By: Wayne Brown
The Affordable Healthcare Act (ACA) otherwise tagged “ObamaCare” has been a bone of contention with the American public since then Speaker of the House Nancy Pelosi remarked of the legislation, “Now that we’ve passed this bill, we can see what is in it.” Pelosi’s statement left much to consider with regard to how well our elected ones had done their job in terms of vetting and debating this legislation. We then find out that the legislation consumes some 2700 pages and it soon becomes apparent that no one person really knows what is in it or how the various parts of it relate to each other. That fact became apparent when it was discovered that the legislation contained a mandate to apply a 3% federal excise tax on all real estate transaction. The perspective only got worse when people discovered that Obama had lied to the public about provider choice and that a mandate supported by the Commerce Clause of the Constitution would allow the federal government to force every citizen to purchase healthcare coverage through State-run insurance exchanges. Those that refused would be assessed a penalty for lack of compliance. As they say, these features are only the visible of an iceberg large enough to financially wreck the strongest of countries and send it to the cold bottom of the Sea of Bankruptcy.
There are those who argue from the position that no one should look a gift horse in the mouth. In other words, who does not want “free, government provided healthcare”? Such statements and positions reflect the misunderstanding of how this program will work, who will pay, and what it will cost to sustain it. At the State level, that burden is already apparent in that the costs of setting up the insurance exchanges and operating them has been passed to the State in the ACA legislation. Obviously, those formulating this legislation realized early on that States would not be clamoring to embrace these costs so the hammer to persuade them was also included in the Commerce Clause mandate. That penalty for non-compliance would cost the State its federal Medicaid subsidies. Luckily, the Supreme Court saw fit to strike down this penalty and give the States some breathing room in the never-ending debate over State’s Rights. Now, 17 states are not planning on implementing the requirements of the legislation leaving that implementation squarely on the back of the federal government. While it is possible under the current law for the federal government to establish the exchanges and operate them in those States, the costs of such acts is not covered in the legislation nor is the funding to cover individual subsidies to the citizens of those States. Those subsidies were designed to come out of State coffers passing the expense of discounted healthcare back to the taxpayer in a round-about fashion as opposed to the discussion of raising the taxes at the federal level. This, no doubt, is the work of cowards who do not have enough spinal courage to look the American people in the eye and call a “tax” what it is nor can they justify it without using lies.
The term “affordable” used in the title of the legislation, now law, lends itself to the suggestion that what was once out of reach before due to the costs is now attainable as a result of this federal program. One should always remember that the word “affordable” only has relative meaning. A $100,000 Mercedes with a reduced price of $95,000 is now technical more “affordable” but only on a relative scale, meaning one still must be a person of financial means to strap on that price. Affordability is measured in numbers not terminology or suggestion so let’s try to get to the numbers involved since the legislation did not come with any examples for those who will have to pay for it.
First, let us get an understanding of some of the more common insurance practices we might encounter here in the USA today. A major portion of the American public currently receives their healthcare insurance through their employment. A husband or wife works for an employer large enough to provide group insurance coverage which allows all family members living in that household under the age of 26 to be covered by the plan. This offering by the employer is looked upon as an additional benefit to the employee and also as a tool to help sustain a healthy workforce. In most cases, the coverage is not free to the employee but covered by a split of the costs between the employer and the employee after coming to a net value through an administrative manager and provider such as Blue Cross Blue Shield. A common ratio found is for the employer to pay 75% of the annual cost and the employee to shoulder 25% plus the deductible amounts for each year of coverage. For the majority of employees, this represents healthcare coverage which is technically, “affordable” but certainly not free.
Now, let’s eliminate any misconceptions that those employers who do provide insurance coverage for their employees are doing so by “buying a healthcare policy”. That is not the case, especially in larger corporation. Companies such as this are “self-insured” meaning the costs of such benefits as healthcare come off the bottom line with few exceptions related to catastrophic situations in which the corporation may have bought a safety net from outside source. The fact that a person’s employer provides them with a Blue Cross/Blue Shield Insurance Card only indicates that the company has decided to use Blue Cross/Blue Shield and their negogiated buying power for medical services to manage and administer the company’s insurance plan rather than doing it in house and attempting obtain the same cost/benefit ratio. Blue Cross/Blue Shield establishes the coverage for the employee based on acceptable industry standards and corporate input, establishes the structure of the plan in terms of functionality, administers the plan, tracks the accounting and makes sure vendors and employees are receiving their proper due under the plan, and then passes the costs associated with the plan back to the employer company for payment. In return Blue Cross/Blue Shield receives a fee for the services rendered.
