The Top 10 Ways ObamaCare Will Transform America

Due to the complexity of this topic, this will be Part I of a series of posts. The health care bill signed into law is H.R.3590, Patient Protection and Affordable Care Act, and the Reconciliation Bill, H.R. 4872.  You can read the bills side by side here.  Or you can query the Library of Congress.  The links to the bills change often, so you may have to query the bills by their numbers a few times if you take a break from reading them. But this view of the bill provides a hyperlinked table of contents so you can go back and forth to various sections that are referenced.  For those who want a 40 page summary, the Kaiser Family Foundation sums up the major components of the bill topically here.  For the 5-min version, a timeline of when benefits and taxes kick in can be found at CNN and the WSJ. 

1. Obamacare changes the social contract between free Americans and the government. Government is no longer accountable to the people. People are accountable to the government.

Individual Mandate: Section 1501 requires every American to purchase “minimum essential coverage” by 2014 or face a fine.  Employers with companies over 50 individuals must offer a plan for all employees to include part-timers.  Individuals or an employer who would normally decide what policy is in their own or employees’ best interests will not determine the minimum essential coverage. The all-knowing Secretary of HHS will tell you what you MUST purchase, and it’s much more than catastrophic plans would cover.  Shikha Dalmia in Forbes, explains:

A mandate will fundamentally alter the relationship between Americans and their government. Instead of the government being accountable to them, they will become accountable to their government. No less than the Congressional Budget Office--a non-partisan government agency--once admitted as much. "A mandate requiring all individuals to purchase health insurance would be an unprecedented form of federal action," it noted. "The government has never required people to buy any good or service as a condition of lawful residence in the United States."

If the government can force Americans to buy coverage on the threat of fines or even imprisonment--an option that Nancy Pelosi has pointedly refused to rule out--every other government diktat becomes small potatoes by contrast. In fact, it becomes necessary. If uninsured Americans must buy coverage, why shouldn't other Americans be taxed to subsidize them? Why shouldn't the insurance industry be required to sell them coverage? Why shouldn't government set insurance prices to ensure affordability? Why shouldn't doctors and hospitals be asked to charge only "reasonable" rates--or offer only government-sanctioned treatments?

As an article in the DC SCOTUS Examiner points out, the government is essentially fining you for economic inactivity.  I’m not a constitutional lawyer and the courts will have their say in this. The punditocracy seems convinced this will stand constitutional muster. But to me, it seems this mandate essentially tears apart the concept of a limited government as outlined by enumerated powers in the Constitution.  It makes the Bill of Rights the only guaranteed rights for Americans.  If the government can define any activity as economic to invoke the Commerce Clause, and regulate economic inactivity to boot, they can dictate and regulate just about anything.  Government paternalism with all the bureaucracy it entails will become an accepted way of life.
2.  Obamacare will make health care more expensive, causing premiums to rise. Obamacare essentially gets rid of risk-based insurance—and instead, turns insurance companies into regulated utilities that provide health care assurance for all. Within the first year of it being signed into law, Obamacare will provide the following benefits:

• Insurers will be barred from imposing exclusions on children with pre-existing conditions. Pools will cover those with pre-existing health conditions until health care coverage exchanges are operational.
• Young adults will be able stay on their parents' insurance until their 27th birthday.
• Insurers will not be able to rescind policies to avoid paying medical bills when a person becomes ill.
• Lifetime limits on benefits and restrictive annual limits will be prohibited.
• Subsidies begin for small businesses to provide coverage to employees.

Now the ban on pre-existing conditions (known as the guaranteed issue) is a popular reform, and this is where the for-profit system was truly failing people.  Insurers don’t want people with chronic conditions on their rolls since they drive up their costs.  The GOP had the guaranteed piece in most of its legislative proposals as well.  That could have been a starting point to passing a smaller, bipartisan bill.  The insurers wanted the mandate, particularly for young healthier people who normally don’t buy insurance, on the rolls to offset the costs of all the above benefits. However, the individual mandate does not kick in until 2014 while the guaranteed portion starts this year. This will make the individual insurance market more expensive, as ABC News pointed out when they fact-checked Obama on his claims:

Premiums would be 27-30% higher because coverage would be better. The law, for example, requires that all policies cover maternity care, prescription drugs, mental health & substance abuse and no denial of coverage for pre-existing conditions.

Premiums would be 7 to 10 percent lower b/c of changes to the way the individual market is structured.

Premiums would be 7 to 10 percent lower b/c of an influx of more people, many of them healthy, into the insurance market.

The net effect of those three factors: Premiums would be 10 to 13 percent higher for the average policyholders.

A rise in premiums was also confirmed by an Aetna’s CEO, Ron Williams in a Businessweek interview:

 Will insurance premiums go up?

The answer is yes, and some of the things that will drive those premiums are significant additional taxes the industry will ultimately have to pay in the first year.

The President said that this bill would not have any impact on people who already had coverage, that it was about the uninsured, that there would be no change. Will this legislation change the coverage of people who are already paying for it?

My perception is, yes, things will change. You might not have a plan that includes the exact same doctors. You might have plans that have richer benefits, and therefore you're going to pay more for benefits you may or may not want. It would have been a better message to say, we're going to make certain you maintain your eligibility.

