Thanks to a series of destructive government policies and incentives, a health care crisis has been steadily building in America for a generation or two. But the release yesterday of the Kaiser Family Foundation's annual survey reveals that the problem of unaffordable healthcare is becoming epidemic. According to the report, health insurance premiums have jumped nearly 10% in 2011 for the typical family, compared to a 3% increase in 2010. The average annual cost for family health insurance now exceeds $15,000 per year, about 30% of median household income!
At a time when the economy is essentially stagnant and the official inflation figures remain low, what could account for the dramatic price spike? It is no coincidence that the report covers a period of time when many of the provisions of the Obama Administration’s Patient Protection and Affordable Care Act (Obamacare) have come into effect. I think we are seeing the initial impact of this law, which the Administration promised would reduce healthcare spending. Oops.
Like all pieces of legislation, Obamacare provided some perverse incentives that explain some of this year’s outsized price increases. Starting next year, the new law will impose a system of price controls on health care services. Just like a city worker whose pension is determined by the final year's gross salary, these looming price controls have incentivized providers to boost prices as much as possible before they're “locked in.” Since the recession has cut down on doctor and hospital visits, this anticipation, rather than rising costs, appears to be a main driver of price increases.
Once price controls take effect, there will be only one way for these companies to keep up with rising costs and a growing cohort of retirees needing care: cut the quality and quantity of service. As a result, recipients won't be paying more for health insurance, they'll just be getting less. So, to the extent that the insurers can raise prices in anticipation now, they may have to cut less in the future. Perhaps we should be thanking them.
Still, the increases are painful at a time of economic depression. Unfortunately, employers are hit even harder than individuals under Obamacare. For example, employers are now forced to cover the children of employees until they are 26 years old! Including healthy 20-somethings in the comprehensive, low-deductible plans offered to most established corporate employees is sure to drive costs up – even if it's a net benefit to insurers.
Businesses are also mandated to pay for preventive care at no cost to employees. While preventive care can lead to savings in the long-run, it does not necessarily do so. I know someone covered by such a plan who receives a twice weekly massage at no cost. Is this an investment in future health, or an unfortunate loophole in a law Speaker Pelosi said Congressmen should “pass… so [they] can find out what's in it”? Whatever the case may be, it's no longer up to employers and insurers to make these judgments, but rather bureaucrats in Washington.
By increasing federal intervention, Obamacare simply takes us further down the road to ruin. From the post-war tax laws that favored employer-provided insurance, to the Great Society's guarantee of healthcare for all retirees, to the 60 years of increasing regulation of doctors and hospitals, Washington has done everything to drive costs up and quality down.
A good case in point is the Clinton-era Health Insurance Portability and Accountability Act (HIPAA), which put doctors in a regulatory straightjacket. The law created rules about where patient charts must be stored, what type of computer systems doctors can buy, how life-saving research is conducted, and much more. The law also opened up a whole new avenue for patients to sue doctors and hospitals. Some argue that these laws are needed to protect medical privacy, but that is debatable. The point is that such blanket rules have no regard for practicality, cost, or individual circumstances.
Repealing HIPAA, separating insurance from employment, encouraging malpractice reform at the state-level, reducing regulations on hospitals, getting the state out of medical licensing, and reducing taxes for high income earners would all go a long way to driving down medical costs. But rather than improving market conditions, President Obama and his team are trying to force costs down with an iron fist.
Once Obamacare's price controls are in effect, rising inflation and a growing pool of elderly patients will drive the insurance industry to bankruptcy. Washington may then choose to bailout the major insurers and form quasi-governmental agencies, or they may take the opportunity to push for single-payer socialized medicine. By that time, doctors may have acquired all the skill and courtesy of typical DMV employees.
So, don't expect to see a major renaissance in American medicine any time soon. Instead, the future President Obama has created will be poor, sick, and old. Based on the Kaiser Foundation's report, it looks like we're well on our way.
Michael Finger is Communications Specialist for Euro Pacific Capital, a registered broker/dealer with 6 offices across the country.
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