on the middle class and on married couples: In light of the higher premiums occasioned as a result of the government's insistence that qualifying health insurance policies provide much broader coverage that current high deductible policies, and as a result of the inability of insurers to charge more for those with pre-existing conditions, and in order to entice people to enroll, Obamacare provides generous tax credits (subsidies) to those earning less that a certain amount. The subsidies phase out, however, as income increases. But once income exceeds the threshold (e.g., $46K for singles and $62K for couples), the complete phaseout of the subsidy can equate to a marginal tax far exceeding 100%, causing many to lose over $10,000 in subsidies when they earn just one additional dollar. This can only be mitigated by married couples getting divorced, or by individuals refusing raises (or not seeking promotions) that push wages above the threshold level, or by not purchasing insurance and paying the non-compliance tax. It also penalizes workers for working overtime, as a result of so-called "subsidy gaps." This could have far-reaching and painful consequences for many millions of middle class workers and families, and it creates egregious disincentives to work harder or more hours.

Additional taxes that fall mainly on the middle class: There are a variety of new taxes that are already in effect starting with the 2013 tax year.


  • A new 2.3% excise tax on gross sales of medical devices, which "will make everything from pacemakers to artificial hips more expensive."
  • A new cap on deductions for high medical expenses equal to 10% of adjusted gross income, which replaces the previous cap of 7.5%. 
  • A new tax on Flex Spending Accounts, equal to $2,500 (formerly unlimited), will affect 30-35 million people who currently use FSAs to pay for basic medical needs. This will severely impact parents of "special needs" children. 
  • A new Super Saver Surtax of 3.8% on investment income earned in households making at least $250K. 
  • A higher Medicare Payroll Tax of 2.35% (formerly 1.45%) on wages of married couples earning over $250K, and 3.8% (formerly 2.9%) on income of the self-employed earning over $250K.  
  • And starting next year, a non-compliance tax for anyone not buying qualifying health insurance, estimated to impact at least six million families, most of whom are middle class. 


Meanwhile, the list of companies that have downsized their workforces, and/or pushed people into part-time jobs, and/or no longer offer healthcare insurance to their workforce is long and growing, and making headlines almost every day. A growing number of large and important unions are getting quite upset and concerned. The early fallout from Obamacare—the loss of jobs, the increase in part-time employment, the regulatory burdens, the increased costs, and the higher taxes—has undoubtedly acted to worsen the overall health and vitality of the economy, and it is only likely to get worse with time.

If Obamacare proceeds, the problems and dissatisfactions will mount, and Democrats will face serious consequences come next November. Next year's election would effectively become a referendum on Obamacare, and my money says that the voters will roundly reject it and its hapless creators.

UPDATE (Oct. 4th): See this Facebook page for real life Obamacare nightmare stories. The Republicans didn't need to defund this program, it will destroy itself.

21 comments:

Gee-off said...

I feel I need to respond to this. As a Canadian I enjoy government funded health-care and, for the life of me, I cannot understand how any Americans could be against it.

I want to re-iterate my opening point. It completely boggles my mind that anyone would believe that private, for-profit, institutions could provide cheaper and better health-care than a properly run government system.

Comparisons to the Soviet Union are not appropriate for this discussion. Instead, health care needs to be compared to other western countries. Nearly all western countries rely on some form of public health insurance. The one big exception is the United States. Yet the United States has *more* expensive health care with overall *worse* outcomes.

I work in health care and whenever I talk with American colleagues they bemoan the insurance paper-work they need to do. As well, the two-tier level care is very apparent. In Canada we can go to whatever hospital we want and we will receive a high quality of care. The insurance companies do not control our system.

Honestly, it is difficult for me to discuss this because it bothers me so much.

Public health insurance is *not* communism. It is about treating all citizens fairly and spreading the costs of expensive illnesses like cancer. The current reality of western democracies (with the exception of the United States) clearly demonstrates.

Please, please, please, before making a financial post about American health-care, look at similar (western) countries and compare their costs/outcomes. The Canadian system is not perfect, but it is a lot cheaper, more equal, and results in a *higher* average life expectancy.

W.E. Heasley said...

“The unintended consequences of this law, some of which have already appeared, are virtually impossible to overestimate.”

Yes, cascading unintended negative consequences caused by: Notional propositions held forth as fact, argued through verbal virtuosity and denying legitimacy to any opponent.

The unintended consequences are a known-known. But the “first stage” consequence will seem positive [James M. Buchanan/Thomas Sowell]. And the positive short-term consequence matches short-term political time horizons [next election]. Problem is: particular politicos delayed the implementation for several years hence the cascading unintended negative consequences have already produced low hanging negative consequences. That is:

“If Obamacare proceeds, the problems and dissatisfactions will mount, and Democrats will face serious consequences come next November. Next year's election would effectively become a referendum on Obamacare, and my money says that the voters will roundly reject it and its hapless creators.”

