Monday, March 22, 2010

Yes, that IS a wolf in wolf's clothing: Part I

Well, they did it.

With the passing of the Health Care bill, America may have finally, officially passed into the twilight of our prosperity. If allowed to stand, this new piece of social welfare will be the coup de grace of a century-long effort to pacify and emasculate the American spirit of liberty and the value of the individual.

The economic reality of this bill, combined with the other entitlement bombs ticking away has provided the moment for us to face the prospects of our national mortality. The picture is grim, but you must fully and deeply understand it if America is to have a chance at surviving this altruistic onslaught. And yes, I have read the official 69-page summary of the bill which is probably 68 more pages than the average Congressman ;)

To be clear, this analysis is conducted on an economic premise, not a moral one. And why should it be otherwise? After all, the Democrats pushed this through precisely on the argument that this bill is an economic positive for America and will help cut the deficit. Well, the truth is not so kind.

Health insurance economics: Today
Insurance premiums have been rising steadily for decades for many reasons: general inflation, advanced care options which did not exist in years prior, fraud and waste, etc. But perhaps the largest single driver of rising costs is Medicare and Medicaid. These government programs do not reimburse physicians for the full cost of care provided. The formulas are too complex to go into here but roughly speaking, Medicaid reimburses providers 20-25 percent less than does the private sector. Naturally, doctors and hospitals must pass this loss onto patients with private insurance, thereby raising the cost of care. This is pretty simple economics. The metrics for Medicare are even worse.

The truth of the matter is that your health insurance rates have been climbing so astronomically NOT because of insurance companies themselves. Profit-wise, this industry is among the least profitable of any industry: about 3-4% profit margins. It's because the government has seen fit to underpay doctors and hospitals for the care of about 80 million people. The difference is made up through higher costs for those with private insurance. That my friends, is the simple and inescapable truth of the matter. Yet, the insurance industry makes the perfect bogeyman for the politicians. They certainly could not stand up and shame the doctors of America for having the nerve to pass these costs up the financial food chain. This would create the atmosphere for exposing the true thieves in the process: the government and its recipient class enablers. No, the insurance industry served its purpose just fine. By not fighting today's battle, they bought themselves perhaps another decade until their Saigon. And you can bet that all of today's insurance executives and big shareholders will be long gone by then.

Health insurance economics: Tomorrow
Here is the unavoidable truth. Are you ready? If you have private insurance today, your premiums will continue to rise and faster than before - the promises of D.C. Democrats notwithstanding. The policies unleashed by the newly passed health care bill virtually demand it. Consider the larger points (my comments in red):

1. Six months after enactment, insurance companies could no longer denying children coverage based on a preexisting condition. This is a nearly instant increase in the number of "expensive customers" in your insurance pool. This adds costs.

2. Starting in 2014, insurance companies cannot deny coverage to anyone with preexisting conditions. Clever of them to wait until after Obama faces re-election as this will pose a significant increase in "expensive patients" to be added to the health insurance rolls. What do you think your favorite Chinese buffet would cost if a team of Sumo wrestlers began eating there every night?

3. Insurance companies must allow children to stay on their parent's insurance plans until their 26th birthday. Again, adding further costs. While people this age are typically very profitable customers for the insurance company, a 25-year old still on his parent's family plan is not nearly so. Additional members are always less profitable than individual policies.

4. Expands Medicaid to include 133 percent of federal poverty level which is $29,327 for a family of four. This will mean higher costs coming from the care providers as the previously mentioned problem with short-paying for services will be amplified. This too will be reflected in your health insurance premium.

5. Requires states to expand Medicaid to include childless adults starting in 2014. Ditto.

6. Federal Government pays 100 percent of costs for covering newly eligible individuals through 2016. Remember, the government's version of "paying all of the costs" means about 80%. Again, that 20% balance is to be passed onto you and I who have our own health insurance.

What the future will hold
There are many more provisions that will add to the cumulative effect of those above. There is only one result possible: provider costs and in turn, insurance costs will go up, up and away. For Democrats, this is the perfect, planned result of this bill. As for any liberals who right now are shouting: " yeah, but what about the CBO numbers and the fact that this bill will lower the deficit!?" Well, you've been fed and have swallowed a lie of epic proportions. If you can not acknowledge the simple truths of economic behavior combined with basics of supply and demand explained above, you are not being intellectually honest. If that was not enough, I present you with this. At what point do you cast political loyalty aside in favor of basic, human decency and truth? Yes, I realize you consider health care a right and that by achieving this, you are doing a "good". But if the means to achieve this include outright deception, what then of your moral high ground? Morality of course is another topic for another day which I will address. But strictly economically speaking, the depth and scope of this deception is not only staggering... it is fatal.

For it will create such economic havoc that enough people will clamor for the government's help once again. Yes, it sounds counterintuitive given that it will be the government responsible for the mess in the first place. But such has been the history of much of our collectivist policies. But you must remember two things.

One, they have already shown a complete disregard for public opinion this time around. Now that they've succeeded, the next time will only be easier.

Two, the narrative will be the same: the evil insurance industry is to blame! But this time, healthcare providers themselves will be added to the crosshairs. Why? Because between now and then, let's call it 5-10 years, the average quality of care in America will decline. It must, based on the most basic laws of supply and demand. There are not enough doctors (supply) to go around in many parts of the country today yet we are adding millions of new patients (demand). Add to this the declining incentive to enter the field of medicine because of cost controls that result in lower wages and you will either get fewer doctors OR less qualified doctors to make up the difference. Those fortunate enough to maintain their own private insurance plans will likely continue to have the very best doctors (an increasing number of which are no longer accepting new Medicare or Medicaid patients). These doctors will be vilified as the rich and the greedy. And we know what happens to those labeled as such in modern-day America.

However, there will be many more patients on government-subsidized programs of one name or another who will have to stand in line to be waited on by second-tier doctors and in second-tier facilities. Either way, this new scapegoat will soon enter the barn along with the insurance devils in tow.

Systemically, the writing is on the wall: as costs go up for private insurance plans (which is unavoidable) and individuals and employers get priced out, the government picks these people up into their "Exchange". This dumps more burden onto the private-insurance system in the process (due to the government short-paying for services and the reduction in the size of the private insurance pool) until such time that private insurance ceases to become a business worth pursuing or the government simply nationalizes it.

This bill is not the first step toward a single-payer, Western European model of health care... it is the final step!