Nathan Sass

The Scary Future Under Obamacare

In Health Care Reform, Politics, Ron Johnson on March 23, 2012 at 6:00 AM

On Monday, the US Supreme Court will begin to hear arguments regarding the constitutionality of the “individual mandate” contained in Obamacare.

This individual mandate is considered to be the lynchpin of the entire law by most observers, including those on the left.  Well, at least the left said that until that provision became threatened.  Now they claim that it is just a small part of the law.

In plain english, the individual mandate requires every living American to purchase health insurance for themselves, and any dependants.  (Excluding illegal aliens, indian tribes, people in prison and special people given exemptions by Her Royal Highness, Lady Kathleen Sebelius, Mistress of All She Surveys).

In order to enforce this mandate, the law calls for penalties to be assessed under the context of your income tax filings if you do not have coverage for more than 4 consecutive months.

How the fine amount is calculated is slightly harder to explain than quantum string theory, and will likely require that you hire someone to figure it out for you.  I can say, however, that the fines are almost certainly going to be miniscule in comparison to the cost of an insurance plan.

And that, ladies and gentleman, is the dirty secret of Obamacare.  The individual mandate is not designed to make people responsible and buy insurance.  It is designed to destroy the private insurance industry almost totally and in the space of just a few years.

Senator Ron Johnson has been accurately describing the expected outcomes of Obamacare where employer funded coverage is concerned.  Long story short, it will soon cease to exist because employers will soon discover it is a lot cheaper to pay the fine for not offering coverage to employees than it is to pay their share of the premiums.  More than $12,000 cheaper on average, assuming premiums do not continue to go up.

What Sen. Johnson has not yet explored is what will happen when individuals face the same decision employers do.  Specifically, what will people do when they figure out that they can pay a minimal fine and avoid paying a huge premium for insurance.

“Wait!”, you say,  “People will not do that because they will be afraid they will get sick and not have insurance!  They will HAVE to buy it!”

Ummm….wrong.  Well, eventually anyway.  See, Obamacare requires that anyone requesting insurance coverage be allowed to buy it, with all pre-existing conditions covered fully, at no increased premium costs.  In fact, denial of coverage is all but impossible.

So pretty soon people will figure out how to game this system.

Lets say you are a family of 4 and make the median income of about $50,000 per year.  Your employer just dropped coverage and now you are under the individual mandate.  A family plan will cost about $20,000 per year (at the current rate of premium increases), and you are told you ar eligible for subsidies from the taxpayers to cover some of that cost.

That subsidy works out to probably about $10,000.  This means you will still need to pay $10,000 for insurance, or $833 per month.

Read that again.  You make $50,000 and will have to pay $833 per month for insurance.  That family probably pays less than that for housing.  That is a HUGE amount. (20% of their gross)

It gets worse.  That $833 per month comes out of AFTER TAX income.  When you have an employer sponsored plan like most do now, your contribution to premiums comes out of pre tax income and reduces your tax liability.

Not under this policy, though.  That $833 comes out of the net.  After Social Security, Medicare and Income Taxes are taken out.  It comes out of take home pay.

For our example family, that $833 per month comes out of their take home pay of roughly $40,000.  That works out to be about 25% of their take home pay every month for insurance.

Wow.

So what is a reasonable person going to conclude:

1) Insurance costs $833 per month, and the fine is a one time charge of about $400. – The fine is a lot less expensive than insurance.

2) I can pay for most of my families “regular” medical care (prescriptions, office visits, etc.) for less than the $10,000 insurance costs.  – Buying insurance doesn’t make financial sense.

3) If someone in our family gets sick or has an accident, I can call the insurance company on the way to the hospital and get insurance, and they can’t make me pay more for it or say no to any care after I sign up. – There is almost no risk from not having insurance.

4) I can drop insurance as soon as the big bills are paid, and do #3 as many times as I need to, and they can’t stop me from getting covered.  – There is actually NO risk for not having insurance.

So people will quickly learn how to scam the system, pay a little fine, and only get insurance when they have big bills to pay.

In the insurance industry this is called “adverse selection”, which means that only people using a lot of insurance buy insurance, meaning there is never enough premium money to cover the claims costs.

Insurance, as it exists today, relies on many people paying premium and a relative few using it at any one time, making it possible to pay the claims and not go broke in the process.  (Sound a lot like socialism to you?  Yeah, me too.)

Obamacare destroys this model and results in only people using insurance paying premiums, and then not paying enough to cover their own claims, much less help pay for anyone else’s.

When this happens, there can only be one outcome.  Insurance companies will either go bankrupt and cease to exist, or require massive bailouts from the government to remain in business.

Bailouts are never going to happen.  It would be way too expensive, and the US is already too far in debt to be able to do it anyway.

That means insurance companies go broke, and “insurance” becomes harder and hard to buy for those that want to.

Who do you think will ride to the rescue when this happens?  Well, your knight in shining armor of course. 

The Federal government will arrive to “save the day” with a single payer, government run, Canada style system.  They will tell the public “Private insurance has failed the people of America, and proven it cannot work.  Only a government run system can provide the care the American people need.”

All of this is by design of course.  You have to believe that Democrats and Obama are supremely stupid to think they didn’t know this was a plan designed to fail.  They WANT it to fail.  They NEED it to fail. 

Failure finally makes a single payer government run system popular and lets them finally take control over the people they way they want to.  Control “health care” and you have control of almost every aspect of people’s lives.  This is what they want.  Power and control by the “intelligent elite” over the “unwashed masses”.

Not since Dred Scott has so much rested on a single Supreme Court decision. 

If Obamacare is struck down, the above scenario is avoided.  Health care reform will once again be a topic of discussion, and we would still need to devise a plan that addresses medical inflation and access to care (shameless self promotion: here is one way to do that).

If the individual mandate is struck down, and the rest of Obamacare stays, the outcome is the same, but it may take longer to get there. 

If the mandate and Obamacare are upheld, single payer will be a reality in a decade or so, and there would be literally nothing the federal government cannot regulate under the Commerce Clause.

Let us just hope Justice Kennedy (the likely deciding vote in a 5-4 decision) votes to declare the entire law unconstitutional.  It’s probably all up to him now.

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