Free Markets, Free People

Dale Franks

Dale Franks’ QandO posts

Obamacare: A System Designed to Fail

OK, we now have Obamacare. Absent a November election of Mitt Romney and Republican congressional majorities, we’ll simply have to live with it. Except, of course, we won’t, because Obamacare simply will not work. Its design practically ensures that it will meet none of the goals its proponents claim it will meet. The end result will inevitably be more people uninsured, higher costs, greater government spending, and higher debt.

If you want to see how a policy will work, then ignore all the claims made by it’s proponents—and opponents.  All that is necessary is to look closely at the incentive structures the law creates. Those incentives will tell you how people will respond to the policy.

So, let’s take a brief look at just a few of the incentives Obamacare creates.

  • First, health plans are more highly regulated. They must cover a wide range of preventative procedures, like pediatric or maternity care. This means that stand-alone catastrophic coverage will essentially be a thing of the past. This increases the cost of premiums across the board, and eliminates an entire class of individual insurance coverage.
  • At the same time, insurers are forced to cover pre-existing conditions, with premiums limited to 2.5x that of the lower-risk groups. People with chronic conditions, such as diabetes, generally incur costs far in advance of 2.5x that of healthy people—as I well know, being diabetic—and the care for the seriously ill, such as cancer patients, is far higher still. This will, again, raise the costs of premiums overall to recoup the extra costs of insuring the chronically or seriously ill.
  • Individuals who do not have have health coverage will be forced to pay what we learned this morning was a tax to the IRS instead. Rational people, then will choose not to buy insurance until their health costs + the penalty is greater than the cost of a health plan.
  • Lower income people, with a family income of less than 400% of the poverty level ($88,000 for a family of four) receive a subsidy of varying value, declining with income increases until the 400% of poverty level, at which point it drops to $5,000. At 401% of the poverty level, the subsidy ends. So at that $88,000 level, any increase of income results in the loss of $$5,000. At that point, it is uneconomic to accept any increase in income to less than $93,000, as it will result in a net loss of income, or the family will have to forego medical insurance. This will trap low-wage workers.
  • Companies with less than 50 employees that currently provide health coverage to their workers will face a broad range of new costs, mandates, regulations and coverage mandates. They will have to either require more costs to be paid by employees, or simply drop health coverage altogether and simply pay a nominal tax penalty. I suspect many companies will choose the latter, thereby forcing employees to pay for higher-cost individual plans, or forego coverage. Even worse, companies that employ fewer than 50 people have a huge incentive to ensure they never have more than 50 people on the payroll, lest they then be required to provide health insurance, and subject themselves to a much higher administrative burden.

These perverse incentives will result in higher health insurance costs, and an increase in the number of uninsured people. Additionally, the macroeconomic incentives will result in less income growth and lower employment. We will then be told that the "free market" has failed yet again, and be forced to submit to a fully government-run health care system.

Ultimately, Obamacare is nothing more than the latest in "a long train of abuses and usurpations" about which we have done nothing, and will do nothing. I mean, let’s face it, no one is going to call for a new constitutional convention, much less get together with a lusty, gusty group of fellows and head off into the hills with rifles.

But, there’s always a silver lining to every cloud. In this case, it’s that when we default on or monetize our debt and destroy the currency and economy, Obamacare will be irrelevant, as there will barely be enough money for food and shelter, much less expansive health coverage programs.

So, we got that going for us.

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Dale Franks
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Economic Statistics for 28 Jun 12

The following statistics were released today on the state of the US economy:

The Commerce Department’s final estimate of first quarter GDP was unchanged at 1.9% annualized.

Initial claims for unemployment were a higher-than-expected 386,000. The 4-week moving average dropped 750 lower to 386,750.

The Bloomberg Consumer Comfort Index rose to -36.1, the highest level in two months.

The Kansas City Fed manufacturing index rebounded 6 points to a reading of 9 in May.

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Dale Franks
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Economic Statistics for 27 Jun 12

The following statistics were released today on the state of the US economy:

Durable goods orders came in much better than expected, with an overall 1.1% increase in May. On a year-over-year basis, orders rose 4.6%. The increase was mainly the result of a big increase in aircraft orders. Ex-Transportation, orders rose 0.4% for the month, and 3.8% on a year-over-year basis.

The Mortgage Bankers’ Association reports mortgage applications fell -7.1%, with purchases down -1.0% and re-finance apps down -8.0%.

