ObamaCare: The Ultimate Premium Increase, $940 billion becomes $1.76 trillion.

Many headlines appeared 03/14/2012 such as the following:


CBO: ObamaCare Price Tag Shifts from $940 Billion to $1.76 Trillion, YahooNews. (1)

What does the $1.76 trillion price tag mean vs. the old price tag of $940 billion? It means your premium came due, again, and….. ouch! What an increase!



By The Numbers


First off, the $1.76 trillion is a ten year cost period hence $176 billion per year. The $940 billion figure is the ten year comparison period number generated at inception of ObamaCare -or- $94 billion per year.

The most recent total expenditure on health-care in the US is 2.6 trillion (2010 stats):“U.S. health care spending grew 3.9 percent in 2010 following record slow growth of 3.8 percent in 2009; the two slowest rates of growth in the fifty-one year history of the National Health Expenditure Accounts. Total health expenditures reached $2.6 trillion, which translates to $8,402 per person or 17.9 percent of the nation’s Gross Domestic Product (GDP).” (2)

Moreover, as of 2010, total annual private health insurance premiums written were $378 billion, Medicare cost was $446 billion and Medicaid was $380 billion. Hence private and public equals $1.204 trillion premium/quasi-premium volume. (3)

With ObamaCare you have a new total consisting of: $1.204 trillion plus $176 billion = $1.38 trillion of premium.

Note: the $1.76 trillion would appear in private subsidized premium and Medicaid costs as many will merely end up on Medicaid and part of the $176 billion goes to that quasi-premium portion.

Hence, by-the-numbers, you have a social insurance scheme of some sort, that has an old premium of $90 billion, and in two annual renewal cycles since inception, the social insurance scheme premium changed to a $176 billion annual premium. A 95% premium increase since inception, two short pricing cycles ago. According to research, and stand to be corrected, a $86 billion dollar increase in premium over two years might be considered the ultimate premium increase.


What Does Your $176 Billion Per Year Insurance Premium Buy?

The $1.76 trillion (over the next decade) regarding the cost of ObamaCare is made up of the following:

(a) the cost to provide coverage to the current uninsured (should fall from 16% to 6% uninsured i.e. not all will be insured),

(b) cost of expanded coverage,

(c) administration cost.


The cost to provide coverage to the current uninsured:

(1) many of the uninsured will be placed in Medicaid and hence the annual cost of Medicaid increases,

(2) those purchasing coverage that have means, but not total means to buy, will be subsidized (up to 133% of poverty level qualify for subsidy),

(3) those firms ending coverage due to cost, those subsequent uninsured employees will then purchase individually and some will fall into #2 above (subsidy).


The cost of "expanded coverage" (scope of coverage) e.g. first dollars coverage for annual physical, colonoscopy, etc. means the premium is driven up, hence the cost for subsidies increases with the underlying premium cost increase to cover expanded benefits. Also, the scope of coverage will include no pre-existing condition exclusion yet charge the impaired risk nothing extra, hence driving all premiums higher, hence driving the subsidy higher.


The administration of ObamCare by a federal bureaucracy speaks for itself.


The Other Side of the Coin

　

What about the payment of the annual cost of $176 billion vs. the old annual cost of $90 billion per year?

That is, the myriad of ObamaCare associated taxes, the penalty fines for not buying, the penalty fines for not providing (firms), etc. had to equal $90 billion. Now it has to equal $176 billion hence the tax and fines have to increase -or- you decided to deficit spend -or- you cut the program benefits -or- all of the above.

And About That Base Economic Model that is Broken?


What about this $176 billion regarding changing the base model of health-care (a $2.4 trillion dollar per year broken model)? It does nothing about fixing the model. If anything it exacerbates the broken model through mandated coverage under ObamaCare which is a basically a low deductible major medical plan which causes over utilization......meaning the coverage itself is a cost driver and hence you are subsidizing an ever increasing cost driver. Ops!


Cost Containment and Price Fixing Schemes


The "cost containment" within ObamaCare is a price fixing scheme. That is, they intend to contain cost ala Richard Nixon. There is not one price fixing scheme in all of economic history that was ever successful. Why? If one doesn't use price as a rationing agent, then some other rationing agent must replace price. That is, price fixing merely affects supply quantitatively and qualitatively. Or, alternatively, supply merely deteriorates in quality and the new lower quality supply is rationed over time.



