Wednesday, February 27, 2013

Obamacare: To Buy or Not To Buy…..use to be the question.

The chart above is Thomas Lambert’s buy/don’t buy matrix regarding Obamacare. The formula finds its basis in: family income, maximum percent of income to be spent on insurance, dollars to be spent on insurance, insurance cost as the percent of penalty, resulting in a “buy”/”don’t buy” likely decision matrix. **

 **The complete essay, How the Supreme Court Doomed the ACA to Failure, The Roberts “tax” ruling undermines the new health care law by Thomas Lambert, law professor, University of Missouri. that yields the buy/don’t buy matrix, appears in the link below:…s/files/regulation/2013/1/v35n4-5.pdf


Putting the formula into its action phase, assume a family income of $75,000. You supposedly spend $7,125 on health insurance. You pay the fine and have plenty of money remaining to manage everyday medical expenses. If the year goes by and you remain healthy, which the vast majority of people do, then you are ahead of the game.

However, if disaster strikes, you merely “buy” coverage as no pre-existing condition clause can stop coverage from going into force. Once the disaster passes, you return to the “don’t buy” position.

The matrix surely has nuances and doesn’t work in every last case e.g. chronic condition. However, in the past a rough estimate put forward by pundits and talking heads was that “some people” will not buy Obamacare coverage and merely pay the fine and buy coverage when needed. That proposition may well become “most people” will not buy Obamacare coverage and merely pay the fine and buy coverage when needed. That is to say, the mere fact someone has worked out a “buy” - “don’t buy” Obamacare purchase matrix means it becomes not a “some people” rational decision not to buy, given particular parameters, it becomes a “most people” rational decision not to buy, given particular parameters.




Saturday, February 23, 2013

Obamacare: the rise of the 29’ers, 49’ers and the Death of Small Business Full-Timers

“From January 1, 2014, Obamacare requires firms with 50 or more ‘full-time-equivalent workers to offer health plans to employees who work more than 30 hours a week. Employers who cross the 50 employee threshold and fail to offer health insurance confront a $2,000 annual penalty for each uncovered worker beyond 30 employees. So, by hiring the 50th worker, the firm pays a penalty on the previous 19 workers as well.

As is too frequently the case when socialists legislate to control the private sector, enormously high perverse incentives are created. Thousands of small businesses will confront a $40,000 tax penalty should they expand and hire a 50th worker. A simple example illustrates the magnitude of the disincentive to expand.
Suppose that a firm with 49 employees hires a new worker for $12 per hour for 29 hours per week. There is no Obamacare health insurance requirement. Now suppose that that worker moves to 30 hours per week, becoming ‘full-time, under the Act. This triggers the full penalty. So, in order to obtain 52 hours of extra work from that worker, the extra cost rises from $12 per hour to %52 per hour. In terms of rational choice, what would you expect profit-seeking firms to do?
Well the answer is already there for all to see. Although Obamacare starts in 2014, the measurement period utilized by the Feds to determine a firm’s average number of full-time employees, began on January 1, 2013. And here is what is happening, most especially among fast-food restaurants that typically register annual profits of only between $50,000 to $100,000.

In a growing number of McDonalds and Burger King outlets, each such outlet hires employees to operate the cash register or to flip burgers for 20 hours per week. Those worker then head to the other outlet for another 20 hours per week. This exchange of employees avoids the Obamacare health insurance/tax. Many other such outlets are now known as the 49'ers because they cap their employees at 49. Businesses that hire young less-skilled workers put a ceiling on the work-week below 30 hours. These firms are known as the 29'ers.
Among the fast food franchises that now engage in such rational behavior are: McDonalds, Burger King, Red Lobster, KFC, Dunkin’ Donuts, Taco-Bell, Red Lobster and Olive Gardens. And they are just the trail-blazers among the small business sector.” - Charles Rowley, economist, George Mason University

Dr. Rowley’s blog post entitled Obamacare kills small-business full-time hires can be seen in its entirety at the following link:


Beyond the Individual Mandate: The Ongoing Legal Challenges to Obamacare - CATO, 02/07/2013

Thursday, February 21, 2013

Investors Business Daily: Will Only Suckers Buy ObamaCare Insurance?

“At the same time, ObamaCare also forbids insurance companies from turning anyone down — a reform called "guaranteed issue" — which also will provide an incentive for some to drop coverage, knowing they can get it back any time.

"Even with the tax penalty ... some healthy people would avoid purchasing coverage until they are sick," Howard Shapiro, director of public policy at the Alliance of Community Health Plans, told regulators .

The problem is that if the young and healthy drop coverage, the result would be what the industry calls a "death spiral." Premiums will climb as the pool of insured gets sicker, causing still more to cancel their policies.

This is just what happened in states that imposed strict community rating and guaranteed issue reforms in the past. In fact, of the eight states that did so, most ended up either dropping the reforms or loosening the rules after they saw enrollment decline and premiums climb.”

Entire article appears in the link below:

Saturday, February 16, 2013

Obamacare: Newly Opened High Risk Pools to Close by March 2nd

“Tens of thousands of Americans who cannot get health insurance because of preexisting medical problems will be blocked from a program designed to help them because funding is running low.

