Sunday, October 13, 2013

Will Obamacare Implode On Its Own?

Republicans in Congress will need to decide this week whether they just want to step aside and let Obamacare implode on its own.

The GOP  has tried to repeal it, defund it and are now just trying to see to it that individuals get the same treatment as businesses and Congress.

President Obama and the Democrats are not having any of it.  To say that they are all in on Obamacare is an understatement.

The Republicans have tried to save the country from this ill-advised, ill-conceived and illegitimately  implemented law (numerous waivers and exemptions provided in contravention of the law) to no avail.

It may be time to let the Democrats live with the consequences.  It may be time to walk away with the record showing that there are absolutely no fingerprints from any Republicans on Obamacare.  The Democrats own it.  There is no one else to blame.

I am not in the camp that believes the effort the GOP has expended in this budget ordeal was not worth the time.

By next year at this time the voters will not remember much about the shutdown or the showdown on the debt limit ceiling.  They will still remember which side the parties were on Obamacare as they will still be dealing with its effects.  If I have to choose, don't count me as a Democrat going into next Fall's election no matter what the political pundits are saying right now.

Next year we will really see the devastating effects of Obamacare as the 2015 rates are announced.  The individual mandate penalty tax also goes from $95 or 1% or income to $325 or 2% of income next year.  The employer mandate will also take effect.  None of this will be good news for Democrats running for election.

I have long predicted that I believed that Obamacare would have a very difficult time of being accepted by the public.

The framework for the law was flawed from the beginning. A 2,400 page bill was not needed to deal with issues such as portability of coverage and pre-existing conditions.  You also don't solve the problem of the uninsured by first increasing the cost of health care insurance (particularly for those under age 30 who represent about one-half of those uninsured) and then developing a government subsidy to pay a portion of the added cost.

The partisan manner in which the legislation was jammed down the throats of the American people was also reprehensible.  It is the major reason that there is still so much conflict and controversy about this law three and a half years after it was passed.

Those who benefit from the law are relatively few but the cost of Obamacare falls on everybody who already had coverage, most of whom were reasonably satisfied with their heath care insurance.  This is not a model to gain popular support from the public.

Let's revisit a post that I wrote just over six months ago, "Obamacare Is Still Dangerous For Democrats" and see where we are today.

I wrote at that time that I believed there was a substantial risk of "Exchange Chaos."

The first question I have is whether the health insurance exchanges will be ready and will function as intended?  I believe there is a good chance that the entire process could be chaotic and confusing for the public. 
The fact is that the information technology challenge to establish the exchanges is considerable.  This challenge has become even more pronounced since so many states have decided to forego establishing their own exchange and have delegated that responsibility to the federal government.

If Obamacare gets off to a rough start with the public due to chaos and confusion with the health exchanges this could signal deep problems for the program going forward.  It is hard to recover from poor first impressions, especially if media attention picks up on it.   A compliant Obama-friendly media is not likely to play up any problems, however, if they jump on the bandwagon if things go poorly it will be difficult to turn around the public's perception of the program.

This seems to have played out pretty much as I predicted.  In fact, the problems with the technology supporting the exchanges seems to be so profound that the media has not been able to ignore it.

In fact, The New York Times had a scathing article on the troubles with the health portal this weekend.

A couple of my favorite quotes from that article.

“These are not glitches,” said an insurance executive who has participated in many conference calls on the federal exchange. Like many people interviewed for this article, the executive spoke on the condition of anonymity, saying he did not wish to alienate the federal officials with whom he works. “The extent of the problems is pretty enormous. At the end of our calls, people say, ‘It’s awful, just awful.' ” 
I particularly like this quote which blames the problems on lack of money.  Of course, when it's the government all problems are always the result of not enough money and taxes.  Please remember that the federal exchange website cost more than $500 million to develop!!  That is not exactly chump change where I come from.

Dr. Donald M. Berwick, the administrator of the federal Centers for Medicare and Medicaid Services in 2010 and 2011, said the time and budgetary pressures were a constant worry. “The staff was heroic and dedicated, but we did not have enough money, and we all knew that,” he said in an interview on Friday.
At this point the White House will not even disclose how many people have successfully enrolled for one of the health insurance plans on the federal exchange.
But just a trickle of the 14.6 million people who have visited the federal exchange so far have managed to enroll in insurance plans, according to executives of major insurance companies who receive enrollment files from the government. And some of those enrollments are marred by mistakes. Insurance executives said the government had sent some enrollment files to the wrong insurer, confusing companies that have similar names but are in different states. Other files were unusable because crucial information was missing, they said.
The Miami Herald has stated that Obamacare enrollees have become an urban legend in Florida.  They have searched high and low for individuals who have enrolled in Florida and can't find very many.