Notes:

(1) CBO: ObamaCare Price Tag Shifts from $940 Billion to $1.76 Trillion, YahooNews.http://news.yahoo.com/cbo-obamacare-price-tag-shifts-940-billion-1-163500655.html

(2) https://www.cms.gov/NationalHealthExpendData/downloads/highlights.pdf

(3) Insurance Industry Overview, http://www.plunkettresearch.com/insurance-risk-management-market-research/industry-statistics

Know the Truth About Government Health-Care: The Video.

ObamaCare: governments fail too

Governments fail too

Many times you read articles or see news reports regarding "market failure". That some how the market has failed. What you intuitively know but is rairly reported is that "governments fail too". Both markets and governments fail basically because they are both made up of human beings that make errors. Some errors are unfortunately by design.

In a recent Kudlow Report segment Don Luskin, chief investment officer of Trend Macro made this instant- classic statement: "Government is the only enterprise in the world that when it fails, it does the exact same thing over again except bigger". (1)

Luskin is not alone. Milton Friedman also observed: "The government solution to a problem is usually as bad as the problem". (2)

Do we know of government failures?

We do in fact know governments fail. John and Jane Goodfellow have first hand experience from a simple trip to your local Department of Motor Vehicles that takes hours, to the out of body experience of trying to read and fill out you annual federal tax return. We also know government failure in a more complex proposition of unfunded future entitlements of Medicaid, Medicare, and Social Security that are now in excess of 100 trillion dollars.


Why are market failures reported yet government failures are under reported?

It boils down to the "painting" of the subject matter. What exactly is the difference between politicos through the mechanism of government creating a cheap money bubble while simultaneously promoting purchases of single family housing units by low income marginal buyers and a financial advisor promoting a novice, part-time retail stock investor, with very modest means, into making risky trades using a margin account? (3)

The point being that both are highly risky practices especially for the type/kind of participants involved. One risky practice is promoted by the government while the other risky practice is promoted by the private sector.

If the outcome for both situations end in disaster, the government promoted activity is painted as merely public policy failure experiment albeit in-your-best-interest, helping the little guy, and social justice didn't work in this particular isolated incident. The other disastrous outcome from the private sector is painted in exact opposite terms where "greed", getting over on the little guy, and the-system-is-rigged are the overarching themes of the incident as well as the incident not being isolated but portrayed wide spread within the entire economic system.

In the larger picture, cases of government promoted failure and private sector promoted failure, yield only one report: "markets fail". The "governments fail too" proposition plays second fiddle and is only pointed out by a handful of people. Hence the public at large are feed the "markets fail" concept and the "governments fail too" proposition remains widely under reported.

ObamaCare and governments fail too

F.A. Hayek wrote extensively that centralized command and control programs only worked in the hunter/gatherer stage of economic evolution. When small groups of forty or so controlled a hunting/gathering region, centralized authority might have worked. Harold Demsetz has also written extensively regarding the subject. (4) (5)

However, both Hayek and Demsetz point out that when economies evolved into millions of people, the market became based on the individual, individuals in number that are far removed from the forty or so hunter/gather stage. That millions of unique individuals, through no master centralized plan, began to base information on "price" through no particular grand design. That an economy based on price, price being reflective of scarce resources with alternative uses, allowed the unique millions of individuals, within a vast economy, to communicate, economically speaking, in the universal language of "price".

Hayek went further and postulated that the summation of mundane knowledge of individuals was greater than the knowledge of any centralized authority. In effect, no centralized authority could mimic the knowledge of millions of unique individuals with specific mundane knowledge of their unique abilities, needs, wants, and desires. Thomas Sowell has also dispelled the myth that the knowledge of a centralized authority can supplant the billions of mundane knowledge decisions made everyday by individuals with specific mundane knowledge particular to each and every price decision. (6)

History repeats itself but market failure receives a front page headline

A quote by Ronald Reagan has been widely disseminated within the United States over the past half century: "....government is not the solution to our problem, government is the problem". Actually Reagan went on in his statement to basically summarize Hayek's position of centralized authority being unable to organize an economy. You can hear those remarks in the link below:

http://www.youtube.com/watch?v=cEuiI2PbSWQ


When ObamaCare, the first major entitlement introduced since LBJ'S Great Society programs, and with Social Security, Medicaid, and Medicare all basically bankrupt, many, many individuals in US society immediately recalled Reagan's remarks. That yet another entitlement stacked atop a bundle of bankrupt entitlements smacked of "..government is the problem".

