ObamaCare, or economics & federalism?....
The reason: The congressional Democrats who crafted the legislation ignored virtually every actuarial principle governing rational insurance pricing. Premiums will soon reflect that disregard—indeed, premiums are already reflecting it.
Central to ObamaCare are requirements that health insurers (1) accept everyone who applies (guaranteed issue), (2) cannot charge more based on serious medical conditions (modified community rating), and (3) include numerous coverage mandates that force insurance to pay for many often uncovered medical conditions.
Guaranteed issue incentivizes people to forgo buying a policy until they get sick and need coverage (and then drop the policy after they get well). While ObamaCare imposes a financial penalty—or is it a tax?—to discourage people from gaming the system, it is too low to be a real disincentive. The result will be insurance pools that are smaller and sicker, and therefore more expensive.
Already, 8 states--New Jersey, New York, Maine, New Hampshire, Washington, Kentucky, Vermont and Massachusetts--adopted "guaranteed issue" in the 1990s and were financially creamed as a result. Our president predicted upon passage of ObamaCare that annual family health care premiums would be $2,500 lower; in fact, they will be $3,000 higher. Applied to the 117.5 million US households 4Q2012 census figure, this is an estimation spread of $646.5 billion dollars annually. It adds $352.6 billion annually ot America's health care bills.
A hospital in southern Pennsylvania will stop providing obstetric care on March 31, citing lower reimbursement expected under ObamaCare.
Another WSJ editorial looks at the budget impact of ObamaCare:
The health entitlements—Medicare, Medicaid, the children's state insurance program and soon ObamaCare subsidies—accounted for 21% of the budget in 2012. But that will rise to about 24% this year, and about 33% by the end of the decade. As a share of the economy they'll grow to 10.4% over the next 25 years from 5.4% today, according to the Congressional Budget Office, even with all those supposedly good cost-control ideas in the Affordable Care Act.
CBO wrote in November that unless these entitlements are reformed, or other spending drastically cut or taxes drastically raised, "deficits will be much larger in the future than they have tended to be in the past." This conclusion "applies under any plausible assumptions about future trends in demographics, economic conditions, and health-care costs." Many liberal health experts are already declaring that the Affordable Care Act was only a cost-control prelude.
All this, and the WSJ editors note Obama's recent remark: "We don't have a spending problem. We have a health-care problem."
Another problem, noted by NRO's Ramesh Ponnuru, is that employer-provided health care benefits not only mask the true cost of care but, worse, depress wages. Workers do not see the link between lower wages & higher benefits, and thus feel the economic pinch of lower wages. For many workers cash wages matter more than tax-deductible health benefits.
Yet as still another WSJ editorial explained, the health-care exchanges proposed by Obamacare are sham federalism, as the states accepting the government's offer would find themselves with near-zero managerial discretion:
true that the exchange concept originated among free marketeers to
maximize competition among insurers and providers and help people sort
options and make better health-care choices. But those exchanges are
illegal under ObamaCare. Utah built such an exchange in 2006 and is
asking HHS to certify it as ObamaCare-compliant. The chances of HHS
doing so are approximately zero.
The exchanges that will work aren't going to be run by the government. Insurers including Blue Cross Blue Shield, WellPoint and Highmark already use internal exchanges for some of their retail products. ADP, AON AON +1.53% Hewitt, eHealthinsurance and others connect employers and consumers with multiple plans through exchanges too. Private exchange are far more nimble and useful than whatever HHS is concocting.
The fact is that many Governors actively wanted to participate but were driven off by HHS's coercive rules, chronic lack of communication, unrealistic deadlines and delusions of competence. Republicans like Chris Christie (New Jersey), Tom Corbett (Pennsylvania) and Bob McDonnell (Virginia) are moderate and practical Governors who couldn't abide the Administration's methods.
Progressives, writes George Will, hate limits on federal power, including those imposed by judicial review. GW cites one progressive's disdain for the Supreme Court's putting any limits on extension of the Voting Rights Act of 1965, despite abundant evidence that it is no longer needed, as its legislative purposes have been fulfilled:
That section requires some Southern states and other jurisdictions to seek Justice Department permission to make even minor changes in voting procedures. This was a justifiable infringement of federalism in 1965. But in 2006, when blacks were registering and voting at higher rates than whites in some covered states, Congress extended the act until 2031 using voting information from 1972. Surely Scalia was correct that Congress, indifferent to evidence, continued to sacrifice federalism merely to make a political gesture. The Roberts court was excessively deferential in not overturning Section 5 in a 2009 case, when it merely urged Congress to reconsider the section.
Will further alerts us that Chief Justice Roberts's much-villified opinion upholding ObamaCare may contain the seeds of ObamaCare's undoing, by making it unworkable. The interplay of ObamaCare's "guaranteed issue" (cannot deny insurance due to pre-existing conditions) & "community rating" (insurers can price solely by age, smoker status & geographic area--not by applicant's health/sickness) gives young people incentives to pay the tax (penalty) rather than buy insurance under ObamaCare:
[Roberts’s] decision limits Congress’s latitude by holding that the small size of the penalty is part of the reason it is, for constitutional purposes, a tax. It is not a “financial punishment” because it is not so steep that it effectively prohibits the choice of paying it. And, Roberts noted, “by statute, it can never be more.”As Lambert says, the penalty for refusing to purchase insurance counts as a tax only if it remains so small as to be largely ineffective.
Unable to increase penalties substantially, Congress, in the context of “guaranteed issue” and “community rating,” has only one way to induce healthy people to purchase insurance. This is by the hugely expensive process of increasing premium subsidies enough to make negligible the difference between the cost of insurance to purchasers and the penalty for not purchasing. Republicans will ferociously resist exacerbating the nation’s financial crisis in order to rescue the ACA.
Because the penalties are constitutionally limited by the reasoning whereby Roberts declared them taxes, he may have saved the ACA’s constitutionality by sacrificing its feasibility. So as the president begins his second term, the signature achievement of his first term looks remarkably rickety.
A CATO Institute article adds detail on why ObamaCare may be doomed in practice.
Bottom Line. Obama will do everything to weave ObamaCare into the nation's fabric. It will take a full-court four-year press to have a chance to meaningfully limit its harmful effects.
Letter from the Capitol, LFTC, Economy, Conservative Politics