Monday, October 29, 2012

800 Days Late and a Dollar Short on Obamacare

I am about 800 days late and as many dollars short on this topic, but what the hell, let me talk about Obamacare.   This is not only the signature piece of legislation of Obama’s term, it illustrates everything that is wrong with his domestic policies and with him as a President.

Take Your Medicine

First, Obamacare never enjoyed popular support, and against the direct wishes of the people, was jammed down our throats.  As a series of polls showed consist lack of support, Obama, in an arrogance about his abilities of persuasion that is wholly without evidence, made repeated speeches to explain to us exactly why we do not know what is good for us and why we should simply take our medicine and shut up.  Repeated such speeches did nothing to change anyone’s mind.  Obama’s style is to lecture the people as if he is addressing a group of kindergartners – you don’t know what’s good for you, just trust me.

The Con

Second, the sales pitch was the pure con.  You want to know the most effective way to rip people off – you convince them that someone else is ripping them off, and that you are going to save them from such thievery.   This leads to the creation of two incompatible straw men, both of which were characterized as ripping us all off.  First, we were told directly by Obama that doctors are constantly ordering unnecessary procedures to pad their income.  Second, we were told directly by Obama that insurance companies were constantly denying people life-saving procedures.  So apparently the insurance companies were fine green lighting the unnecessary procedures ordered up by the unethical medical profession, but when it came to covering necessary procedures they fought tooth and nail.  How approving unnecessary amputations at its own expense led to more profits for the insurance companies remains unclear, but they were clearly recouping it by denying necessary procedures all of the time.  Obama put the cherry on top with his repeated lie about his mother being refused coverage by her insurer for necessary medical procedures.  (Don’t believe me?  Go to NPR: 
Add to these lies the cynical insistence during the political fight that the fines that would be levied against those who didn’t purchase insurance were not a tax, followed immediately thereafter with the argument in favor of the constitutionality of the legislation that it is a tax.  Keep in mind that the stock price of health insurance companies all increased the day Obamacare passed – what does that tell you about how they were ripping you off before, but now they will purportedly be set straight?

The Unintended Consequences of Excessive Regulation

There was a recent article about the restaurant chain parent company Darden scaling employees back from full-time to part-time employment in order to reduce the cost burden placed upon it by Obamacare.  Under Obamacare, companies of a certain size must provide affordable health insurance to employees working an average of at least 30 hours per week.  If they do not, the companies can face fines of up to $3,000 for each employee.  By scaling people back to part-time status, the company avoids the costs imposed upon it by Obamacare.  This is the “unintended” consequence which, while perhaps unintended, is completely predictable.  This is a classic example of the difference between the statutory incidence of a tax – who nominally is designated to pay a tax – and the economic incidence, which is who feels the pain of the tax.  The letter of the law makes it look like the employer either pays for the employee’s insurance as part of his overall compensation, or pays the fine, which can go to subsidizing the insurance purchase for those who cannot afford it. 

No cost to the employees, right?  Not exactly.  Obamacare is a tax on the decision to employ a full-time worker.  Suppose prior to Obamacare, the company employed full-time workers for $10 per hour. Now, under Obamacare, it is mandated to provide insurance, equivalent in value to $2 per hour.  One option, not taken by this company, is to cut the wage to $8 per hour, so overall comp stays the same. Why didn't they do this? It is likely that the value of the insurance to yoing employees far exceeds its cost, so they don't view it as $10 in total comp - they might view as $9 in total comp. So they leave to work elsewhere. Rather than do that, the company can avoid the tax by splitting jobs in two. They also know that this will lead to turnover, but perhaps they expect it will be less turnover than that which would come from cutting wages. Of course it is expected to be bad for business, because they obviously were not choosing that option in the first place, but it is in their opinion the best response to the effective tax. Now consider the worker - prior to Obamacare he had no insurance, but he had a full-time job. Now his hours have been cut back, and because no employer is obligated to provide him insurance, he is mandated by law to buy it himself. Again, because he is probably young and relatively healthy, he doesn't want to buy "community - rated" insurance with a premium that treats him like he is a 50 year old guy with gout, he opts out and pays a fine to the government (or is that a tax? it depends on whether you are trying to shove a program down people's throats or argue in front of the Supreme Court). End result - the worker makes less money, pays a fine he never had to pay before, and still doesn't have insurance. At least he has more liesure time – he can sit around drinking Chartreuse and watching bowling.  The economic incidence of the tax falls partially on the company, but more fully on the employees, who are the intended beneficiaries of the policy.

