As we get ever closer to ObamaCare’s full launch, I’m increasingly certain that ObamaCare will be a disaster. Employers are already changing their hiring practices (keeping the numbers below 50 or, in the case of medical device companies, firing people) or jettisoning insurance altogether. For example, Trader Joe’s, UPS, and Forever 21 are all cutting back on the health insurance benefits they’re providing. To justify the decision, Trader Joe’s wrote a letter explaining how things work in the real world. Here’s the letter, which I’ll parse after you’ve had a chance to read it:
Thank you for writing to us. It’s possible you have been misled, at least to some degree, by the headlines in some articles regarding our reasons for implementing the [Affordable Care Act] in January. We’d like to take this opportunity to clarify some facts.
For over 77% of our Crew Members there is absolutely no change to their healthcare coverage provided by Trader Joe’s.
The ACA brings a new potential player into the arena for the acquisition of health care. Stated quite simply, the law is centered on providing low cost options to people who do not make a lot of money. Somewhat by definition, the law provides those people a pretty good deal for insurance … a deal that can’t be matched by us — or any company. However, an individual employee (we call them Crew Member) is only able to receive the tax credit from the exchanges under the act if we do not offer them insurance under our company plan.
Perhaps an example will help. A Crew Member called in the other day and was quite unhappy that she was being dropped from our coverage unless she worked more hours. She is a single mom with one child who makes $18 per hour and works about 25 hours per week. We ran the numbers for her. She currently pays $166.50 per month for her coverage with Trader Joe’s. Because of the tax credits under the ACA she can go to an exchange and purchase insurance that is almost identical to our plan for $69.59 per month. Accordingly, by going to the exchange she will save $1,175 each year … and that is before counting the $500 we will give her in January.
While we understand her fear of change, at her income level this is a big benefit that we will help her achieve.
Clearly, there are others who will go to the exchanges and will be required to pay more. That is usually because they have other income and typically a spouse who had a job with no benefits and they do not qualify for the subsidies under the ACA.
One example of that we had yesterday was the male Crew Member who worked an average of 20 hours per week but had a spouse who is a contract consultant who makes more than $200,000 per year. The Crew Member worked for the medical benefits and unfortunately for them they are likely to have to pay more because of their real income. We understand how important healthcare coverage is to our Crew Members and we are pleased to be able to provide and support this program.
We do hope this information helps, and we appreciate your interest in Trader Joe’s.
Translation: If you are poor, the health exchange will offer you similar insurance to the insurance we offer, only at a lower cost. It therefore make sense for us to drop coverage for you (and even give you a little stipend) and for you to enter the exchange. Tough luck that you’ll have to lose your physician. And if you’re wondering how the exchange offer you such cheap insurance, here’s the answer: It’s your co-worker, the one who also lost his Trader Joe’s insurance. He’s also been forced into the exchange too, but the terms for him are a little different. Because his family has more money, he will pay more for his insurance. That doesn’t mean he’ll pay market value. Just as you’re paying less than current market value for your exchange insurance, he’ll pay more than current market value in order to subsidize you.
This Trader Joe’s explanation (as run through the somewhat less tactful, more biased Bookworm Room translator) really tells you everything you need to know about ObamaCare: Employers will turn their backs on roughly 70 years of history and stop providing health insurance benefits. That’s when the bad things start to happen. First of all, regardless of how much people like their doctors, they will not get to keep them. Second of all, the new system will be pure socialism, with richer people having to support poorer people in order to make it work.
Except that there’s one other twist that didn’t get into the Trader Joe’s letter. What’s happening in the exchanges isn’t actually insurance. Instead, it’s cost-shifting. Technically, people are required to buy insurance or face a financial penalty. That penalty, however, is significantly less than the cost of insurance. The penalty therefore is not an incentive to buy.
At this point, credulous people will say, “But everyone should be insured, just in case. That will be the incentive to buy.” That’s not true either. Because of ObamaCare mandates, the only insurance policies that can be offered have to be gold standard, covering young people for congestive heart failure (an old people’s disease) and old people for infertility (a younger person’s problem). (Those are just easy examples. I’m sure you can think of better ones.)
