April 02, 2010
ObamaCare's Economic Dominoes
By C. MacLeod Fuller
Now that health care reform in the shabby disguise of ObamaCare has been crammed through Congress, a peek at the president's precariously stacked dominoes confirms that sooner than you may suppose, there won't be any private companies selling health insurance in America. Consider:
There are approximately 1,300 insurance companies in America today.
Beginning January 1, 2011, these companies will be required to pay out 85% of all premiums collected as direct medical care, leaving 15% of corporate income to fund operations and yield any potential profit.
The health care industry has a profit margin of about 3%. Most American businesses rely on securing annual profits of 8% to 10%. American oil companies operate on about 4% profit. Alcoholic beverage sales net annual profits of 26%.
To maintain even slim profitability or cash reserves, insurers will be compelled to run austerely.
Among numerous regulations implemented immediately, ObamaCare cannot deny children with preexisting illnesses coverage, no matter the illness, no matter the long-term cost -- and children are now "children" until age 26. It is irrelevant there may never have been any contribution for such children into an aggregated "risk pool" of insurance policy purchasers -- the very idea of which is to "spread the risk" around. They will be able to have all their medical costs paid for by the responsibility and forethought of unrelated others.
Adults currently uninsured due either to preexisting illness or choice can now buy into government-run and guaranteed plans which insurance companies will in essence be required to assume beginning 2014, when they will no longer be allowed to exclude anyone based on actuarial or other rational data standards.
Costs for insurers will further increase as they pay more and larger amounts in claims that have no dollar ceiling -- they are immediately banned from implementing lifetime caps on coverage.
Under ObamaCare, once subsidized purchases begin no later than 2014, millions of formerly uninsured will be eligible for federal subsidies to help purchase coverage they can already afford but choose not to buy. There are currently eight million uninsured Americans earning over $50,000 a year and another nine million uninsured Americans earning in excess of $75,000 a year who willfully play medical roulette by refusing to purchase health care insurance for their dependents. Nevertheless, a family of four with an income of $88,000 a year will be eligible for financial aid.
Healthy, and especially young, people will predictably opt to pay the $750 ObamaCare fine assessed for failure to purchase coverage since it is less than the yearly cost of insurance premiums. Quite literally, there will be no need to purchase "insurance." One can simply wait until illness or accident strike, but in the meantime spend money in other ways.
More and more workers and families who previously sustained the business of insurance companies will weary of witnessing millions of Americans game the system and take a free ride. Formerly responsible citizens will allow their health care coverage to lapse and adopt the same wait-and-see attitude. If an emergency occurs, they too will have failed to pay into a health care risk pool for months or years, but their medical bills will be paid -- by insurance companies who received nothing from them or millions of others who made similar self-referential decisions.
As payouts broaden and escalate, insurers will not have sufficient financial resources to operate within the allowable 15% of gross income. Forced to meet the 85% mandatory payout threshold, they will do one of two things -- raise premiums on those diminishing customers actually purchasing insurance or cut costs.
Business operating expenses include a vast array of liabilities, from buildings and taxes to furniture and computers, but after medical care payouts are made, insurance companies' biggest cost center is personnel -- which is where cuts have already begun.
As staff reductions continue, tens of thousands of insurance industry employees will be thrown out of work -- estimates run as high as 690,000. These are American workers with spouses and children, mortgages and car notes, food bills, utility bills, and hundreds of other financial responsibilities. Unemployed, they will add to the worsening overall economic situation and be remanded into the ranks of the fully subsidized health "insured."
The dominoes won't stop falling there.
Many more than just direct insurance personnel will be affected. As cutbacks intensify, reliance by insurers upon various vendors and suppliers will be curtailed and terminated. Independent brokers will no longer receive business as insurance companies take direct sales and other functions back in-house. Hundreds of related external service providers will be cut or canceled, as will their employees when work supply exceeds demand.
Massive increases in the use of medical services will overload doctors' and hospitals' ability to provide adequate care. It will become rationed as too many people chase too few services too much of the time at too great a tab because too few people contributed too little money to its actual cost. Physicians and pharmacists who accept Medicare and Medicaid reimbursements will continue to see earnings both diminish and become more government-controlled. At the same time, medical innovation will slow if not cease because ObamaCare levies a massive new excise tax on medical device manufacturers. They will stop "innovating," and many go out of business, unable to pay the cost of business in a nationalized industry -- literally taxed to death. The inevitable result will be fewer doctors, fewer specialists, and greatly reduced and rationed care.
Add to this statist medical assurance the fact that incrementalist Democrats fully intend, eventually, to provide universal care to over 12 million illegal foreign aliens, and the rising price of medical care defies comprehension. Illegal aliens, like millions of freeloading citizens, will have paid little or nothing for benefits parasitically leeched from the insurance industry, the economy, and the American ideal -- which until the past few decades didn't include an ever-enlarging entitlement appetite of something for nothing.
Finally, "risk pools" will have filled -- overpopulated with people who have rarely or never paid into the health care system before and who, even if not extremely or expensively ill, will contribute to the crisis of underfunded overutilization. Insurance companies will run out of costs to cut and people to lay off. They will cease to do business, existing only as collection points for government oversight. Taxes will rise exorbitantly to pay for "free" universal health care. Socialized medicine will reign.
Americans will have the single-payer health care system President Obama and the extreme Left-dominated Democrat Party and Congress have explicitly schemed towards for seven decades: the federal government. And the system will no doubt be underwritten by confiscatory taxation.
One-sixth of the United States economy will transform into an even larger percentage due to the complete destruction of an industry, hugely magnified unemployment, and overutilization of underfunded, mandated medical care and resources.
The economic chaos resulting from ObamaCare will trigger the collapse of one economic domino after another. As it does, America will become a statist's Socialist's dream, but an unqualified socialized nightmare. The human cost in this is incalculable, but quite easy to imagine.
Thank an Obama voter today.
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