You Can Have Anything on the Menu, as Long as it is SPAM

Economic freedom means very little to the Obama administration, and Obamacare reflects this directly.  I have a high deductible health plan in combination with a healthcare spending account. I researched all of my options when I went out on my own, and this was clearly the one that made the most sense. There is also evidence from the Rand Health Care Experiment that such plans reduce health care costs, not through people ignoring real healthcare that they need, but by limiting expenditures on low cost healthcare items. Obamacare puts these plans in jeopardy, when what we really need is more people on plans like these.  that such plans reduce health care costs, not from people ignoring real care that they need, but by limiting expenditures on low cost healthcare items. Obamacare puts these plans in jeopardy, when what we really need is more people on plans like these. I have a Ph.D. in economics, and am fully f*&^ing qualified to make rationa
I am fully f7*^ing qualified to make rational decisions regarding the best way to insure myself and my family, but my freedom to contract for the insurance coverage I desire is thrown away.   Under Obamacare, the medical loss ratio requirement (“MLR”) of Obamacare requires that insurance companies spend 80 percent of revenue from premiums on medical claims or anything that improves the quality of health care. (The additional 20 percent is for administrative and other non-medically related expenses.) If the minimum of 80 percent is not met, the insurer must issue a rebate to the consumer. The structure of my insurance plan makes it incompatible with the new MLR rules.  And I’m not alone – there are 11.4 million people with similar coverage.  (see: This is one of the many ways in which Obama’s repeated promise - “If you like your health care plan, you’ll be able to keep your health care plan, period” – is a falsehood. 

When we decide that a private good or service – like health insurance – is to be guaranteed to us through the Big Government Restaurant, never forget that the nature of the Big Government Restaurant is to have a very short menu – there is really only one entrée ever available.  The fact that Obamacare leads to the elimination of a transaction between me and my insurance provider that is mutually beneficial to each of us is one of those unfortunate “bumps in the road.”  As the old line from Monty Python goes, you can have anything on the menu as long as it’s SPAM.

Subsidizing Choices Rather than Insuring Risk

We insure against uncertain low probability events that can be costly.  Those are the 2 elements that create the demand for, and subsequent supply of, insurance contracts.  If treating cancer cost $10, there would be no need to insure against it.  If getting cancer were a certainty, there would be no one offering you an insurance contract.  Because it is a costly but low probability event, we willingly pay an annual premium equal to the expected costs of treatment in the event we get sick, multiplied by the very low probability we will actually get that sick.  There is also one major thing to consider – sometimes we influence the probability of our getting sick.  If we smoke, or drink a lot of Chartreuse, or eat pork rinds while watching professional bowling, we increase the odds of getting sick.  This is called moral hazard.

All of this explains why there is no insurance for milk.  Milk is a low cost item, and your need to purchase it is completely determined by your choice – there is not some low probability unexpected event that is going to lead to the necessity of your buying milk.  Similarly with birth control – you don’t unexpectedly need it, it is not a high cost item, and your need to have it is completely a matter of personal choice.  And yet, here we are, with Obamacare requiring that employers, even religious employers that are vehemently opposed on moral grounds – are being forced to offer such “insurance” to their employees.  Nice little subsidy to the abortion and birth control industries – remember my characterization of Obama’s primary policy question: who can I give shit away to?  This one is twofor – at the same time he gives sh*& away to a favored constituent group, he sticks it in the eye of religious conservatives all in the name of “insurance.”  And this, by the way, is going to control costs. 

All Pigs are Equal, But Some Are More Equal Than Others

I remember back in the days when Clinton was turning the White House into a brothel for chubby Jewish interns, there was a big effort to raise the federal minimum wage law.  One of the lobbying organizations that was instrumental in the effort, which was eventually successful, was ACORN.  The ink wasn’t even dry on the new wage law when ACORN was asking for an exemption from it in its dealings with its own employees.  Rules are for the people we don’t like, and whenever possible, should be selectively applied accordingly.  And so it is with the Cadillac tax on high-cost insurance coverage, which applies to everyone with such a plan.  Except for members of unions.  Some Pigs are more equal than others.  That tax started as an effort to hit the fat cat 1 percenters, and the Obama administration didn’t realize that a lot of unions have these same fat cat deals.  So a policy that stemmed from the question: “Who can I take sh*% away from?” ran into a slight hitch.  No problem – just exempt those you favor, and move along.  


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