Ask an Economist: Economics for Everyone

Simply Econ: Volume I, November 2013! !

December 6, 2013
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group of onlookers, unsure of what to expect, but uneasy about the major conicts in opinion of both sides. There are several questions that come to mind. How does Obamacare compare to other national health care systems? Should we have a national health care system? What are the costs and benets of Obamacare? Who is right, and about what? Obama Care Goals Give more Americans access to affordable, quality health insurance, and to reduce the growth in health care spending in the U.S.1 1) Health care for all 2) More affordable health care 3) Better quality health care 4) Make denial because of pre existing conditions illegal (part of 3, but a very important goal)

This last month you may have noticed a few distinct groups of people. There is a group scrambling to get all of their medical issues taken care of before the end of the calendar year...they are dissatised and upset about Obamacare. There is another group celebrating on Facebook, and everywhere else because we will nally have a national healthcare system. There is also a large Claims in Favor of Obamacare2 1) pre existing conditions 2) Some increased free services 3) Premium equity between ages and most conditions 4) Some people do get cheaper care 5) The people who end up paying more should pay more anyways 6) Fixes Medicare doughnut hole 7) New consumer health coverage reports 8) Adult dependent insurance coverage 9) Insurance payout limits 10)Minimum medical loss ratio for insurers

Claims Against Obamacare3,4 1) Employer mandate 2) Anti-conscience mandate 3) new, higher taxes 4) Medicare payment cuts 5) higher health care costs 6) government control over doctors decisions 7) 159 new boards, agencies, and programs

Which of these claims hold water? Does Obamacare measure up to its goals? On 8) Faster growing decits Obamacares own website, they claim that 30 million (1 in 10 people) still wont have 9) Not everyone will be insured insurance5. Obamacare does address the pre10) Puts the burden of healthcare existing conditions problem, but government tax costs on the youngest Americans breaks created it in the rst place. Cheaper and better quality insurance are more 11) Raising costs for millions complicated, but according to most sources costs will increase overall, and quality is 12) Drops millions of current plans

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I do believe that all the arguments for Obamacare are true statements (except #5, which is opinion), however that doesnt mean that they are good things. Follow me through this article as I cite sources including Obamacares own website to discover the truth about Obamacare. Well start off with a brief background on some often forgotten health care facts. Health Care VS Health Insurance From personal experience, Ive found that a surprising amount of people dont understand this distinction, or its implications. Not very many houses burn down, but when one does, it has devastating costs. For this reason, we buy re insurance (in If we had mandatory grocery case we are the unlucky ones). insurance, or auto maintenance Insurance spreads the risk, and cost insurance, people would want among everyone involved. It works, spend much more on these because not everyones house will categories because they burn down. Note that its required wouldnt bear the full cost. for mortgages to protect banks Because of this, insurance investments, but if you own your companies would give you a home it is your decision. spending limit (which would be Imagine the distinction between care less than what you paid; the and insurance in this way. Auto company has overhead). You i n s u r a n c e c o v e r s m a j o r, b u t can see this effect currently in uncommon, costs like crashes. It the vision care industry. does not cover auto care like oil changes, and tire rotations because these costs are low, and inevitable.

Insurance is for high, uncommon costs. Having auto insurance for maintenance would be possible, but it would be like buying grocery insurance...you would have to pay way more than you could ever get out of it, because there is no risk or cost to spread (the costs are low, and inevitable). By the way, why is it constitutional to require auto insurance when its argued not constitutional to require health insurance? Someone can choose not to drive (it is a privilege), but they cannot opt out of health care if it were a forced commodity. 1. When did Pre-existing Conditions Problems Arise?
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The history behind pre-existing conditions is not very well known, and is actually very interesting. During WWII, there were regulations on prices and wages . In order to attract workers (labor was also a good in shortage, because of the wage controls), employers started offering health benets not common practice at the time. In 1953, the IRS recognized this new practice, and codied it into the tax code by 1954 by making health benets non-taxable. Since they were non taxable, this If a company pays you $300 in health care, you also save on taxes. So people might rather have $300 in health care than $400 in wages (depending on the tax rate). Even though they also might not get the plan they would choose themselves, because the employer offers limited plans.

