Category Archives: markets

Obamacare and Insurance Costs

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Here are some of those costs.

No less a light than The New York Times reports that

…health insurance companies across the country are seeking and winning double-digit increases in premiums for some customers, even though one of the biggest objectives of the Obama administration’s health care law was to stem the rapid rise in insurance costs for consumers.  Particularly vulnerable to the high rates are small businesses and people who do not have employer-provided insurance and must buy it on their own.  In California, Aetna is proposing rate increases of as much as 22%, Anthem Blue Cross 26%, and Blue Shield of California 20% for some of those policy holders.

OpenMarket notes that

Obamacare resulted in hikes of 41%-47% in health insurance premiums for some policyholders in Connecticut.  …in other states, like Florida and Ohio, insurers have been able to raise rates by at least 20% for some policy holders.

Ricardo Alonso-Zaldivar, writing in Huff Post Business, says

Your medical plan is facing an unexpected expense, so you probably are, too.  It’s a new, $63-per-head fee to cushion the cost of covering people with pre-existing conditions under President Barack Obama’s health care overhaul.  The charge, buried in a recent regulation, works out to tens of millions of dollars for the largest companies….

On top of this, The Washington Post reminds us that President Barack Obama slid into his Obamacare a 3.5% surtax on those insurers that participate in Obamacare’s Federal health insurance exchanges.  Of course, this fee will be passed through to their customers in the form of higher health insurance premiums.

There are causes for these sharp increases, as we might expect.  Merrill Matthews and Mark Litow, in The Wall Street Journal, have some ideas on this.  They point out, for instance, some costs that Obamacare imposes, willy-nilly, on insurers—transforming them from companies that accept risk for a fee into Federally mandated, privately funded welfare programs:

Central to ObamaCare are requirements that health insurers (1) accept everyone who applies (guaranteed issue), (2) cannot charge more based on serious medical conditions (modified community rating), and (3) include numerous coverage mandates that force insurance to pay for many often uncovered medical conditions.

There is no risk-based fee allowed here.  Just take all comers, and don’t “overcharge” them—HHS’ definition of “overcharge.”  Folks won’t need to buy insurance until they’re actually sick—the risk has been realized—but the insurers won’t be able to charge a premium commensurate with the empirical fact of illness; they can only charge the premium in effect for a low risk, healthy population that hasn’t gotten sick yet.

Matthews and Litow also note that this outcome was well-known long before Obamacare was dreamed up post-2008:

Eight states—New Jersey, New York, Maine, New Hampshire, Washington, Kentucky, Vermont and Massachusetts—enacted guaranteed issue and community rating in the mid-1990s and wrecked their individual (i.e., non-group) health-insurance markets.  Premiums increased so much that Kentucky largely repealed its law in 2000 and some of the other states eventually modified their community-rating provisions.

They also note that, based on empirical evidence—i.e., facts already known to the authors of Obamacare—states with currently low insurance rates will be the most punished by Obamacare:

We compared the average premiums in states that already have ObamaCare-like provisions in their laws and found that consumers in New Jersey, New York, and Vermont already pay well over twice what citizens in many other states pay.  Consumers in Maine and Massachusetts aren’t far behind.  Those states will likely see a small increase.

By contrast, Arizona, Arkansas, Georgia, Idaho, Iowa, Kentucky, Missouri, Ohio, Oklahoma, Tennessee, Utah, Wyoming, and Virginia will likely see the largest increases—somewhere between 65% and 100% [a different estimate than the lower one of OpenMarket].  Another 18 states, including Texas and Michigan, could see their rates rise between 35% and 65%.

Finally,

Although President Obama repeatedly claimed that health-insurance premiums for a family would be $2,500 lower by the end of his first term, they are actually about $3,000 higher—a spread of about $5,500 per family.

It’s the Progressive New Math, from the Orwell School of High Finance: cost increases are premium cuts.

Compromise in a Free Market

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Me: I have this bushel of corn to sell you.

You: I have this fifty-cent piece I’ll give you if you give me that corn.

Me: Can’t do that; this corn cost me more than that in time, money, and equipment to grow.  Ten bucks works.

You: Too much.  You can amortize those costs over all your corn; you’re only trying to sell me a single bushel.  Six-fifty.

Me: Done.

But that was a case where both parties were willing and interested in reaching an agreement.  In DC, Progressive compromise means “Do it my way, or no deal.”

Middle Class, Luck, and American Power

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George Friedman, writing for Stratfor (he’s also their Founder and CEO), has an article out concerning the American middle class and American global power.  The whole article is well worth reading, but for now, the relevant remark comes near the end:

It would seem to me that unless the United States gets lucky again, its global dominance is in jeopardy.  Considering its history, the United States can expect to get lucky again….

The luck to which Friedman refers concerns some fortuitous unintended consequences, and he offers three examples:

The GI Bill was designed to limit unemployment among returning serviceman; it inadvertently created a professional class of college graduates. The VA loan was designed to stimulate the construction industry; it created the basis for suburban home ownership. The Interstate Highway System was meant to move troops rapidly in the event of war; it created a new pattern of land use that was suburbia.

The threat to our status as a global power—and by extension to our freedom of action as a nation—stems from a generation of the failure of a long-standing belief in American culture—the faith in the availability of economic upward mobility.  For instance, median household income in 2011 was $49,000, just below the level in 1989 in real terms; it seems that upward mobility has stagnated.