For the purposes of this model, let us assign an annual value of $8,000 to the insurance coverage for the employee. Based on the 75/25% ratio, the cost to the employee for the annual coverage is $2,000 dollars plus the value of the annual deductibles which likely fall in the $3,000 per household range. That leaves the employee coming out of pocket in the amount of $5,000 for household healthcare, which translates to approximately $416.00 per month impact on household cash flow. Most household do not see it that way because the monthly premium has always been withheld from the paycheck so the money could not have ever been applied to any other purchases, thus they do not miss money they never had…much like FICA and MediCare taxes. The cost to the employee has been softened by the employer shopping insurance administrators and programs to achieve the best fit from a cost/value standpoint. Companies like Blue Cross/Blue Shield are able to approach medical service providers and use the bargaining power of the numbers in their customer base to achieve a lower price for the service that the average individual could achieve thus lowering the cost of the coverage to the employer and the employee. But, let’s get to the point here…assuming a maximized buying power, the cost for healthcare for a household on average and including deductibles is about $11,000 annually or just over $916 per month taking the employer out of the equation.
Now, let’s see what happens when we move to a model in which the insurance coverage comes to the individual through the State Exchange as stipulated by the Affordable Healthcare Act. That administrator/manager provider like Blue Cross/Blue Shield will still be there but in a different role. Now, they shift from the role of acting as the conduit for coverage to being the provider of the coverage and their opportunity to make a profit comes from their ability to sustain a margin between their costs of the medical service and the price they can charge to the insured. If they want more profit, they will have to wring it out of the medical industry because the government will make the decisions on the limits of what is deductible and how much can be charged. From the consumer side, the providers will look rather “plain vanilla” with each conforming to the government standard for the services. At the same time, the pressure on the medical industry will be coming from all sides. The government will be regulating and inspecting which ultimately leads to costs; the insurance providers will be constantly looking to lower the provider price and improve margin thus there will be constant pressure to take less money for the services. Eventually, under such conditions, many in the medical fields will throw in the towel and seek other avenues to make their living and fulfill their desires. The stress/strain relationship will eventually reach a balance which is predictable….mediocrity. Mediocrity in terms of the quality of service, the service level provided, the time needed to acquire the services, and on and on. Yet, there will be no real competition anymore to drive things to a higher level…no other place to turn thus the consumer loses the right to choose and with that right the availability of superior healthcare services.
Weigh in the fact that the majority of Americans now have healthcare coverage in some form either through an employer or through Medicare if they are retired. If these individuals are transferred into an Insurance Exchange there is no “added value” in terms of achieving a lower cost of the services since there really is no increase in the number participating, at least at the paying level. Thus the providers at the Exchange level will likely not see a reduction in their costs in providing the services. Add on top of that the factor that the providers now have to find ways to cover the added expense of “pre-existing conditions” in the profit margin formulation while remaining within the boundaries set by the federal government. Needless to say that there will not be much wiggle room to create competition for the consumer. We also have to factor in the 30 million people who are currently estimated to be out there without healthcare coverage and determine how many of those households have the ability to pay but elect not to do so as opposed to those who cannot afford the premiums and will rely on the system to provide the coverage at some level of free.
I believe you start to see the difficulty in determining how much additional revenue will come in as the 30 million uninsured are added at the exchange level. Suffice to say that the providers will not have to figure that because the premiums will be paid, it is just a question of who pays them.
Let’s get to some numbers and see where we are in the model. According to the 2010 National Census, there are 131,704,730 households in the USA. If we assume that the insurance providers at the state exchange level cannot reduce the annual average cost of medical coverage below the $11,000 annually per household, then we can already see that the average family will be faced with a monthly healthcare insurance premium of just over $900 per month. Obviously, this is not an “affordable” number for a very large portion of those household meaning subsidies must be issued on some basis and some decision process must be gone through to determine when that subsidy kicks in and for who?
I have not seen the portion of the ACA which addresses the subsidy area but from what I have heard discussed, the determination of the subsidy threshold is a function of the defined poverty level. That number will fluctuate as one shifts from region to region so let us attempt to look at it on the basis of some national average regarding poverty. Based on 2010 numbers issued by The Department of Health & Human Services, 15.1% of the people (or households) live on an income at or below the designated poverty level. Basically that percentage defines the number of household which will receive health insurance coverage at the level of “free”. As a percentage of total households, that number is 19,887,415 households multiplied by the annual healthcare premium of $11,000 equals $218,761,556,530 in annual healthcare premium costs which must be paid by the American taxpayer if coverage is to be achieved for these households and the costs covered. Suffice to say that the providers are certainly not going to absorb these costs nor can the States afford to do it under Medicaid.
