Connecting the Dots

Obamacare Will Soon Be Zombiecare

May 16, 2017

Obamacare probably doesn’t affect you directly.

Most Americans get their health insurance from either their employer or Medicare.

If you are a healthcare provider, your job likely existed before Obamacare and will still be there long after.

If your income is below $200,000 a year, the healthcare surtax doesn’t add to your tax bill.

However…

Saying Obamacare doesn’t affect you directly is not the same as saying it doesn’t affect you at all. It certainly does.

You and I are part of the economy, and so is healthcare. We are all roped together.

That’s actually a good thing because we’re going to need each other next year when Obamacare changes into something else.

It’s not going to die… but it won’t be quite alive either. It will be somewhere between alive and dead.

That’s right. In 2018, Obamacare may become Zombiecare.


Photo: AP

The Clock Is Ticking

Before the election six months ago, few people would have predicted today’s healthcare standoff.

Clinton supporters expected Obamacare would continue with some minor adjustments. Those behind Trump assumed Republicans would quickly repeal and replace Obamacare, as repeatedly promised.

Instead, the GOP House (barely) passed a replacement plan that the GOP Senate has little interest in pursuing. Negotiations continue, so we’ll see.

Unfortunately, time is not on their side. Obamacare is in deep trouble now.

As I explained back in March, the insurance companies haven’t been able to run profitably because not enough young and healthy people are buying Obamacare policies. That’s made them raise rates, which drives away more people and ultimately creates a vicious cycle.

Insurers have no incentive to stick around and lose money—and they must decide by June 21 whether to stay in the Obamacare exchanges for 2018. In some states, filing deadlines are even sooner.


Photo: Nick Youngson

Yet the Senate seems in no hurry to act. The odds that they will hash out a bill and get the House and the president to agree in the next five weeks are pretty low.

Moreover, they can’t just extend the deadline. Insurers need months to reprogram systems, train staff, and build provider networks. Congress can’t dawdle into summer and then unveil something entirely new. If they do, the 2018 rollout will be a catastrophe.

So insurers are doing the rational thing. They’re either backing out or raising rates to compensate for all the unknown risks they will be taking.

Early signs are ugly:

  • Maryland’s top insurer, CareFirst Blue Cross, has requested an average 50% rate increase for 2018.
  • In Virginia, Anthem Blue Cross is asking for 37.7% higher rates.
  • Aetna said it will be pulling out of all Obamacare exchanges nationwide.
  • Iowa is down to only one carrier, Medica, which only covers a few counties.

We’ll see more such stories in the coming months. Barring some legislative miracle, the result will be an individual health insurance market with sky-high rates and deductibles—if your area has any insurers at all. Many won’t.

How are top asset managers, expert analysts, and Federal Reserve insiders positioning their portfolios on the winning side of the Paradigm Shifts?

But there’s a twist to this, one few people are noticing. I learned it from healthcare policy expert Robert Laszewski, whom I’ve quoted before.

He says Obamacare won’t explode or collapse, even if Congress does nothing. That’s because most of the beneficiaries will still be heavily subsidized under current law. They won’t care what the price is.

Here’s how Laszewski explains it.

The health insurance companies' defensive strategy is simple: Limit the plan offerings available to ones that bring in the most premium and then drive the rates as high as they need to be in order to protect the insurance company's solvency. Health plan executives realize this will push the unsubsidized and partially subsidized people off the rolls but leave a core enrollment of taxpayer subsidized people insulated against the costs and ultimately profitable for the insurers.

Some experts have said that a death spiral by its very nature cannot be stabilized. Under Obamacare, that is not necessarily true. Because of the uniqueness of the program's subsidy system, there is likely a point where a health plan can concentrate its pool of covered people from among the most highly subsidized participants and collect enough premium to end the red ink. That is what these latest big increases are about.

So, health insurance companies are happy to take taxpayer money as long as they don’t have to take most taxpayers as customers. They only want price-insensitive poor people. But in cold, hard business terms, it’s probably their best move.

Bottom line: In 2018 Obamacare will still exist, but only as taxpayer-provided indigent care. The program’s heart and soul—the grand vision of “Affordable Health Care” for every American—will be gone.

What’s left will be a mere shell, stumbling around and consuming resources.

Or, as Laszewski called it, Zombiecare.


Photo: Flickr/Cavin

Stuck with the Bill

Aside from taxpayers, who loses in this scenario?

Not the poor—they’ll have subsidized health insurance.

Not the wealthy—they’ll have employer coverage or just pay out of pocket.

Not the elderly—they’ll have Medicare.

The losers will be in the middle: Working-age people who make too much to get Obamacare subsidies, but not enough to do without insurance.

They’re small-business owners and their workers, solo-practicing lawyers and other professionals, independent contractors, and others without employer coverage.

These folks are important to the economy. And next year, many will be uninsured. Insurance companies will identify the pain point and raise rates above it to keep them away.

Some in this group will get serious illnesses, have accidents, or otherwise need expensive healthcare that they won’t get—which will make them less productive to the economy.

The labor market is in an odd balance right now. Even while many remain out of the labor force or underemployed, good workers are scarce in some areas and occupations. Losing productive people to health problems won’t help.

But regardless, it appears set to happen. If you’re in the crosshairs, check out my Healthcare Crisis Survival article from last month. Our readers had some helpful ideas.

The healthcare industry will feel some pain too, which might show up in stock prices. Hospital stocks are especially vulnerable, since hospitals are legally required to stabilize anyone who checks into the emergency room, even if uninsured and unable to pay.

