I have 10 years experience in the insurance industry as an owner/agent.
Mandate to Buy Insurance
Obamacare marks one of the first times in U.S. history that the Federal Government has over-reached the Constitution of the United States of America and has forced American citizens to purchase a product in the free market or face consequences.
In fact, in June 2012, the Supreme Court declared that the Affordable Care Act (ACA) was unconstitutional since it violated the Commerce Clause which stipulates the government cannot compel individuals to engage in commerce—that is, to purchase goods and services.
So how did they get away with it? The Obama administration argued before the Supreme Court that ACA imposes a tax, not a mandate to purchase insurance in an attempt to guarantee its constitutionality—a position they initially adamantly denied.
Of course, we know how wrong this position is because we have to buy insurance or face a tax penalty that may be higher than the cost of insurance. But the Supreme Court, with Justice Roberts in the majority opinion, agreed with the Obama Administration. This is clearly different from raising everyone’s taxes and providing free coverage as in socialized countries. It also turns over one-sixth of our economy to the government.
Those supporting nationalized healthcare reflexively argue that automobile insurance is also mandatory and is widely accepted as a prudent and responsible civic financial responsibility. This purposefully ignores, however, very real differences between private insurance requirements for voluntary activities from programs that are government-run and mandated simply by virtue of your existing and filing a tax return.
In other words, the Obamacare law is inescapable unless you're at the federal poverty level. It also ignores the huge cost difference in these two coverages. But before discussing the virtues of these positions, let me first provide a refresher of how Obamacare came into effect as it’s origins are rather revealing (stick with me here).
History of Passage of Patient Protection and Affordable Health Care Act (ACA)
Towards the end of 2009, House Bill, H.R. 3590, called The Affordable Health Care for America Act was proposed through a Democratically lead agenda and by intense lobbying by Democratically funded groups like the AHIP and HMO organizations under the rubric of lowering health care costs for all Americans. What the proposal really sought was managed competition for healthcare. But more on that later.
The House passed the bill by a 220 to 215 vote which was then taken up by the Senate who promptly and completely revised its meaning and content to achieve goals desired by President Obama and leading Democrats. This would require that the bill be returned to the House later for approval of its revisions.
This new Senate version, called the Patient Protection and Affordable Care Act, was passed by what was then a filibuster-proof vote of 60 to 39 in December of 2009. They did this through a process called cloture meaning to end filibuster debate on the bill as some Democratic and all Republican Senators were opposed to the Senate modified version.
After the vote, in January 2010, Ted Kennedy was replaced by Scott Brown in the Senate and the Democrats no longer had a filibuster-proof majority. They now faced a dilemma - create a new less aggressive bill that would be acceptable to Senate Republicans, or persuade House Democrats to accept the revisions of the Senate Bill already passed, something to which house Democrats were almost entirely opposed. Not wanting to compromise on any of its aggressive bill proposals, Senate Democrats led by Harry Reid, promised to amend financial aspects of the Senate version of the bill later with a second bill, the Health Care and Education Reconciliation Act, through a budget reconciliation process that only required a 51% Senate majority to pass but would also sunset in 10 years requiring new approval. House Democrats agreed and passed Obamacare on March 21, 2010.
From the start, the Affordable Health Care Act put Democrats and Republicans at odds essentially pitting the wishes of half of all Americans against the other. Using techniques like cloture and budget reconciliation, while not new, certainly seems wholly inappropriate as it does not give voice to all Americans on one of the most life-impacting and economically challenging pieces of legislation since the passage of the Social Security and Medicare Acts. But even these laws did not seize a large portion of the free market.
Throughout the history of its enactment, it’s obvious that Senate Democrats had a “do-or-die” mentality that was intended to ram through legislation not completely developed nor agreed upon, not to mention the coercive nature of the tax penalties involved through IRS enforcement meant to help fund the legislation. In their fear of not getting nationalized health care legislation passed, they decided that a very partisan version of a bill was better than no version at all.
The Problem With Obamacare: It's Not Insurance
So what’s wrong with Obamacare? Remember that the law provided a vast expansion of Medicare, to those States that accepted it, for qualified individuals through a means test as a direct government payer option. They also went into partnership with private carriers through a Co-Op or Exchange as it’s called.
Due to the wording of the bill, one of the early challenges to Obamacare was taken up by the Supreme Court. The justices were asked to interpret a passage that said the tax credits are authorized for those who buy insurance on marketplaces that are “established by the state,” but federal exchanges were also authorized for states that did not set up their own.
The Obama administration argued that millions of people served by a federal marketplace were entitled to the subsidies, too and the court agreed that was the only way the law would work and that, “although the legislation’s wording was problematic, Congress’s intent was clear.” There also have been no less than 26 Federal court challenges to the constitutionality of Obamacare.
As mentioned earlier, at the heart of the legislation is managed health care competition which has three essential elements:
- Insurers compete for enrollees but must charge community-rated premiums (no discrimination based on health status or pre-existing conditions).
