Obamacare, a common nickname for
the Affordable Care Act, is not only unconstitutional in many regards, but it
is economically unsound. Forced lowering
of price with increased cost will lead to unhealthy bottom lines, as is
becoming the case. The main points that
I want to highlight are
1. The
government’s entry into an oligopolistic market with a perfectly competitive
fringe.
2. The
increase in cost and forced decrease in price for many individual insurance
plans.
3. The
rise in marginal cost of labor due to the employer mandate.
The insurance
market, prior to the flawed rollout of Obamacare included 1,035 issuers[1],
none with a market share of over 19%, but with at least four issuers with
market share over 5%. In 2012, roughly
47 million Americans were uninsured.
With the government now entering the insurance market and theoretically
making itself the 1,036th insurer with expanded Medicaid offerings,
the market is most definitely going to be jostled. With an endless bottom line (taxpayer dollars),
the government could outbid every private insurer in terms of price for
coverage. With the debt snowballing as
fast as it is, it would be a fair guess to assume that government spending will
continue to occur in this new capacity of healthcare.
When a new
competitor joins a market for the sole purpose of providing insurance at a cost
lower than the market previously provided, and has the means to do so, that
competitor introduces an unfair advantage and erases any possibility of perfect
competition. The large amount of
insurance businesses and the small amount of those businesses with over 5%
market share makes the industry oligopolistic with a perfectly competitive
fringe. It is unclear how much the
public option provided by the government will consume in terms of market share,
but with 47 million uninsured and a significant amount qualifying for the new
Medicaid standards, it could be substantially large.
The individual
mandate rocks the economic boat in a few ways as well. Firstly, the government now mandates that all
Americans cover health insurance or face a fine (in many cases less than the
cost of insurance, which makes me wonder about the economic decisions behind
that). This mandate also in turn forced
insurance companies to offer policies to everyone so that they can become
insured, including Americans with pre-existing conditions. Along with this regulation, issuers were
limited on the premiums they could charge and were not allowed to place caps on
coverage. This is possibly the most economically
unsound part of the plan. Forcing
companies to make financial decisions that are unprofitable is going to
adversely affect the private market sector.
This drives up average total cost for insurance issuers because
pre-existing conditions are huge expenses over the long run.
Additionally, one
of the areas getting the most attention, the employer mandate forces companies
to provide health insurance to full time employees if they employ over 50
employees. This dramatically increases
the cost of labor for each full time employee.
In many small businesses, employees work over 30 hours/week, but
providing each with health insurance coverage would turn the employer belly
up. The average health insurance monthly
cost is $328 according to a recent NBC report.
Adding $328 to the Marginal cost of labor will cause a severe downturn
in hiring by small businesses, where the majority of post-recession hiring has
taken place. Adding that cost for each
current “full-time” employee will also raise variable costs and Average cost of
labor by that significant amount. Some
businesses in low margin industries will not be able to survive this
mandate. They will either need to lay
off workers to compensate for the increased cost of labor or raise prices of
goods significantly to match former levels of profitability. Causing business to go out of business
because of forced regulation and spending is economically wrong. The government’s involvement in the private
sector should not cause other businesses to go under.
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