The Debilitating Effects of Obamacare

So now the Supreme Court has ruled that it does not matter what the plain language of a legislative bill is. They claim to be able to sense what the language should say from the obvious (to them) intent. It is not as if there is a lack of evidence confirming the plain language, given Jonathan Gruber’s many videotaped confessions. Every single justice must have known that the Congress meant that only in states with an Obamacare exchange could subsidies be given. The disingenuous justices of our Supreme Court must be depending on the stupidity of the American voter in exactly the same way that Gruber and the Obama administration did. 

So now, courtesy of our dishonest Supreme Court justices, we must accept this injustice perpetrated on the American people. The effects of this law on our economy have already been severe and will become increasingly onerous. Let us examine this body blow on our country.

The first thing we should note is that Obamacare (the Affordable Care Act or ACA) is indeed bending the medical cost curve – upwards. Both premiums and deductibles are increasing at double digit rates in most states. Chris Conniver on Forbes.com reported on a study, published by Brookings Institution, from the National Bureau of Economic Research. This study looked at the increases of premiums in the entire non-group market in 2014. This is the market for insurance not obtained through group plans, e.g. through employers. Conniver reports the following significant facts from the study:

• Premiums in the non-group market grew on average 24.4% more than what they would have been without Obamacare.
• Premiums rose in all but 6 states, including Washington DC. Conniver shows the chart below, constructed using data from the NBER study, to show how premiums increased state by state. 
• Premium increases were in excess of 35% in 9 states, some of which were among the largest including Florida and Texas.
• Exchange subsidies to poorer people will cost taxpayers about 24% more than previously thought.

It would appear that the losers under this law greatly outnumber the winners, which hardly augurs well for the (non)Affordable Care Act’s future survival.

Then there is the calamity for many people of the increase in insurance deductibles. While poorer people, cushioned by subsidies, can now easily afford to come to the doctor, middle class people must now avoid doctor visits and medical prescriptions because of huge deductibles. This is true not only for the middle class in non-group plans, but also for those in employer provided group plans. The latter category includes about 60% of working-age Americans and their dependents, about 150 million people. According to the Kaiser family foundation’s 2014 Employer Health Benefits Survey, the average single-coverage deductible by region is as follows:

• Northeast: $1,099
• South: $1,172
• Midwest: $1,294
• West: $1,307

This amounts to more than a doubling of the individual coverage deductible over the past eight years, from $584 to $1217. This is the amount that the individual must directly pay before the insurance picks up the bills. One should also remember that the list of average deductibles above are in fact the averages. Deductibles on the order of $6,000 are not extraordinary. When deductibles get to that level, the insurance becomes solely catastrophic for most people, since the $6,000 deductible will not usually be satisfied over the period of a year.

All of these cost increases affecting most Americans should make for a very, very large number of unhappy people. However we are only beginning to identify the bad effects of Obamacare. To what we have already discerned, we must add the effects of the employer mandate. This provision of the law requires companies with 50 or more  “full-time equivalent” employees (i.e. those working 30 hours or more a week) to provide ACA-approved health insurance for each of those employees. If they do not, the employer will be penalized with two different kinds of penalties. The first depends on how many low-income employees who could qualify for subsidies there are. The formula is somewhat complicated, but with increasing numbers of employees with incomes less than 400% of the poverty level and with hours worked, the amount of the penalty can reach hundreds of thousands of dollars. This would constitute a prohibitive loss for any small business and could put a large dent into many medium sized businesses.

Also there are time-dependent penalties that depend on the percentage of employees covered and the size of the company. A business employing  more than 100 full-time workers will be required to offer health coverage for  70% of its employees starting in 2015. Otherwise it will be penalized $2000 per employee. In 2016 it must cover at least 95% of its employees. Smaller businesses with 50 to 99 employees get a one year grace period before they must comply. Companies with fewer than 50 full-time workers (30 hours or more per week) are exempt.

The reactions of companies to the requirements of the ACA have been various. Some have opted to pass these costs on to the customers. For example some restaurants charge a surcharge on meals to pay for the healthcare. Some businesses try to hold the number of full-time-equivalents down to avoid triggering requirements. Especially if they employ low-wage workers, they have an incentive to stay below 100 FTE workers. Some very small businesses with less than 50 employees and therefore exempt from the law have an incentive not to cover their employees at all, but instead dump them onto the health exchanges. It is unclear how many will be affected by this reaction.

Finally, companies that have given high-cost or “Cadillac” plans will be subject to a 40% non-deductible excise tax starting with 2018. “Cadillac plans” are defined (at least for now) as plans with premiums greater than $10,200 for individual coverage or $27,500 for family coverage. This provision is causing many employers to scale-back the health coverage they offer to avoid this particular tax. And many employees with rather ordinary coverage in small companies may be surprised when their employers ask them to contribute more for this tax. As it turns out, high-cost premiums are not necessarily due to a lot of bells-and-whistles given by the plan, but by the type of company and its size.

All in all, a law has rarely been designed to alienate as many people as has the ACA. A triumphant President Obama declared, after learning that the Supreme Court ruled in favor of upholding government subsidies, that Obamacare “is here to stay.” After all the bad feeling that millions of people have with the way that the law has treated them, I would say this demonstrates that President Obama is living in an alternate universe. There might be a different verdict at the ballot box.

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