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was a way for employees to save money on their taxes. It could have been any good food, gas, leisure but the government made health insurance deductible. It quickly became common practice for companies to provide health insurance; often explicitly deducting more from wages than the insurance was worth. So companies didnt commonly provide healthcare... then labor rates were made articially low during WWII, so they did...then the government decided to subsidize this practice...so what does that have to do with pre existing conditions? Well, if someone stays on the same plan, they are not gouged for pre existing conditions. When employers provide health care, and people are forced to switch health care each time they change jobs, and when they retire, pre existing conditions become a problem; because they cannot stick with the same insurance plan, and keep the same coverage after they become ill.! 2. An Increase in Free Services? Some arguments for Obamacare claim that increases in free services will benet everyone. It is important to remember, however, that nothing can be made truly free...otherwise the government could pass a law making cars and houses free and we would all be better off. Someone pays for these free services, and the costs come back to taxpayers through a combination of taxes, health care plans, longer lines, and/or poorer service. In addition, some of these are already provided for free, like contraceptives at planned parenthood. There is no

need for redundancy in this case, and its not a new benet. 3. Premium Equity. Benet or Cost? Depending on who you are, premium equity could be great or terrible. One of the biggest losers in Obamacare is the young and healthy. Because of premium equity, the young are forced to pay higher insurance premiums to subsidize the old and sick. But the young do not have social security, retirement accounts, or savings. The young are still trying to pay off their student loans, save up for housing, and start their lives off. Its difcult to see how it could be a benet to force younger, poorer workers to pay for older, richer ones. If you disagree with this, the Obamacare website explicitly says, Young people will pay more.5 Premium equity also applies differently to different life choices. Under Obamacare, obesity and age cannot be discriminated against, but smoking can. This is not fair at all, it is just a result of the political correctness of smoking and obesity. They are both unhealthy choices, and they both involve personal motivation and addiction issues, but one is discriminated against much more. It is unjust to penalize only certain groups...either there is premium equity or there is not (and really, there just shouldnt be; you should be able to save when you are young, and you should be held liable for your costly personal decisions). 4. Is the Cost of Care Going Down? First of all, why are medical costs so high? U.S. health care costs are higher than any other country7...yet we arent the healthiest country.

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if you sue someone, they bear the cost of being sued no matter how terrible the case you make against them. This is a complex topic to understand, so we wont delve into it any further for now. US OECD Back to Obamacare: the cost of health care is denitely going down for some, and up for others. But what is the balance? Who is benetting, and who is paying more? The Obamacare website says5 Obamacare focuses more on making sure people are covered than it does on addressing the cost of care in the rst place. But there are many ways it addresses costs in a bad way. We already discussed that Obamacare openly increases health care costs for younger, already struggling workers. Obamacare is also implementing several taxes on the health care industry (and you should already know that taxes make things MORE expensive, not less). It also places requirements on health care that increase costs; for example, womens health care MUST include maternity coverage, regardless of whether you are planning on children, or are physically incapable or too old to be come pregnant. Since insurance premiums are equal, that means that all health care is going up.

Every other industry in the U.S. gets cheaper, and better over time, so why is health care different? First, health care is one of the most regulated industries in the U.S. Since the early 1900s, the limited availability and cost of licensing cut the number of medical schools, and doctors who graduate by about two thirds (66%). Every aspect of the medical industry is regulated, which is why ambulances and hospital rooms cost more than a two week vacation to Hawaii. But other countries are heavily regulated as well. The biggest costs are from malpractice lawsuits. The U.S. has no penalty for unjust lawsuits, so

The Kaiser Family Foundation says the average price of a family policy has risen by $2,200 during the Obama administration. The president promised premiums would be $2,500 lower by this year. Hospitals, doctors, businesses, and consumers all expect their taxes and health costs to rise under Obamacare. 6