Upon review, ObamaCare is merely a centralized authority trying to mimic billions of mundane decisions by unique individuals. ObamaCare attempts to manipulate price which would simply cause individuals to receive the wrong price signals regarding the allocation of scarce resources with alternate uses. Moreover, ObamaCare is a price fixing scheme that ends, as do all price fixing schemes, with a qualitative and quantitative reduction in supply aka rationing. (7)

Oddly enough, "Governments fail too", regarding the introduction of yet another vast entitlement, was elevated, through the voices of millions, to the forefront. Millions upon millions of citizens want to investigate "government failure" before it becomes government failure. Upon further review and investigation, the failure of ObamaCare has become daily reports. That the plan is unravelling daily and possibly for the first time "governments fail" may be stopped before it happens.

Notes


(1) http://www.cnbc.com/id/15838446/

(2) http://thinkexist.com/quotes/milton_friedman/

(3) Getting Off Track, John B. Taylor

(4) Hayek: His Contributions to the Political and Economic Thought of out Time, Butler and Riggenbach

(5) From Economic Man to Economic System, Harold Demsetz

(6) Applied Economic, Thomas Sowell

(7) Basic Economics, Thomas Sowell

ObamaCare: price fixing scheme as the norm.

What has become more than apparent, through the health-care debate and now "law of the land", is that ObamaCare hinges on a price fixing scheme.

We know for a fact that no price fixing scheme, in all of recorded economic history, has ever been successful. Rather bad track record?!? Price fixing merely affects supply quantitatively and qualitatively. Or, alternatively, supply merely deteriorates in quality and the the new lower quality supply is rationed over time.

Looking beyond the basic price fixing scheme, Thomas Sowell, in his book Applied Economics, makes an excellent observation/argument that all government run health-care is always based on price controls. Moreover, Sowell explains "why" government run health-care is always based on price controls.

Sowell's observation may surprise you!

Paraphrasing Sowell, the legislator-politician has discovered that government run health-care is a very, very expensive proposition. That government run health-care, over time, eats up larger and larger and larger chunks of tax revenue that could be used for other existing spending programs or newly proposed/future spending programs. Hence it boils down to the competition among government spending programs that has lead the legislator-politician to employ price controls regarding government run health-care. Government run health-care price controls exist in order to leave behind more tax revenue for the legislator-politician's current and future spending programs.


If Sowell is correct, then Obama-Care is merely following a predetermined formula, set long ago, for any and all government run health-care program: price controls. That the price control scheme is employed by politicos as the politicos would rather impose qualitative and quantitative supply problems regarding government run health-care, to be experienced and dealt with by the participants of the government run health-care program, in favor of continued or proposed spending in areas far, far removed from the health-care arena.

The question that begs asking: is the participant in a government run health-care plan directly paying for exogenous politico spending areas, through qualitative and quantitative reductions in supply, by way of price fixing? For example, Jane needs a hip replacement. Jane must wait months and months for the surgery and is assigned to a less than up-to-date facility which lacks adequate staffing and adequate supplies. Does Jane's long wait and reduced quality of health-care translate directly to funding other politico spending programs? Jane's very long wait and quality reduction is funding an agriculture subsidy? Funding a pension payment for a retired government employee? Funding re-paving a roadway? Funding the department of education? Better yet, is Jane funding a newly proposed politico spending program?

The Socialized Medicine Scheme: the wrong focus

What is extremely odd about the current argument put forth by proponents for socialized medicine is their focus on health-care insurance.

One could go on for fifty paragraphs about claim frequency, claim severity, expense ratios, claim reserves, etc., etc. but at the end of the day the cost of health insurance reflects the underlying cost to provide health-care.

The ridiculous assumption that fixing or controlling health insurance premiums will cause the underlying cost of health-care to change is insanity.

It really boils down to: the current cost to provide health-care is a reflection of demand and supply for health-care given the current government regulation frame work. The solution is in the cost to deliver health-care which includes demand efficiency by reducing/eliminating over utilization, supply to be expanded as well as supply costs to be simultaneous reduced, and government regulation to be reduced or eliminated.

Once demand and supply for health-care produces a price point, all insurance is doing is insuring “price”. Average price is not really the insurance event. It’s the outlier of average price that is the insurance event. That is, it’s the catastrophic price component, that is calculated into average price, which is the true insurance event.

Hence demand and supply for health-care produces price and the cost of insurance is merely a reflection of price determined by demand and supply for health care.