Additionally, even when the mandate kicks in, it’s not likely to offset costs. Most people have insurance through their employer. This is one of the main reasons health care costs are becoming more expensive—people who have low-deductible plans without co-pays are not sensitive to the pricing of services and therefore, consume more health care.  Professor Katherine Baicker, Professor of Health Economics at Harvard, testified before the Senate on this phenomenon:

Why does insurance cause greater consumption of health care? Insurance, particularly insurance with low cost-sharing, means that patients do not bear the full cost of the health resources they use. This is a good thing – having just made the case for the importance of the financial protections that insurance provides – but comes with the side-effect of promoting greater consumption of health resources, even when their health benefit is low. This well-documented phenomenon is known as “moral hazard,” even though there is nothing moral or immoral about it. The RAND Health Insurance Experiment (HIE), one of the largest and most famous experiments in social science, measured people’s responsiveness to the price of health care. Contrary to the view of many non-economists that consuming health care is unpleasant and thus not likely to be responsive to prices, the HIE found otherwise: people who paid nothing for health care consumed 30 percent more care than those with high deductibles.4 This is not done in bad faith: patients and their physicians evaluate whether the care is of sufficient value to the patient to be worth the out-of-pocket costs. The increase in care that individual patients use because of insurance has even greater system-wide ramifications. R&D in new medical technologies responds to the changes in aggregate incentives driven by health insurance. While these technologies may improve welfare, they also raise premiums because of larger armamentarium of treatments available to the sick. There is evidence of these system-wide effects: when Medicare was introduced in 1965, providers made spectacular investments beds in high-tech care, and hospital spending surged over 25 percent in 5 years.5

She goes on to point out that preventative care, which is mandated in Obamacare, will not lower prices either.

Even increases in preventive care do not usually pay for themselves: in general prevention is good for health, but does not reduce spending. Some preventive care has been shown to be cost- saving – such as flu vaccines for toddlers or targeted investments like initial colonoscopy screening for men aged 60-64 – but most preventative care results in greater spending along with better health outcomes. Indeed, some money spent on preventive care may not only cost money, but may be no more cost effective than some “high-tech” medical care For example, screening all 65-year-olds for diabetes, as opposed to only those with hypertension, may improve health but costs so much (about $600,000 per Quality Adjusted Life Year) that that money might be better spent elsewhere.6

The CBO has confirmed her analysis on preventative care costing more here, and cites several other studies confirming these results.  While preventative care may makes sense on an individual level, it is not cost effective at a group level, because doctors do not know ahead of time who will succumb to a particular disease.  While screening will catch a few illnesses to the benefits of those individuals, the cost of preventative care for everyone exceeds the savings for the individual.  While prevention is a positive factor in producing better health outcomes, the socialization of these costs in the current bill is a further entrenchment of a collectivist mindset than puts government in charge of our health care, using boards and bureaucracies to tell us what type of care we ought to be receiving, stripping individuals of responsibility for their own health.  This goes back to how the individual mandate changes the contract between the government and individuals.  It opens the door for society later to start demanding and mandating people engage in healthier behavior, for example, by taxing unhealthy foods, such as soda taxes that many states are starting to consider as a serious proposal. If you’re wondering what’s wrong with that logic, why not get rid of the marriage penalty and instead provide an additional tax to single people over the age of 25, or provide more government spending for faith based initiatives? Medical studies consistently show married, religious people are healthier than single people or those not religious. As Megan McArdle points out, we don't have any programs promoting those lifestyles, but elites have no problem insisting on calorie menus and sounding the alarm on obesity: "when you listen to obesity experts, or health wonks, talk, their assertions boil down to the idea that overweight people are either too stupid to understand why they get fat, or have not yet been made sufficiently aware of society's disgust for their condition."

But back to the cost issue.  The Dems will say these premium raises are offset by subsidies. However, the WSJ pulls back the curtain on this pretend savings:

So the bill will increase costs but it will then disguise those costs by transferring them to taxpayers from individuals. Higher costs can be conjured away because they're suddenly on the government balance sheet. The Reid bill's $371.9 billion in new health taxes are also apparently not a new cost because they can be passed along to consumers, or perhaps will be hidden in lost wages.

This is the paleoliberal school of brute-force wealth redistribution, and a very long way from the repeated White House claims that reform is all about "bending the cost curve." The only thing being bent here is the budget truth.

Moreover, CBO is almost certainly underestimating the cost increases. Based on its county-by-county actuarial data, the insurer WellPoint has calculated that Mr. Baucus's bill would cause some premiums to triple in the individual market. The Blue Cross Blue Shield Association came to similar conclusions. 

The health care debate is complicated but Americans aren’t economically illiterate—they understand the money to fund this entitlement has to come from the taxpayer.  And they understand when you have more services in your health care plan, as mandated by Congress, there will be increased costs that are passed onto the consumer. On both ends—not only through premium increases, but also likely, on increased taxes in the future.
In an upcoming series of posts, I'll discuss how Obamacare transforms America in these ways:
3. Obamacare will add an unsustainable entitlement that will increase the national debt, requiring higher taxes in the future that will negatively impact economic growth.


4. Obamacare will put a heavier burden on businesses in these fragile economic times, and jeopardize an economic recovery.

1.  

  5.  5. Obamacare will hamper medical innovation to produce the latest life-saving technologies.

2.   6. Obamacare will warp the patient-doctor relationship where cutting costs will be placed above what is right for the patient.

    

      7. Obamacare will lead to rationed care.

      8. Obamacare will lead to a two tiered system of health care, magnifying economic inequality.

9. Obamacare worsens the special interest alliance between government and big business.

10. Obamacare will transform America to a European style welfare state, leading to a loss of freedom.