Obama administration officials said Friday that the state-based “high-risk pools” set up under the 2010 health-care law will be closed to new applicants as soon as Saturday and no later than March 2, depending on the state.”

“The result is that, while only about 135,000 people have gotten coverage at some point, they are proving far more costly to insure than predicted.”

‘ “What we’ve learned through the course of this program is that this is really not a sensible way for the health-care system to be run,” Cohen said.

Of the original $5 billion, about $2.36 billion remains available for the last three quarters of 2013 — enough only to continue coverage for those already in the pools, according to administration estimates.’ - Washington Post, 02/16/2013

Full story appears in the link below:

Friday, February 15, 2013

Obamacare: the "Woodwork Effect" and State Government Medicaid

When one approaches the welfare state from a systemic perspective, one needs to note the participation rate of the various programs offered by the welfare state. A known-known, in the creation and subsequent maintenance of a welfare state, and the “use” thereof regarding welfare state programs, those myriad of programs, is that, in the main, such programs are not utilized by all that qualify. That is to say, if welfare state program X is available, the historical norm is less than all eligible participants will actually apply and gain the particular benefits of welfare state program X. An example is Medicaid where 61.7% of eligible participants actually enroll and gain access to benefits. (1)

An economics question that arises, specifically in political economy and especially in public choice theory is: does the introduction of a new welfare state program W increase the participation in an existing welfare state program X? Stated alternatively, will the historical participation rate of an existing welfare state program accelerate with the introduction of an additional program?

Why would one program increase the participation in another program? Answer: the eligible portion of non-participators in program X are exposed to social welfare program W and learn of eligibility for program X. Hence participant P signs up for W and X -or- enrolls in X rather than W.

A problem arises if government G has budgeted for particular participation rate regarding social welfare state program X. If newly created program W creates more participation in existing program X, then G is in deficit given the budget prediction based on a historical participation rate of program X.

Leaving the blackboard and arriving in real-life, one finds a perfect example in that the newly created welfare state program Obamacare interacts with the existing welfare state program Medicaid. Medicaid expansion and associated eligibility rules for access to the expansion is a center piece of Obamacare. When an eligible participant for Obamacare qualifies for Medicaid as their means to health insurance under the Obamacare scheme, there will be a universe of would-be enrollees that will find they are non-participating eligible under the existing Medicaid program. That is to say, the 38.3% of non-enrollees in original Medicaid (those eligible but not enrolled) will find they need to enroll in original Medicaid not the Obamacare sponsored expansion of Medicaid. Stated alternatively, the would-be enrollee find they qualified under the existing program and must enroll under the existing program not the new program. This particular phenomena has been deemed the “woodwork effect”. (2)

The observation arises that who really cares how participant P receives Medicaid…. as Medicaid is Medicaid. Yes and no. As with all schemes Obamacare creates cascading unintended negative consequences that were not sorted out in the central planning process by supposed experts. What consequence? The Obamacare scheme allows for 100% federal tax dollar reimbursement to state based Medicaid plans for new enrollees based on Obamacare eligibility guidelines for placing the previously uninsured into Medicaid. However, if the would-be enrollee is found to have qualified for original Medicaid, then the federal tax dollar reimbursement under existing Medicaid is only 57%. Ops!

The several and many states, the vast majority thereof, have budget problems of their own. Most states have had to cut back on programs and staff as they over expanded services in relation to revenue as well as promised too many unfunded or under-funded future benefits to existing and retired public sector employees. Further, most state budgets are strained to the maximum to provide current legislated Medicaid benefits. Any expansion of current state based Medicaid is a budget buster. For example, Obamacare Medicaid enrollee X, Y, and Z may find that only Y qualifies for Obamacare-based-Medicaid while X and Z qualify for original Medicaid and hence must enroll in the original plan. The existing state based Medicaid programs suddenly experience massive grown in the original Medicaid program and their budgets skyrocket with limited revenue. What do states cut next to accommodate the flood of enrollees?

The cascading unintended negative consequences created by schemes, Obamacare merely being a scheme, comes with the traditional political dupery and nitwitery. The federal government somehow makes available 100% reinbursement for particular state based Obamacare-Medicaid enrollees. How can 100% be reimbursed if the federal government borrows 40 cents on every dollar? Further, those federal tax dollars are not the government’s dollars and/or some magic pixie dust conjured up out of thin air. Rather the tax dollars are taxpayer dollars. Hence taxpayer D in North Dakota has his federal tax dollar sent to New York and taxpayer N in New York has his tax dollar sent to Nevada and so it goes. Yes, its political dupery and nitwitery to frame money as “federal government reimbursement” when in fact the “reimbursing” is not some third party that has its own revenue stream and then bestows exogenous resources of its own creation. The government creates nothing and merely acts as the transfer agent of your tax dollars. The federal government reimbursed nothing. The federal government merely took something from A and gave it to B.