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These policies are all outlined on the website5, and they show that the government does not know best. Individual women know whether they need maternity coverage. Not everyone over 30 needs more than catastrophic coverage. Taxes will not decrease costs. In fact, if you use the Obamacare website to investigate who gets cheaper coverage, their calculator is not consistent with their claims. The benets are very few, and the costs are extremely high. 6 & 7. Obamacare is Fixing Bad Policies Obamacare claims that it will bolster Medicare and Medicaid. For example, it closes what is known as the Medicare doughnut hole, which is a gap in prescription drug coverage. This could have been done without Obamacare. But what Obamacare also does, is cut Medicare payments by $575 billion. How can it help this program by cutting much of its funding? Do Price Controls Work? The government has tried to make many goods cheaper over the decades, and has proven over and over that it cannot do so successfully without creating shortages. The monopoly power that the health care industry has, mainly results from extensive government regulations of the industry; these regulations act as barriers to entry, and reduce competition of the rms. Just like long gas lines in the 70s, shortages in WWII, and the conscation and destruction of food during the Great Depression, if the government actually does succeed in lowering prices, it creates shortage and surplus problems.

If you disagree with everything Ive said so far (although you surely agree with the direct citations to the Obamacare website), and you believe in government regulation or provision of health care consider this: why should the federal government provide health care if the state can? Health care does not have innitely increasing returns to scale it does not keep getting signicantly cheaper with more and more people. The states are big enough that if we wanted government health care, they could provide it just as cheaply. The difference is that the states are smaller, and would allow competition of policies. Some states would like to do health care differently, or not to do it at all, and this is not only their right (as laid out inn the constitution, all powers not granted to the federal government are left to the states), but it is a better way to nd out what the best options are! If states were pressured to make health care decisions rather than the federal government, you could have your cake and eat it even if you think everything Ive said is wrong wrong wrong. In this world, we would be able to customize healthcare to the needs and wants of people within each state (not everyone wants the same things from health care). And we would be able to compare different policies and their real effects, so that we would base our arguments about health care on real numbers instead of theory, emotion, and speculation.

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Conclusion I hope you learned something from this article, whether you disagree with me or not. If you still favor government involvement in healthcare, at least consider the possibility of state directed health care instead. I know I didnt consider this possibility until I took economics, and Im sure many of you have not. Also remember the exorbitant costs that Obamacare will impose on an economy already crippled by debt. Governments spend much faster, and much less efciently than private industry, and every dollar they spend is a fraction of what they collect (not including the DWL, or deadweight losses, that almost all taxes impose on the economy; these are losses that are nobodys gain, like jobs that dont become available, and purchases that are not made).

10/12/13 The Obamacare website cost more than Facebook, and it didnt work right (it crashed the rst weeks it was up). Facebook took six years to spend $500 million dollars, while the Obamacare website has already spent that much...yet, the glitches on the website were so bad, that as few as ve thousand Americans may have managed to sign up so far across thirty four states. When you are quite literally asking Americans to put their lives in your hands, thats a stunning level of incompetence.8

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References
1 2

http://obamacarefacts.com/obamacare-facts.php (Accessed 12/5/13) http://money.usnews.com/money/blogs/the-best-life/2013/07/15/10-good-things-about-obamacare (Accessed 12/5/13) http://www.nationalreview.com/critical-condition/304361/top-ten-worst-things-obamacare-grace-marie-turner (Accessed 12/5/13)

3 4

http://townhall.com/columnists/johnhawkins/2013/10/12/6-things-every-american-should-know-about-obamacare-n1722245/page/full (Accessed 12/5/13)

5 Video:

The YouToons Get Ready for Obamacare, http://obamacarefacts.com/obamacare-pros-and-cons.php (Accessed 12/5/13 (Accessed 12/5/13) (Accessed 12/5/13)

6 http://www.nationalreview.com/critical-condition/304361/top-ten-worst-things-obamacare-grace-marie-turner

7 http://www.pbs.org/newshour/rundown/2012/10/health-costs-how-the-us-compares-with-other-countries.html

8 http://townhall.com/columnists/johnhawkins/2013/10/12/6-things-every-american-should-know-about-obamacare-n1722245/page/full

(Accessed 12/5/13)