Maybe an even a better point, is to allow for/deploy in an “action phase:

“The subsidies phase out, however, as income increases. But once income exceeds the threshold (e.g., $46K for singles and $62K for couples), the complete phaseout of the subsidy can equate to a marginal tax far exceeding 100%, causing many to lose over $10,000 in subsidies when they earn just one additional dollar. “

Yes, a subsidy cliff. A similar cliff, explained by John Cochrane, entitled “Benefits trap art”, might well enlighten:


http://johnhcochrane.blogspot.com/2012/12/benefits-trap-art.html






W.E. Heasley said...
This comment has been removed by the author.
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Benjamin said...

Gee-off:

I am not necessarily against a very simple single payor health plan---but Obamacare is too complicated.

I am also against some very complicated and expensive Department of Defense programs, and our foreign policy, which seems to get us into more jams and expensive follies than much else.

Out tax code is demented, much too complicated and by that very nature, unfair.

For government to work, simplicity is the key. Obamacare fails on that score.






Joseph Constable said...

Gee-off of course likes health care. Employees of in health care are privileged government people. Socialist countries are at maximum tax rates and are going broke because they can't raise taxes any higher, borrowing desperately to maintain the illusion of prosperity.

Socialists think that by taking all those expensive health insurance premiums and transferring them to the state makes the system suddenly less costly.

In the U.S. Obamacare does not hurt the health care industry cartel one little bit. All monopolistic protections must be eliminated. And face it, we will never resolve the high cost of health care as long as we can get someone else to pay for it.

The American people have been gladly fooled and will continue to be fooled. They will not turn on the Democrats and will elect Hillary in 2016. No? Probably the main argument that people bought into was that the U.S. spends five times as much money on health care as other developed countries and Obamacare was going to reduce to the cost. The public has long forgotten.

steve said...

well firstly, the gop is making a BIG mistake by trying to defund obamacare since it would lead to govt shutdown which they would be blamed for-and rightly. if obamacare sucks that bad then let it proceed-as is the law and dems will pay in '14. secondly, fundamentally I agree completely with Gee-off. canada and most of europe pay 1/3 what we pay for health care yet outcomes are as good if not better. for profit docs have a profit motive that is contrary to affordable care and that's a fact. problem is getting from where we are to a govt delivered program would be damn near impossible PLUS I've come to the conclusion that US govt agencies just SUCK at doing their job. too little done for too much money. just completely inefficient so to put 1/6 of the US economy in their hands? anathema!

Gee-off said...

Benjamin - You make fair points.

Although I believe that Obamacare is the best option right now, it is complicated. And the U.S. tax code is ridiculous! Efficiency and cost savings are very important goals.

Joseph Constable - Instead of making personal attacks on me, LOOK AT THE EVIDENCE!

Compare the U.S. health-care system to all other western democracies. Americans pay *more* for overall *worse* outcomes. This is evidence.

In response to the personal attack I should say that if I worked in the States I would make *more* money. However, one of my colleagues once said that they would feel "dirty" working in the states because health-care is based on how much money/insurance you have, and it is not based on how sick you are. So the poor do not receive the same level of care as the rich.

Footnote - If anyone believes that Obamacare is not the best option and needs to be improved, then that is a reasonable point. However, the evidence in favor of public health insurance is very solid and I have never seen it reasonably disputed.

RichmondG30 said...

My mother-in-law made the grave error of having a brain aneurysm while visiting the Canadian side of Niagra Falls on a Sunday. Upon arrival at the hospital in St. Catharines, she was told to come back Monday because the technician who ran the MRI machine was not scheduled to be back until Monday at 10AM.

Back into the ambulance she went and across the border to the hospital in Buffalo, where she had an MRI (immediately) and went into surgery that afternoon. She is alive today because of the U.S. healthcare system.

Frozen in the North said...

TO ALL CANADIANS!!

Don't bait our American cousins, its not nice! For every statistical analysis we point out, there will be a mother or grand mother with a brain aneurism, that "proves" the American system is best.

ACA is a disaster 2,000 pages long is a ridiculous length that is bound to be full of errors -- my favourite statistic is that the young will be paying more -- considering that the 18-25 are grossly underinsured because as we all know the young are immortal!

Bottom line anywhere between 20 and 50 million we uninsured,

US healthcare costs are about double those of any other country in the world (socialist or otherwise) of course to hear some the only "capitalist country in the world" is 'Merica!

Outcome in the US is worse (higher cost less value)

System overheads are huge (and growing fast) nearly 5% of US GDP

The system is absorbing nearly 18% of US GDP, and although healthcare inflation has diminished it is still substantially higher than GP growth -- it is unsustainable.

