Connecting the Dots

How to Survive the Obamacare Collapse

March 28, 2017

Like it or not, Obamacare lives. The question is, for how long?

President Trump is right when he says the Affordable Care Act will collapse on its own. Its condition is terminal, and Congress declined treatment last week.

Maybe that’s no big deal to you. Maybe you’re on Medicare, or get group health coverage from your employer, or are independently wealthy, or you’re in good health and confident you will remain so.

Unfortunately, millions of Americans who don’t fall into any of those categories may soon find themselves in a tough spot.

I don’t want that to be you, so today I’m sounding the alarm. You may enter 2018 with no access to health insurance, which means you will be at risk both medically and financially.

Now is the time to prepare.

Money for Nothing

The first step to solving a problem is admitting you have one. Some of us are in denial, so here’s a hard fact:

We Americans spend far more money on healthcare than any other developed nation, but we’re no healthier.

We’re even less healthy overall.

The chart below shows the bad news. The horizontal axis is years of life expectancy. The vertical axis is per capita healthcare spending.

Ideally, you want to be in the lower right quadrant. That means your population has a relatively high life expectancy and relatively low healthcare spending.

France, Japan, Spain, Chile, and a bunch of others are clustered in that area. Their money buys more health than ours does.


Image: Financial Times

The United States is in the upper right, which shows that our per-person healthcare spending is significantly higher than that of the other OECD countries. Switzerland is a distant second place.

Our extra spending doesn’t help us live longer. We actually die a little earlier than our peers in Japan and most of Europe.

You can quibble over details in this data, but the broad facts are inescapable. We spend too much on healthcare relative to the health it buys us. As long as that is the case, no reform plan will work.

Did Obamacare cause this? No. It goes way back. Here’s another graphic showing the changes over time.


Image: Our World in Data

You can see that the United States began diverging from other developed countries back in the 1980s. The gap has only grown wider since then.

Stranger yet, we spend all this extra money yet still leave millions of low-income citizens with little or no access to healthcare. Kaiser Family Foundation says some 2.5 million working Americans make too much to qualify for Medicaid, but not enough to receive Obamacare tax credits.

Death Spiral Approaching

I showed you that data to say this: Simply returning to pre-Obamacare conditions won’t solve the problem. Obamacare exists because the system wasn’t working and we needed something better.

Before 2014, people with preexisting conditions were simply out of luck. They couldn’t buy health insurance at any price, unless their employers offered group health, which many didn’t. This was hurting both those people and the economy at large.

Obamacare, for all its flaws, at least tried to solve the problem. It helped some people but hurt others—and now it’s reached its limits.

Insurance works only if the risk pool includes enough low-spending people to offset those with expensive claims. That’s Obamacare’s core problem. The legal mandate to buy insurance hasn’t brought enough young and healthy people into the pool.

The private insurers that participate in the Obamacare marketplaces are not in the business of losing money. They can and will back out if they see no profit potential or, worse, a risk of huge losses.

Here’s what healthcare policy expert Robert Laszewski said after the GOP proposal failed last week. Note the key point I bolded.

Now, the president has threatened to skip fixing Obamacare and let it fail. He will get his wish. The Obamacare insurance exchanges are simply unsustainable in their present form. With only 40 percent of the subsidy eligible signing up after three years, the risk pool is nowhere near the goal of getting 75 percent to sign up to assure enough healthy people are paying into the program to cover the costs of the sick.

Health insurers that I have talked to are already working on their contingency plans for 2018 should Obamacare not be repaired. Things are so unsustainable that the shrinking number of health insurance companies left in the Obamacare market are giving serious thought to whether or not they will even participate, and if they do just how much higher—and they will have to be much higher—to set the rates.

Already in 2017, one-third of US counties have only one participating marketplace insurer. More of the country will be in that position next year. Some areas may have no insurers at all, or if they do, it will likely be at higher rates for worse coverage.

This is the “death spiral” you hear about. People with serious illnesses will buy insurance no matter what it costs. This drives up claim ratios, which then drives premiums yet higher and discourages young and healthy people from buying. That can’t work indefinitely.

What to Do Now

If Laszewski is right, at least some of the millions who rely on Obamacare for health insurance will be out of luck next year.

Congress and President Trump might buy us another year or two if they put their heads together, but it seems unlikely. They might even make it worse… even though it’s going to get worse without any help.

This isn’t just a “tail risk,” as traders might call it. The odds that catastrophe will strike you may not be 100%, but they’re well above zero. We all need to get ready.

What can you do?