The National Association of Realtors reports that the Pending Home Sales Index rose 5.9 points to 101.1.

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Dale Franks
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Economic Statistics for 26 Jun 12

The following statistics were released today on the state of the US economy:

Consumer confidence fell 2.4 points in June to 62.0, the lowest reading of the year. Consumers are pessimistic about business conditions over the next 6 months, as well as about job availability and their incomes.

The S&P Case-Shiller home price index rose by 0.7% for June, on a seasonally adjusted basis. On a year-over-year basis, prices are still down -1.9%.

The State Street Investor Confidence Index rose 7.0 points to 93.5. Readings below 100 indicate a demand for safety.

The Richmond Fed Manufacturing Index fell to -3 in June from readings of 4 in May and 14 in April, indicating a steady decline in manufacturing.

In retail sales, Redbook’s same-store sales index shows only 2.3% year-on-year growth in the June 23 week. Meanwhile, ICSC-Goldman Store Sales rose by a sharp 2.0% for the week, but year-on-year growth fell to 2.7%, the lowest rate in 3 months.

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Dale Franks
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Economics Statistics for 25 Jun 12

The following statistics were released today on the state of the US economy:

New home sales came in at an annual rate of 369,000 in May, the best rate in more than 2 years, and well above analysts’ expectations.

The Chicago Fed national activity index fell to -0.45 in May from a revised 0.08 in April. Most production-related components declined, as did housing.

The Dallas Fed general business activity index rebounded to 5.8 in June from -5.1 in May, showing some rebound in manufacturing.

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Dale Franks
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Observations: The QandO Podcast for 24Jun 12

This week, Bruce and Dale talk about the President’s Fast & Furious executive Privilege claim.

The direct link to the podcast can be found here.

Observations

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Economic Statistics for 21 Jun 12

The following statistics were released today on the state of the US economy:

Initial claims for unemployment were 387,000 last week. The 4-week moving average rose 3,500 to 386,250. The prior week’s claims were revised upwards 3,000 to 389,000.

Existing home sales fell 1.5% in May to a 4.55 million annual rate, but were up 7.9% on a year-over-year basis.

The Philadelphia Fed’s Business Outlook Survey for June dropped to -16.6 from -5.8 in May, as business activity declined for the second straight month in the mid-Atlantic region, and declined more steeply.

The PMI manufacturing flash index for June fell 1 point to 53.9, a level over 50 to indicate monthly growth but below May to indicate a slower rate of growth.

The Bloomberg Consumer Comfort Index fell to -37.9 in the latest week. All three components of the index declined.

The FHFA purchase only house price index rose 0.8% in April, following a revised 1.6% in March.  The year-on-year rate rose 3.0%.

The Conference Board’s index of leading indicators in April rose 0.3% in May, following a 0.1% rise in April. The biggest negative components were the factory workweek and stock prices, while the positives were building permits and the spread between short and long interest rates, a spread made favorable by the Fed’s near zero rate policy.

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Dale Franks
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Economic Statistics for 20 Jun 12 (Updated)

The following statistics were released today on the state of the US economy:

The Mortgage Bankers Association announced that Mortgage applications fell -0.8%, with new purchases down a very sharp -9.0% and re-fis up 1.0%.

UPDATE: The Federal Open Markets Committee announced that due to ongoing economic weakness the target for the Fed Funds rate will remain at 0%-0.25%, and is likely to remain at "exceptionally low levels" through late 2014. The Discount Rate will remain unchanged at 0.75%. "Operation Twist" which extends the maturity of securities held by the Fed by buying long-term notes and selling short-term ones, will continue.

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Dale Franks
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Economic Statistics for 19 Jun 12

The following statistics were released today on the state of the US economy:

Housing starts declined in May by 4.8%, at a below-expected pace of 0.708 million. That is up 28.5% on a year-ago basis, however. Housing permits rose a better-than-expected 7.9%, to an annual rate of 0.780 million units. That mixes up the picture a bit, and hits at improvements over the next month in the housing sector.

Redbook’s same-store index shows a 2.4% sales increase. That’s up 0.4% from the prior week, but still soft. ICSC-Goldman Store Sales are also soft, with sales unchanged from last week. The year-on-year increase is 3.6%, the highest since mid-May, but the 4-week average is  3.1%, a 3-month low.

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Dale Franks
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