Additionally, in order to subsidize the old and sick who will invariably draw on their insurance, the exchanges will require young people who are normally very healthy, to pay a great deal for something they almost certainly will not use. This is a reversal of the current situation, which sees young people buying cheap policies with huge deductibles and limited benefits, while older people buy more costly policies with lower deductibles and high benefits.
Faced with being forced to buy something they perceive as useless or too expensive, the people who are being called upon to subsidize the exchanges will baulk. Moreover, because ObamaCare says that insurers must accept anyone who applies, even if that person learned yesterday that he needs a hugely expensive heart proceudre, the wise consumer will refuse to buy insurance, pay the small annual penalty and, God forbid illness strikes, only then announce that he or she needs insurance. Insurance companies are no longer gambling on risk; they are entirely responsible for the cost of health care.
In the beginning, people will no longer have insurance tied to their job and they will have to change doctors. By the end, insurance companies will be destroyed. Many suspect that this is the Democrats’ ultimate goal, because Democrats believe that an insurance company collapse will create a vacuum that only government-controlled (i.e., socialized) medicine can fill. Suddenly, and by default, America will have Britain’s National Health Service.
But what if there’s a different scenario? Our health-care system has indeed been too expensive for too long, and that’s because employer-provided health insurance perverted the market. At the employer level, people became chained to jobs, destroying happiness and productivity. More than that, though, people became disconnected from the costs of their health care. As matters stand now, we don’t care how much our doctors charged as long as our insurance companies pay. Meanwhile, the insurance companies knew that, if they didn’t pay, they could be sued or publicly pilloried. Additionally, considering the vast pool of insured employees, insurance companies had cash reserves for the difficult cases.
Under this system, we saw costs rising endlessly as the ultimate consumer didn’t care and the ultimate payor had no connection to the consumer. Meanwhile, even as prices rose, doctors were not getting rich, because, for them, the costs of dealing with insurance companies were prohibitively high. Add in government regulations — up to 1,600 state and federal regulations in California alone — and you have a system without any price controls and with ginormous, unnecessary bureaucratic and corporate costs.
The one other factor perverting the market has been Medicare and Medicaid. Both of these vast government welfare programs routinely pay between 40 and 10 cents on the dollar. Health care providers who want coverage for real costs, plus a little profit too, had to jack up their costs across the board to accommodate the Medicare/Medicaid payment discounts. Of course, insurance companies got charged the same fee, but couldn’t unilaterally impose the government discount. Another market perversion….
Lastly, of course, there’s a non-economic factor: Since consumers have no connection to the real costs of health care, they have little to no incentive to avoid health risks. Some might say that staying healthy is itself an incentive, but that doesn’t look at how the human mind works. If I pay bills every month, and my bill says I’m getting a 40% discount if I can prove that I don’t smoke, I’ll stop smoking. However, if I am told that in some thirty or forty years, that kind of timeline is too long to lead to behavioral changes. If we’re not paying now, we’re not changing now.
ObamaCare will destroy this unwieldy system (which got its start only in the years after WWII). Employer-provided benefits will be gone. Insurance companies will be gone. The only ones remaining will be doctors, patients, and the government. The government, however, will not come out of this looking pretty. Unless they’ve been living under rocks (which is entirely possible metaphorically speaking), Americans will associate the government with the collapse of the system. Even the most vestigial intelligence will realize that government is the problem, not the solution.
Something, though, will have to rise from the smoking ash heap of the pre-ObamaCare market perversion, and the ObamaCare market collapse. What might rise is an actual market, with people creating medical savings accounts (i.e., self-insuring), and care providers charging less because (a) they’re negotiating with an actual customer and (b) their costs are real costs of service and equipment, rather than the artificially created costs of insurance companies and government regulations.
Anyway, that’s my silver-lining thought. Please feel free to poke away at it, exposing its myriad flaws.