  • If you have insurance now and you’ve delayed treating a medical problem, don’t wait any longer. Talk to your doctor and deal with it before 2017 ends.
  • Find a good insurance agent in your area. As of now, at least, some companies still sell short-term medical policies with limited coverage. An agent can help you find the best fit. They may not cover preexisting conditions, but may also be better than nothing.
  • If you take expensive prescriptions, start refilling them as soon as your insurer allows. Usually, they give you a few days’ leeway before your supply runs out. Do it every time, and over a few months you’ll accumulate an extra supply.
  • Take care of your body: Lose weight, eat better, get exercise—you know the drill. It will pay off financially by reducing your risk of expensive problems.
  • If you work for a small business that might drop its healthcare plan, or your employment is otherwise unstable, start thinking about possible career changes now.

Another option: the religious healthcare cost-sharing plans. They aren’t “insurance” and don’t cover everything, but they count as meeting the Obamacare mandate. Look here or here to learn more.

Helping Hands

Healthcare shouldn’t be this giant problem. The United States is a wealthy nation. We have a long tradition of helping our neighbors when misfortune strikes. But for whatever reasons, it’s turned into a political fight.

I believe that next year, millions of Americans will lose access to health insurance. It will be even worse for some—maybe you, maybe me. We don’t know where lightning will strike.

There are practical things we can all do to prepare for this. I listed a few ideas above. You may have different or better ones. I’d like to tell other readers about them, so please leave a comment below or send me an e-mail. I’ll share the best ideas in a future letter.

If the folks in Washington can’t get their act together, we’ll just have to do it ourselves.

See you at the top,

Patrick Watson

P.S. If you’re reading this because someone shared it with you, click here to get your own free Connecting the Dots subscription. You can also follow me on Twitter: @PatrickW.

 

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55382324

March 28, 11:33 p.m.

Perhaps one area to start improving the health of the nation is the food culture in terms of quantity: a ‘small’ coffee / soda / juice sold in the United States equates to ‘large’ - if not ‘largest’  - size drink sold in most other countries.

Dallas Kennedy

March 28, 5:41 p.m.

That part about getting a healthier lifestyle is great advice. You might get so healthy that you won’t need health insurance ;-)

“Medicare for all” is a catchy slogan. But that kind of system in most developed countries is a universal “basic” care, with a menu fixe of essential medical services. People in those countries are allowed and encouraged to buy supplement private insurance as well. Almost every developed country’s medical financing system has gone through bankruptcy in the last 30 years, or been threatened with bankruptcy, and almost all have had to scale back.

The one exception is the UK, where the NHS remains in place to both run health care and pay for it. It’s a system everyone in the UK hates and no one wants to replace. It too went through wrenching changes in the 1980s and 90s.

“Universal basic” is attractive—certainly better than what we have now. The question is whether there won’t be pressure to keep expanding what “basic” covers. And notice all those other countries ... their debt levels and how they’re effectively insolvent.

“Universal basic” would require breaking the Medicare complex. The real reason health care costs so much in the US is because of how public spending on health care is heavily skewed toward the elderly. That is the big difference with other countries, which ration care for the oldest patients. (Ask anyone who works in medicine in Canada, or look at the disease survival rates by age.) That is where the biggest expense is and where the biggest potential savings are. Health care is very labor-intensive, more so the older the patient, and 80% of health care spending is for the labor, not the drugs, machines, or other technology.

The nicest thing about “universal basic” is that it would end the heavy bias of public spending on health care toward the elderly. Good luck crossing the Medicare lobby, though. No one wants the government to take away their Medicare!

paulrclayton@gmail.com

March 28, 2:14 p.m.

I read the previous article about work force participation with great interest, but while it makes a valuable point about excessive incarceration rates and subsequent ‘death by despair’, that is far from the whole story. It is also true that Americans are genuinely sicker than the inhabitants of other OECD nations; they may be a mere 5% of global population, but Americans consume over 54% of ALL pharmaceuticals, with one in five US citizens currently dependent on more than 5 pharmaceuticals.

Yes, you have become heavier - but you are also suffering from more chronic inflammation. My research group, which has the largest data base of omega 6/3 ratios in cell membranes in the world, has shown that while 6/3 ratios are running at 15:1 in Europe, they have reached an average of 25:1 in the USA. This makes you more prone to vascular disease, joint and bone disease, cancers, liver and kidney disease, dementias, depression, reduced impulse control - you get the picture?

There is little point in trying to patch the rotten ship of American public health with high priced and toxic pharmaceutical pots of pitch, and the scientific developments you are referring to - which we are well aware of - are not a cost-effecive nor an appropriate answer. You need to get some nutritional basics right, and then your nation can steer a different and better course.

In order to do that, however, you will need to call your out of control food industry to heel. Good luck with that!