Luck matters, but to a very large extent, we make our own luck.

Underlying this making is individual responsibility, individual initiative, and individual risk-taking.  In all of our past booms, including those in which fortune played a role through those unintended consequences, the freedom to exercise those individual characteristics was both broadly present and not very much circumscribed by government intervention.

Here’s a present example of the role played by fortune, this time negatively: those individual characteristics, and parallel ones in business, are severely circumscribed by government regulation in all aspects of our lives.  We’re restricted in what we’re permitted or required to buy or to throw away (see Obamacare and CFL bulbs), in the decisions businesses are permitted to make in their own interests rather than government’s (see Obamacare and Dodd-Frank with its CFPB abomination), in what businesses are permitted to release as by-products of production or sales.

Our ability to make our own luck, today, is severely limited by government.  Fortuitous unintended consequences are a lot less likely in an environment of rapidly increasing government control over the economic environment which underlies the making of that luck.

There’s another factor at play, too: those government restrictions also have the unintended consequence of restricting upward mobility.  The poor become trapped in their stratum and cannot move up into the middle class due to those restrictions’ effect on job creation and hiring.  This not only works to the detriment of those poor, it shrivels the remaining middle class.

Excuses

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During the Great Depression, in an effort to help farmers, the FDR administration got legislation passed that put a floor under the prices farmers could collect for their produce.  At roughly the same time, in order to help out the working man in a time of enormous unemployment (ranging from nearly 16% to over 25%), FDR got legislation passed that put a floor under the prices a man could charge for his work.  With this combination of artificially inflated food prices and a unemployment exacerbated by artificially inflated labor prices, it became exceedingly difficult for Americans to buy food for their families.

The FDR administration “cured” this, not by removing their harmful pricing controls, but by inventing and issuing food stamps—subsidies for purchasing food.

Fast forward to the present, and look at Oregon.  In an era of government mandates for fuel efficiency in our cars (not all of which originated in Oregon, to be sure), governments are seeing falling tax revenue from decreasing private sector fuel purchases.  In Oregon, in particular, though, folks are buying fuel-efficient automobiles, with some vehicles getting over 55 mpg.  The Oregon state government is looking at “curing” this, not by stimulating its economy tax and spending reductions, but instead at creating a new tax.

Beaver State lawmakers, in their upcoming session, are expected to consider legislation that would impose a charge on vehicles that get at least 55 miles per gallon of gasoline, in an effort to make up for lost gas-tax revenue[.]

After 2015, owners of these high-efficiency vehicles would either have to pay an undetermined per-mile tax calculated by GPS technology, or some alternative flat rate option.

Hmm….

Any excuse to grow government, it seems, is a good excuse to grow government.

What Are They Prepared to Do?

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Kimberly Strassel asked this, and three specific questions, in a Wall Street Journal op-ed last week.

Her questions:

Question one: Do they mean it?  In the abstract, the debt ceiling is a powerful tool for forcing the president to give in to spending cuts. …

In the non-abstract, failure to raise government borrowing limits means US default—and with it potential credit downgrades, market panic and resulting economic distress.  Is the GOP willing to inflict that on the economy?  If Republican members instead run for cover, as they did with the cliff, the GOP will have been exposed as bluffers, and the administration will never again have to fear the debt ceiling.

Then,

Question two: What do they want?  Throughout the fiscal-cliff negotiations…the GOP shrunk from laying out its specific demands on Medicare, Social Security and Medicaid.

Do House Republicans have the courage to lay out big demands (say, premium support for Medicare or block grants for Medicaid), send a bill to the Senate, and sell entitlement reform to the public?  If they can’t face the demagoguery that Democrats will use against them for making substantive proposals on entitlements….

Finally,

Question three: What other hostages are Republicans willing to see shot?  Knowing he has lost his tax trump card, Mr Obama seamlessly moved on this week to the defense budget.  …Mr Obama intends to make further tax hikes the price….

Are the GOP’s defense hawks willing to stomach those cuts as a price for entitlement reform?  Having publicly campaigned against this slashing of the military, can the party stare down the president with a unified position?  Mr Obama is betting they can’t….

It’s pretty clear from the Republicans’ past performances in showdowns with Obama that all they’ll do is run for cover—too much of the party consists only of bluffers.  During the just concluded tax cliff matter, hey could have put up big demands concerning tax structure and tax rate reductions—just putting forward the Romney tax plan would have sufficed—but they quailed at the thought and shrank from their duty.  They also could have put up big demands concerning spending cuts—just putting forward the Ryan plan would have sufficed on entitlements—and big demands concerning so-called discretionary spending (so-called because all government spending is at the discretion of the Congress).  After all, Obama was publicly willing to conclude such a “grand bargain;” the Republicans should have held him to his word.  But they failed here, also.

On the matter of selling their position to the public, it’s pretty clear the Republicans have no capability for that, even if they had an actual position to sell.  They’re still not talking to us.

Vernon Pinkley, on walking the Republican halls of the House (or of the Senate), might ask, “Very pretty, Speaker/Minority Leader. Very pretty.  But, can they fight?”  The answer is, “No.”

I pointed out nearby the necessary and encouraging words of a rookie Republican Senator from Texas.  Unfortunately, there’s no reason to believe there are enough more Republicans like him to accomplish much of anything.