Beyond the political dupery and nitwitery of the scheme, now comes forth “political patronage”. Governor GG of state S would have to increase taxes many fold to accommodate the new enrollees in Obamacare-based-Medicaid. Governor GG would become very, very unpopular straight away. However, through political patronage, governor GG of state S can align with the political aims of those in power of the central government, acquiesce as it were, and avoid raising state based taxes for Obamacare-based-Medicaid and merely rely on the diffused costs passed onto all fifty state federal tax payers with focused benefits upon his particular state constituents. Hence the political patronage becomes a political constituency building exercise through taxpayer dollars for both governor GG and those in power of the central government.

However, the puzzle palace on the Potomac forgot about the “woodwork effect”. Hence governor GG of state S is faced with raising taxes for the flood of new enrollees in original stated based Medicaid. Oh, the evil of it all! Hence governor GG rationally wants noting to do with political patronage in this particular episode as he can not depend on the purposeful political phenomena of diffused costs passed onto all fifty state federal taxpayers with focused benefits upon his particular state constituents.

Update: Medicaid: Don't Expand a Broken System, Hadley Heath, Independent Women's Forum, May, 2013, Volume 3, Number 5.[3].pdf


(1) Why States Have a Huge Fiscal Incentive to Opt Out of Obamacare's Medicaid Expansion, Forbes, 07/13/2012

(2) Why States Are So Miffed about Medicaid — Economics, Politics, and the “Woodwork Effect”, Benjamin D. Sommers, M.D., Ph.D., and Arnold M. Epstein, M.D., N Engl J Med 2011; 365:100-102 July 14, 2011 DOI: 10.1056/NEJMp1104948

Friday, February 8, 2013

Obamacare: soon available at your local grocery!

Obamacare at the grocery store? No way! Way.

Yes, the Affordable Care Act (ACA) otherwise known as Obamacare will be available on grocery store shelves very soon in the form of a one billion dollar annual price increase passed onto consumers.

The do-gooder intentions of the few become the price increase for the many. The notional proposition is that James and Jane Goodfellow are unable to properly shop at the grocery store hence big brother needs to lend a hand, at a price.

As reported by Cheryl Chumley of the Washington Times:

 "New Food and Drug Administration rules to be imposed under ‘Obamacare’ could lead to higher food prices, according to grocery store executives who are casting wary eyes on the looming mandate.

The mandate could boost grocery owners’ costs by $1 billion in its first year, Fox News reports. And that means higher food costs to consumers.”

The following is a link to Chumley’s report:

Saturday, February 2, 2013

Obamacare “Tax”: How Roberts “Tax” Dooms Obamacare

One of the talking points in the political promotion of the Affordable Care Act (ACA) also known as Obamacare was the attempt to provide health insurance to the vast majority of the estimated 45 million uninsured Americans. Arguments about the ability of an overburdened health-care system to absorb upwards of 45 million more potential patients is a particularly interesting argument. The specter of rationing when price is eliminated as the rationing agent [price fixing scheme of Obamacare and the subsequent outcomes of price fixing schemes] and other arguments regarding the scheme’s viability and implementation are very valid arguments regarding the absorption of upward of 45 million new participants.

However, will in fact upward of 45 million people become insured or will the number be much, much smaller?

Putting aside arguments that the current number of insured(s) may actually fall and concentrating on the potential 45 million additional insured(s), will in fact the 45 million become a much, much smaller number than anticipated due to the “penalty” of the individual mandate being depicted as a “tax” by SCOTUS?

Thomas Lambert, law professor from the University of Missouri in an assay entitled How the Supreme Court Doomed the ACA to Failure explains at length why the Obamacare fine/penalty/tax is much more rational to pay than acquiring coverage. That is, Lambert puts forth the formula of rationally paying the tax and acquiring coverage only when a sickness, illness or accident manifests itself and/or occurs.

More importantly Lambert explains the reasoning behind Justice Roberts conclusion that the penalty was a tax and how the tax has to be relatively small in size (not punitive) and how the tax must remain the same amount adjusted for inflation. That is, the “tax” can not be increased per the Roberts decision except via an inflation adjustment which means the tax remains relative in size to the inflation adjusted Obamacare insurance premium. Therefore, the tax remains relative and hence it will always be rational to follow the Lambert formula of paying the tax and acquiring coverage only as needed. The only exception to the formula is if health-care prices fall, but Obamacare does precious little to address the underlying health-care price.

Lambert also points out that the framers/promoters of ACA likely figured they, in the future, could increase the penalty/tax via congress. Problem is the same framers/promoters never figured on the individual mandate and associated penalty being framed constitutional via a “tax” argument and hence made no process arrangements for raising the penalty aka “tax”. Hence no mechanism exists in ACA to raise the tax as that was something the framers/promoters would have gotten around to later but now can not make any changes at all due to Roberts decision and the requirement that the tax can not change except adjustments for inflation. Ops!

With the formula in hand and with the rational response being to pay the fine and acquire coverage when necessary, anti-selection sets in, in a big way, with only older and infirmed individuals buying coverage which means health insurance premiums skyrocket. Given the Lambert formula via the tax depiction by Roberts, the mantra of upwards of 45 million new insured(s) fizzles.

Thomas Lambert’s entire essay can be found in the link below:…s/files/regulation/2013/1/v35n4-5.pdf

Why Are Voters So Uninformed?