- There are strict limits on who can buy and when they can buy and the buyers usually receive a hefty premium subsidy from a third party such as an employer or the Federal government).
- There is a manager (employer, government, or insurance company) that is responsible for regulating the market.
Right from the start, we see a problem. When health care in the free market cannot dictate enrollment based on health status risk nor statistical calculation of required premium dollar amounts, you are no longer offering insurance. Instead, you’re offering government-mandated and, in many cases, subsidized welfare. This guarantees that three things happen:
- Private health care providers will lose money,
- the government will underwrite financial losses subsidizing Exchange providers, and
- premiums will skyrocket as primarily the sick will enroll in Obamacare.
And that’s what we’re seeing today as many ACA exchanges such as Aetna and Blue Cross are pulling out of the Co-Op arrangement with the Federal Government citing financial losses. The remaining exchanges or private insurers are raising premiums dramatically, as much as 80% with more to come.
At this point, you might be asking why don’t these exchanges and private insurers simply ask for more subsidies from the Federal Government. The answer is they can’t because the government has no authority to do so. The subsidies were authorized by law, but Congress rejected an appropriations request from the administration to fund them.
The administration moved some money around and funded them anyway. Estimates indicate that the program would funnel about $130 billion to insurers over the course of a decade. The House brought suit arguing that the move was illegal. U.S. District Court Judge Rosemary Collyer agreed to shut down the arrangement. Most recently, the justice department has signaled a willingness to use a court settlement fund to subsidize insurers to keep exchanges afloat.
Insurers have resorted to suing the government for the release of “risk corridor” funds which are monies collected from insurers with profits and distributed to those with losses. But the problem is only $362 million has been collected against $2.67 billion in losses. If the justice department allows these suits, millions will be paid from the settlement fund, unappropriated Federal dollars amounting to a slush fund even though Congress worked hard to require ACA to be revenue-neutral. It’s hard to imagine, but there was a period in American history prior to 1954 when health insurance didn’t even exist. Employers wanted to begin offering health insurance plans to hire and retain employees so they lobbied Congress for corporate tax deductions for doing so. Of course, with the advent of technology and the imposition of government regulations as well as the cost of malpractice insurance, it’s virtually impossible to approach health care as a self-funded proposition.
As cited by the Supreme Court in support of the language of Obamacare, you could therefore take the Machiavellian approach to Government subsidized health care as a public service to the poor and uninsurable as a moral justification of the means in which it was approved. But here for the first time, we see a penalty imposed by our government for not buying something. And it begs the question, what else might the government deem mandatory in the free market for the public good?
The Comparison to Auto Insurance: A Non-Sequitur
Taking up the case of automobile insurance again, you can choose not to own a car, or drive and use public roadways and you have no further requirement to carry insurance.
Even if you take the approach that driving is required for people to live, the premiums for liability-only coverage, the provisions of a policy that are legally required, for an average risk is nominal ranging between $30 and $150 a month in most cases. You also have your choice of insurance carriers competing in the marketplace for attractive rates that help keep costs down based on your driving behavior.
With Obamacare, we have a coercive penalty for not carrying insurance. If this were similar to auto insurance, if you ride a bicycle, you'd still have to carry auto insurance to help subsidize those that did drive. True, health insurance is for everyone, but the young and healthy are less likely to seek treatment if ever. And we’re quickly heading to one choice, government healthcare, with premiums based on pools for healthy and sick, young and old, drug and alcohol addicted and the non-addicted and free to completely out of pocket.
In fact, Jonathan Gruber, one of the architects of Obamacare admitted that if younger enrollees had been aware they would be subsidizing the old and the sick, they probably would not have gone along with it. See here for three big reasons Obamacare is terrible for millennials
Government Is a Poor Replacement for Free-Market Commerce
And the failures of Obamacare exchanges demonstrate, once again, how badly the government executes the delivery of public services as compared to the efficiencies of our free market system. Virtually everything you own had been made better by free-market capitalism as anyone who grew up in cold-war Russia can tell you, including intangible financial products.
Why do we suddenly believe the government can do a better job of it? If they really wanted to help the 12% of Americans that were uninsured, they easily could have expanded Medicare or Medicaid for that purpose without turning the health insurance industry in America on its head ending in one outcome: socialized single-payer health care.
Those that argue that socialized medicine is effective and affordable in other countries may not be entirely wrong but the are comparing much smaller populations and economies to the U.S. and they are not quick to point out the poor outcomes of the sick being treated for expensive diseases like cancer and terminal illnesses requiring long-term skilled nursing care. And cost management in these countries is not as efficient as they suggest.
The net spend in the UK for example is the highest of any European country. Besides, America does not need to look to Europe for its example as our delivery of high quality health care is arguably the best in the world. That is, as long as we can prevent our government from meddling further into our economic freedoms and hopefully revise or end the disaster that is Obamacare.