Medical-device and pharmaceutical companies might see lower revenue as well, since uninsured people may not be able to afford the latest drugs and technology.

With the economy already stuck in slow-growth zombie mode, we don’t need zombie healthcare too. But it’s what we are going to get.

The good news: The impending fiasco might convince the powers-that-be to try some new ideas. Other developed countries have found better ways. We can, too.

See you at the top,

Patrick Watson

P.S. Next week is our Strategic Investment Conference in Orlando. I’ll be there to bring you the highlights on our SIC Live Blog. Look for more info soon.

P.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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wintercorn78@gmail.com

May 17, 8:10 a.m.

Again we are seeing individuals who only study a problem from a classroom or office.

I have been on the front lines of the ACA since before its inception.  My company transitions retirees and former employees of Fortune 1000 companies.  I get the chance to work with people of all income levels as well as all healthcare service requirements.

The poor are relegated to either Medicaid or into plans that have small networks, those that have few providers accepting plans, and shallow formularies, defined as fewer drug therapies per malady.  Either of these if you have experienced them is hardly acceptable care. 

To counter the claim that the poor have subsidized health care is actually only in the Silver plans.  These are much more expensive than the base plans available in their area, where the healthy poor can select a Bronze plan they do not intend to use.  Subsidized individuals and families have come to me and after exhaustive financial review (yes we need to perform this function as part of the ACA to calculate eligibility) and it is clear that their ability to pay for any additional household expense is negligible if not zero.  We get them into a plan only to find that it is cancelled the next year and replaced by a plan that is 75% to over 100% more expensive and their subsidized payment has gone up by 150% to over 200% in just 2 to 3 years.  Each successive year we are certain that this has to be the last such experience but as a result of the loss of participants and high costs per area covered each year has gotten progressively worse.

I tell my clients this metaphor.  We are all pointing, complaining and even laughing at our friends in the living room with their room on fire.  But we in the bedrooms and the kitchen need to remember that it is our house that is on fire.  We are all together in this situation.  Our group premiums have doubled in the same period while our deductibles have more than doubled.  Medicare deductibles have started to move again without appreciable increase in cpi or corresponding social security payments.  Medicare recipients have also seen over a 30% increase in monthly premiums for their Part B (the medical services) coverage.  And thirdly I am experiencing an acceleration of early retirements by many providers who can no longer afford to practice in many areas of the country.

So the poor will not be able to continue and with no carriers in most counties in the US, the ACA can hardly be considered viable in any shape or form moving forward.

There is a simple solution from a federal point of view.  Every person can be covered under a catastrophic plan similar to the 10 essential benefits outlined in the ACA.  A single plan chosen between insurance carriers, added at birth by the parents to their plan, held throughout life (changeable between carriers), and carried by the individual throughout their career even into retirement.  If the boundaries between group, individual, state/federal and possibly Medicare are removed (BTW allow seniors to choose whether they pay for Medicare or keep their personal catastrophic plan – many seniors opt for an inexpensive plan that is catastrophic only, now.  Please see Plans K, L, A, B or High Deductible F as Medicare Supplement options.)  This solution puts healthy young individuals in the same plan pools as the aged and infirmed.  It also solves the portability problem, especially if at the same time the State limitations are removed.

The difficulty with State Insurance Boundaries has always been the individual State Departments of Insurance differing views as to how they help protect their populace.  A minimum standard should be able to transition beyond this problem.

The second pillar of my plan is an unlimited contribution to an individual’s Health Savings Account.  Also rid the nation of all tax advantaged health retirement accounts and consolidate solely into an HSA.  The federal government can limit the tax advantages to the account year by year as needed but the contribution will only help to rid the nation of its debt burden for future payments by the 20% that is allocated to healthcare.  Individuals will gain it and manage it for themselves.  Also allow contributions to come from anywhere or anyone.  In this way an individual’s health issues or mismanagement can be overcome with help from family, friends or organizations.  I see companies contributing more than $7000 per person per year towards healthcare plans that even more expensive.  The majority of this money should remain with the individual to cover whatever healthcare risk may arise.  All of this is in the name of reducing future healthcare expenses.

Groups and individuals can then turn to the health insurance industry for plans or programs that can reduce the risk, or share the risk, of reducing their individual HSA’s balances.  At this point plans can be much more creative as every individual will have the cash to pay for basic coverage.  This can actually expand the current health insurance industry, the financial industries, and healthcare service industries just in time to transition a working population into a new and vibrant workforce.  John Mauldin wants to know where the new jobs will be?  I think it could be here for the next 5 decades.

Without these changes working at my job as an ACA expert agent will only be dealing with more rage and tears every day.

You are welcomed to comment directly to me at wintercorn78@gmail.com.  I also welcome your thoughts and experience on the subject.

Ernest M Kraus

May 16, 4:08 p.m.

remember how ell the government runs the postal service and Veterans Administration. They have not done a good job with Beaureu of Land Management

Ernest M Kraus

May 16, 4:04 p.m.

so what is a better way? Without a solution, you are part of the problem.

Patrick Watson

May 16, 2:55 p.m.

Some relevant news since this article published:

GOP Senators Discuss Short-Term Measures To ‘Stabilize’ Obamacare Markets
http://talkingpointsmemo.com/dc/gop-senators-discuss-short-term-health-care-measures-to-stabilize-market

Not clear how they think they can help, but at least they’re talking about it.

charles.rigsby@wfadvisors.com

May 16, 1:14 p.m.

When you push a program off a cliff bit by bit you do deserve blame.


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