Will the Floridians who have enrolled for Obamacare please stand up?
Nearly two weeks after the federal government launched the online Health Insurance Marketplace at, individuals who have successfully used the choked-up website to enroll for a subsidized health insurance plan have reached a status akin to urban legend: Everyone has heard of them, but very few people have actually met one.

Why was I so skeptical of the Obamacare exchanges many, many months ago?

I worked in corporate employee benefits for many years.  The technology supporting just the payroll and employee benefits framework for a large corporation is very complex.  As the number of interfaces between various databases increase, it gets even more complicated.

The Obamacare healthcare exchange involves interfaces between the IRS, Social Security, Medicare, Medicaid, state governments, private insurance companies and more.  It simply could not work unless they had completed programming many months ago and had done extensive beta testing.  I saw numerous reports that indicated that they planned one test a day before they went live!  That is utter ineptitude.  It is also incredible that the Administration wants to penalize people for not complying with the individual mandate when they can't even get on to the website to enroll for coverage.

I would give better than even odds that President Obama will have no choice but to waive the individual mandate before we reach the end of the year.  At that time we will all wonder why he didn't do it when the Republicans asked for it in October.  I guess it only counts if he does it.

Why am I so skeptical of the ultimate viability of Obamacare?

It is incredibly difficult to get people to pay the full cost of healthcare coverage.  In fact, study after study shows that most people will only pay up to 20% of the real cost of the coverage.  That is the price at which people believe it is a "fair value". That is why many employer plans charge employees around 20% of the full cost and employer pays the rest.  That is why Medicare Part B premium costs are set at 20% of the full cost and the taxpayers pay the rest.

Why is this?

The reality is that most people will have very little in healthcare costs in a given year. A handful of people will have enormous costs. A few will have very large costs. The majority will have almost no costs.

The bottom half of the entire population only consumed 2.9% of all personal health care spending in 2009. The top half consumed the other 97.1%.

Out of almost $1.3 trillion in personal health care spending, only $36 billion was spent on those below the 50th percentile. The rest was spent on those above the 50th percentile.

The top 1% of healthcare spenders accounted for over 20% of all spending.

The top 5% accounted for almost half of all spending.
That is why most people will gamble on healthcare insurance if left to their own devices. Especially if they have lower incomes or have very little in assets. Most people do not have much in health care costs (particularly the young) and they know it. They will simply not part with their money today for the chance that they might get sick tomorrow. That is basic human nature. Live for today and think about that other stuff tomorrow.  Especially if you know that if you walk into an emergency room it is the law of the land that you must be treated without regard to your ability to pay.

Sure, there are subsidies in Obamacare to buy coverage but for most people they are not anywhere close to paying 80% of the cost.

For example, a 27 year-old singe female living in Cincinnati (where I live) making $30,000 (most likely a stereotypical Obama voter in 2008 and 2012) would have to pay an estimated $2,347 (8.4% of her income) for healthcare coverage for 2014 according to the Kaiser Family Foundation Subsidy Calculator.  She is not entitled to any subsidy at that level of income.

Her penalty for not enrolling for 2014?  1% of her income, or $300-if they can collect it.  Do you think she enrolls?

A forty-year old couple with two-children, living in Los Angeles, making $65,000 would have an annual gross premium of $9,397.  They would be eligible for a subsidy of $3,675 but would be responsible for $5,723 in premiums per year (8.8% of their income).

Their penalty would be $650 per year if they do not enroll.

If that family is already dealing with health care issues you can be sure they will enroll.  However, if they have been healthy, chances are that they will continue to roll the dice as they have been doing.

This is the basic economic problem facing Obamacare.  Those with high health care costs and pre-existing conditions are all going to sign up for coverage. However, Obama needs somewhere around 3 million young and healthy people to defy their economic self-interest and buy health insurance that they are not buying today to balance these costs.  I will be surprised if it occurs.

If it doesn't, the rates for 2015 will skyrocket across the board.  Just in time for the 2014 mid-term elections.  A death spiral in rates will be underway which will cause even greater numbers of healthy people to forego coverage with only those with high costs seeing the value in purchasing health care coverage through the exchanges.  The other alternative is too vastly increase the federal subsidies which will also vastly increase the costs of Obamacare.  Either option is deadly dangerous for Democrats attempting to defend Obamacare while running for election in 2014.

If Obamacare has not imploded by then, it is probably only a matter of time before it does.

The demise of the Republican Party right now is greatly exaggerated.  As time goes on, it will increasingly be dangerous to be a Democrat as Obamacare implodes.

Secretary of HHS Kathleen Sebelius will probably be the first casualty.  She will not be the only one before it is over.

Perhaps it is time for the Republicans to step aside and just watch the chaos become complete.

How long until this day comes?

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