Tom Lawrie

March 28, 1:20 p.m.

Like most of the “big” issues facing America, this one doesn’t lend itself well to sound bites or political argument.  That said, a list of the major components of the medical expense in America needing reform/regulation would include:
o Cost of medical training. In America, the debt incurred deters new MDs from primary care.
o Cost of malpractice insurance drives fees up.
o Threat of litigation leads to many unnecessary procedures, tests, etc.
o In Japan, every citizen MUST purchase insurance. Citizens can opt for a supplemental plan. There are 3400-ish insurance companies in Japan. The government insures a standard fee structure across ALL procedures, tests visits, etc. And the government regulates costs.
o Administrative costs in the American system are exorbitant as measured by their share of total expenses.  For example, research how much the Presidents of “non-profit” hospital make!
o We like to think of ourselves as technologically advanced, but the use of technology in the medical system is archaic to non-existent.

Of course, there’s more.  But imagine, in the political climate we have today, how any one of these issues would be approached and resolved.  It would never happen. So, my conclusion is that the author is correct.  There won’t be a “fix” until there is a crisis.  The crisis will be the excuse for not having done the hard work to design a better and evolving system. And I suspect the “solution” will move us more towards socialized medicine.

Joseph Goldberger

March 28, 11:55 a.m.

The country will eventually migrate to Bernie Sanders proposal of Medicare for all.  Unfortunately, Medicare typically covers 80% of the cost of virtually all care given and this is the Achilles heel of healthcare.  Simply put, we seek medical care for everything and our ability to treat everything has expanded exponentially.  Cancer treatment is a simple example where the cost of some effective biologic treatments now cost nearly $100,000 per year.  Medicare for all will work if it covers all the basics and includes palliative care for all chronic diseases.  Secondary insurance can then provide for above and beyond care through private markets.  Not everyone can receive all the care we can provide, but everyone can receive the care that is reasonable and affordable.

taduggleby@gmail.com

March 28, 10:47 a.m.

An interesting topic that seems to be getting the attention of a lot of newsletters lately. I appreciated the charts on life expectancy and health costs - an insightful grouping of charts.
For those that might be interested in one solution consider Harry Dent’s March 27th article in Economy & Markets. It should ignite some debate.
ECONOMY & MARKETS | March 27, 2017
It’s Time to Shatter the Stones
By Harry S. Dent Jr., Senior Editor, Economy & Markets

Me - I live in Canada so this issue isn’t the big elephant in the bath tub that it is for those in the USA.  I can’t help but thinking that collapse of the AHCA (Obamacare) may be the black swan event that will burst the “bubble” and initiate the next market collapse. Make no mistake - if the USA goes into a market collapse - so will the rest of us.

I also think that John Mauldin’s series of articles recently on budget reform is an interesting commentary on where things could go - if there was some leadership and people were willing to make some hard choices.

belikemike@rogers.com

March 28, 9:37 a.m.

If you drive a car by law you must have car insurance. Good drivers subsidize bad drivers. By the same logic if you breathe you must have health coverage. Healthy people subsidize unhealthy people.

I agree with Patrick, the issue is cost, not coverage. Why do Americans pay more for drugs and implants(knees, hips), have the highest paid doctors, for profit hospitals and insurance companies.

It would be best to out source healthcare to the Japanese. Costs would drop in half, everyone would be covered, life expectancy would increase substantially and infant mortality would fall by an order of magnitude.

Roger Macaione

March 28, 9:31 a.m.

The information provided and prognosis is probably spot on.  I do think it important
to note that virtually all of the lower cost/longer lifetime countries on your chart
are single payer/basically free healthcare systems.  In only a few do private companies
play a role and not in a major way. It is also interesting that in one country, Russia,
that is not teeming with a crowded population, and with supposedly “free healthcare”
that costs for good solid treatment and care is costly beyond the public’s reach.  Is
that where we’re headed?  It is obvious that we’ve put the mechanism in place for all
who wish healthcare can get it, but not affordably.  In a nutshell, discard the government mandate (except for all but the smallest employers), forget blind throwing
of dollars at military waste (which exceeds that in the healthcare system) and use those funds along with a healthcare tax to cover everyone.  Coverage might be tiered (as are
Medicare supplements)to offer personal or family choices of more than basic necessary
coverage (vision, dental, pregnancy).  A surcharge for smokers might be considered also.
Just some ideas which will require bipartisan cooperation-certainly not the mishmash of
personal agendas being aired out.  I don’t really think that “conservatives” want a
healthcare system few can afford.  Our Congress is supposed to be a body acting “For the
People”, not a Corporation or group of Oligarchs!!


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