Already a wreck, the worst is yet to come with Obamacare

In this post on Obamacare in Indiana, I argue why the law will fail. You can read my argument for why Obamacare will succeed here. A third post, arguing why Obamacare will be a “non-event,” will be published on Aug. 8. No single post should be read as my personal view on Obamacare, but rather as my best attempt to analyze the available evidence for three potential outcomes of the law.

Obamacare is destined to fail for one key reason: it will make health insurance cost more and buy less.

Consider other sectors where prices rose sharply while the quality of the product sank. Suburban housing circa 2006. Your daily newspaper since 2006. How’d those work out—for both businesses and consumers?

Well, expect Obamacare to do the same thing for health insurance.

Obamacare has created millions of pages of new rules and billions of dollars in new taxes—all of which contribute to driving up the cost of health insurance.

That will be true of the 685,000 Hoosiers that are expected to buy insurance through the newly created insurance exchanges. More importantly, it will also be true for the 3.7 million Hoosiers that continue to get health insurance through an employer.

That’s about three-quarters of the population. Repeat the same story in all 50 states, and there will be a lot of angry people out there. Enough to spark a political backlash.

Employers should expect to see their health benefits costs rise at the same pace they have for the past half decade, plus an additional 20 percent as some Obamacare icing on the top.

Why? Because Obamacare taxes health insurers, who will likely pass that on to employers as a 2-percent to 3-percent premium increase. Because employers must pay new taxes to help the federal government pay for new kinds of medical research and for a “transitional reinsurance” fund to offset the liklihood that the exchanges will attract more sick people than healthy ones. And because penalties on individuals who don’t buy insurance will push more people into employer plans, also driving up overall costs.

The increasingly unaffordable insurance that Obamacare will produce will push numerous employers into Obamacare's “Cadillac" tax. In 2018, any employer or health insurer will be forced to pay a whopping 40 percent excise tax on the cost of their health plan that exceeds $ 10,200 for an individual and $ 27,500 for a family.

Companies such as Columbus-based Cummins Inc. have been raising their deductibles in order to keep their benefits from triggering the tax. Obamacare is also pressuring many union health plans to shift significantly more financial risk onto workers.

Indeed, one of the oddest sights this year has been the calls by several unions—some of Obama’s staunchest political supporters—for the outright repeal of Obamacare. Why? Because they know the rich health benefits they have negotiated for so diligently for the past 30 years will vanish.

That’s the future Obamacare will bring: pay more, get less.

The changes to employers are important because they affect more people. But it’s Hoosiers in the exchanges that have the most to worry about.

New rules in the exchanges will make health insurance more affordable for those with very expensive conditions, such as cancer, and will most likely make insurance cheaper for older patients, childbearing women and those making below-average wages.

But for everyone else, there will be rate shock, as Obamacare drives up the average cost of insurance in Indiana by 72 percent. And it could get far worse than that.

That’s because Obamacare requires health insurers offering plans in the exchanges to cover everyone, with no consideration of anyone's health status in the price of the product (other than factoring in tobacco use and age).

That is a sure-fire recipe for the exchanges becoming a magnet for sick people and a no-go zone for healthy people. In insurance speak, that’s called a death spiral.

The only thing standing between Obamacare and death spirals in all 50 states is a tax on individuals that tops out at $695 in 2016. That fine is expected to force young, healthy patients to buy expensive health insurance, so they can cover the costs of all the older, sick people who will flood into the exchanges.

Imagine you’re just out of college and you can only find part-time jobs paying $10-$12 an hour—an increasingly common reality since Obamacare, by requiring employers to look back 12 months to determine their number of full-time workers on Jan. 1, 2014, has already begun to discourage the hiring of full-time workers.

You’ll still have to pay $1,100 to $1,600 for health insurance—even after Obamacare’s subsidies. And that’s for a plan with a good-sized deductible—meaning you’ll pay out of pocket for the first $2,000 or so of your expenses.

If you were young, poor and healthy, would you spend $100 a month extra on something you don’t use or which, if you do use it occassionally, still makes you pay the doctor’s bill anyway? I don’t think so.

But let’s say, by some miracle, Obamacare avoids death spirals in the exchanges. Even so, the real-value of health insurance will actually go down. That’s because insurers believe that in order to have any chance of signing up healthy people, they need to keep the price as low as possible. So they are offsetting the increased costs created by Obamacare’s rules and taxes by sharply limiting the number of doctors and hospitals their policyholders can visit.

Oh, and the health plans are paying those doctors and hospitals less, too.

Indianapolis-based WellPoint Inc. expects the health plans it sells through the exchanges to pay health care providers at close to Medicare rates—which are typically about 30 percent less than what individual insurance policies pay now.

If exchange plans pay low rates, expect hospitals and doctors to find ways to avoid those patients. They have lots of options. Some doctors are simply leaving the third-party insurance system altogether, setting up concierge practices that run primarily on cash retainer payments. That’s a problem for anyone that wants to pay with health insurance.

Other doctors are splitting their practices into two sides—one that takes insurance and one that operates on cash. If you’re paying with insurance, expect the wait times to grow—and grow and grow. In Massachusetts, which enacted a law similar to Obamacare in 2006, it still takes about six weeks to see a doctor—and half of physicians aren’t accepting any new patients at all.

Hospitals, especially in Indianapolis, have been quite adept at following the migration patterns of customers with employer-sponsored insurance, making the best health care abundant in Hamilton County but non-existent in Haughville.

And I haven’t even talked about the access problems that patients with Medicaid—if Indiana even decides to expand the program, as Obamacare calls for—will have seeing a doctor or finding a convenient hospital facility.

Obamacare may expand the number of people with health insurance, but it will leave those people fighting to actually get care. And once Hoosiers and Americans realize that, they will turn on the law.

The only question is if the Obamacare train wreck happens in high speed or slow motion. Said another way, Obamacare is certain to tarnish the president’s legacy, but will it fail so hard and so fast that he is literally chased from the White House in 2016, sort of like George W. Bush was in 2008, by a candidate promising over and over again to reverse “the failed policies of Barack Obama”?

The answer lies in how bad things go with the nitty-gritty technical functions of Obamacare. So far, the Obama team has an awful track record on implementation. Almost no part of the law has been rolled out smoothly, if at all.

Obamacare’s long-term-care insurance program was scotched because its actuarial assumptions were so bogus (the entire thing was used to help the law get a better budget score from the Congressional Budget Office).

Obamacare’s high-risk pool got going but only helped a fraction of the people it was supposed—and, in a harbinger of things to come, incurred costs far higher than projected.

In May, the Obama team delayed a plan to offer a choice of health plans to workers at small businesses that buy through the Obamacare federal exchanges. And in June, Obama’s IRS simply decided to take a year’s break in enforcing the tax penalty against employers that don’t offer health insurance.

Not only that, but the Obama team is not actually going to check if your income qualifies you for one of exchanges’ tax credits. They’re just going to take your word for it initially, and then let you sort it out on your taxes. Which means you could end up having to write a multi-thousand-dollar check back to the government in 2015.

So with that inspiring record, the Obama team has promised—and promised and promised and promised again—to have exchanges up and running by Oct. 1 in 33 states—including Indiana. And God bless them, they just might do it—if they change the definition of the word “running.”