The figure worsens when we look beyond the poverty threshold and down and move up to the limits of subsidies as defined by the ACA. According to numbers that I have heard tossed about in discussions of this law, the subsidy qualification runs up to a level of 400% of the local poverty level. According to 2010 census figures, the average American household had 2.59 people. So, if we round that number to three and look at the poverty threshold level in terms of income, the number is an annual income not exceeding $15,030 dollars. Expand that number to a boundary of 400% and the figure becomes $60,120 meaning that any household with an income up to that figure qualifies for some assistance on annual healthcare premiums. In 2010, the median household income was listed at $51,914 dollars annually thus the minimum subsidy level extends almost 16% above the median household income level bringing the number of households qualifying for subsidy to a figure of almost 87 million households annually. The value range of that subsidy (based on the estimated annual premium) is between $900 and $11000 dollars annually.
If we assume that poverty level and below is free then we can began to build a matrix which graduates the subsidy amount up to the $60,120 level. The income range is spread over the $45,090 making up the difference between the poverty threshold income ($15,030) and the 400% subsidy qualification income expansion ($60,120). At an annual premium of $11000 dollar annually for the healthcare coverage, more than 66 million households would receive some level of subsidy ranging from a factor of 100% of the annual premium down to 8% of the annual premium for those households nearing the 400% expansion boundary of the poverty level (slightly above $60K annually).
A DEPICTION OF INCOME GROWTH VERSUS PREMIUM CHARGE (ANNUAL)
The household receiving some adjusted annual premium ranging from just over $700 annually up to just over $10,000 annually would increase the annual subsidy cost to the taxpayers by an approximate $393 billion dollars. Adding this number back to the below poverty level subsidy costs and the debt load just for the subsidy alone jumps to over $600 billion dollars annually. This does not include the cost of administering the program, staffing the exchanges, securing property and facilities, etc., etc. So given the figure that 47% of the American population does not pay taxes so that means the remaining 53% must shoulder an additional $3700 in debt burden per capita just to sustain the subsidy load of this healthcare law.
Currently the United States is running an annual spending deficit of approximately $1.25 trillion dollars and that figure is constantly expanding. This additional burden of the healthcare subsidy will run the deficit to over $1.8 trillion annually and likely that deficit will exceed the $2 trillion dollar annual level when all the other costs of this law are added into the mix. This does not even take into account the potential costs of absorbing another 10 to 15 million illegal immigrants into that cost structure as you can bet they will not be turned away for medical assistance.
So, let us come back to the term, “affordable” and ask ourselves what elements of this law offer anything which appears to be affordable to the American people. It smacks of the suggestion that things can be obtained free of charge if the government designs and implements it. In the end, the costs are simply transferred from one sector of society to another…otherwise described as redistribution of wealth. For that person making between $15K and 20K annually, a healthcare premium of $700 annually is still not looked upon as “affordable” except in a relative sense…as in the example of the Mercedes with the price reduction. Clearly the burden of this measure is being passed to that sector of the population above the median income level populated mostly by the middle class wage earners. Ironically, this is the very group which Obama so wants to help with his programs….sorry, I was suddenly a bit distracted by the heehawing of a jackass somewhere off in the distance.
For those who want to hold with the idea that the healthcare law in its present form is not a “tax” on Americans, I suggest that you attempt to reconcile these numbers for yourself. Certainly the premiums paid to the providers are not going toward the cost of sustaining the program therefore the costs of covering everyone underneath the umbrella of the law must be absorbed the American taxpayer and that’s a fact which is difficult to ignore.
Next time you hear President Obama haranguing as to how this healthcare law is “debt neutral” and “not a tax”, think about what has been discussed here. The truth will always set us free that those claims are about as far from the truth as one gets and a shameful way for a sitting President to defend his desires politically. The only way to make these costs “debt neutral” is to reduce annual spending at a level that will neutralize their impact and cause the debt accumulation to flat. To assume that could come within in the realm of reality within the confines of the Obama Administration is to assume that anyone who shows up on your doorsteps from the government is there to help you. .. a terrible assumption to say the least.
This is why this legislation must go back to the Congress and receive its due process with an up or down vote of both chambers in order to justify the “taxes” imposed by this law on the American people. Those who populate Congress at this point know that to be the truth but do not have the spine to say it out loud. They huddle in their plush offices and pray that we can just move on.
©Copyright WBrown2012. All Rights Reserved.
5 July 2012