Finally, the ACA is hated by the GOP/right because it was mostly their idea but was implemented by a Liberal democrate Muslim Kenyan black guy

Anyway CANADIANS REFRAIN FROM COMMENTING ON THE AMERICAN HEALTH CARE SYSTEM -- HOW WOULD YOU LIKE IT IF THEY TOLD US HOW TO RUN OUR COUNTRY...



DaveH said...

Gee-off:

"It completely boggles my mind that anyone would believe that private, for-profit, institutions could provide cheaper and better health-care than a properly run government system"

It completely boggles my mind that someone could believe what you wrote. Seriously, govt provide something cheaper and better than free market?

amritsari said...

Obamacare - preserves currently monopoly of private health insurance companies and in fact, provides them with more business (through the mandate). This is supposed to be socialist ???!!

Medicare - government regulated health care for old folks (also single payer). Old folks love it and don't want it changed (some are even stupid enough to proclaim "government out of medicare"). This is supposed to be a model (single payer) that the rest of us should despise ???!!!

The cognitive dissonance here is deafening.

It would help if you anti-obamacare folks could provide concrete details for an alternative. Obviously the current for-profit system hasn't worked to cover the whole population. And Obamacare preserves that for-profit structure. So don't just say that market forces should be unleashed. They have been until now, with poor results.

Roy said...

1. It is the purpose of a country/state to provide quality of life to its residents. That is the goal. Getting rich is just means to an end, that end should be quality of life, to all.

2. Quality of life is provided also through insurance -- the keyword here is "average" and the larger the base the better the average.

3. I also originate from a country where there is mandatory health insurance for ALL and it is far cheaper and FAR better than what there is in the USA. Some private healthcare in the states does not even get close.

4. People die. This does not really fit into efficient markets and national health insurance is one of those things that are mandatory to be supported by the government in one way or another.

5. Even before Obamacare the service in the US was unnecessarily expensive and quite honestly awful.

Anyhow, the above is personal opinion, it may or may not be true. What does seem to be a pretty clear fact, though, is that the high cost of health services in the US is due to extremely low efficiency.

Obamacare had the general idea right, that it is disgraceful that the supposedly greatest country on earth have millions of people without access to healthcare.

Unfortunately, the implementation is absolutely awful as Scott has shown.

The only way to resolve it, as a first step, is to acknowledge that the only solution is mandatory health care for all and the current system is absolutely messed up.

Awhile ago I paid in cash for a certain health service. While discussing it with reception, I was told that if I used my insurance (I'm financially independent) they would have charged much more from the insurer. The system is COMPLETELY f*cked up. It's a total shame that people are only focusing on removing government involvement than for fixing the system.

P.S. captcha is evil.

76d2a72e-e960-11e0-96bf-000bcdcb2996 said...

Appreciate the comments from our friends from our northern suburb of Canada. We've got a state with a larger population than your country....and you do know that your system would not be possible without us, don't you?

A shame Natasha Richardson didn't have her accident in Vermont.

Spending more is not a bad thing, per se....we actually have the BEST health care in the world.....so many myths to bust, so little time.

No one in this country goes without health care. Insurance, maybe, but no one is turned away. Of course the system could be better if only the government would get out of the way.

Hans said...

Your best thread to date, Mr Grannis..

Thank you for rising the alarms...

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mmanagedaccounts said...

According to Medicare's own actuarial calculations, the program will be out of money in 2016.

Add in additional taxes from the Affordable Care Act plus its spending cuts and Medicare will not go bankrupt until 2024. The extension will increase the federal deficit by $300-$500 billion.


Speaking with some hyperbole, the only thing I've found that government can do efficiently and better than private markets is keep restrooms clean in campgrounds.

JJ Tucson said...

If Obamacare is so great... why does congress, the unions and special interest groups all want to be exempted from it?

Why did Obama unilaterally (and illegally) delay the employer mandate for a full year?

Why are employers cutting jobs and going to part-timers to avoid the penalties?

I supported the lowering of Medicare to age 55... that would address the huge share of coverage needs... how to pay for that? Simple... do means testing, AND end ALL aid, benefits and newborn citizenship to parasites in our country ILLEGALLY.

Alex B. said...

Gee off,

"As a Canadian I enjoy government funded health-care and, for the life of me, I cannot understand how any Americans could be against it."

Because Americans understand much better than Canadians the immorality of forcing others to work and toil to pay for the things you want. There's a word for forcing other people into that type of servitude: slavery.

Are you a free man or a slave to politicians and bureaucrats? Americans choose to be free men whereas Canadians choose to be slaves.

Johnny Bee Dawg said...

It completely boggles my mind that anyone would believe that a government run system could provide cheaper and better health-care than private, for-profit, institutions competing for customers in an open market.

Our record breaking quality of life came from capitalism, not forced redistribution of wealth thru government power. Socialist systems' GDP would not be possible without our US marketplace.

The only legitimate function of government is to protect the natural rights of the individual. That first guy's comment HAD to be a joke, right??

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