Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Obamacare May Become Zombiecare In 2018

Politics / Healthcare Sector May 19, 2017 - 04:16 PM GMT

By: John_Mauldin

Politics

BY PATRICK WATSON : Before the election, few people would have predicted today’s healthcare standoff.

Clinton supporters expected Obamacare would continue with some minor adjustments. Those behind Trump thought Republicans would quickly repeal Obamacare, as repeatedly promised.

Instead, the GOP House (barely) passed a replacement plan that the GOP Senate has little interest in pursuing. Negotiations continue, so we’ll see.


Unfortunately, time is not on their side.

Obamacare Is In Deep Trouble Now

As I explained back in March, the insurance companies haven’t been able to run profitably because not enough young and healthy people buy Obamacare policies.

That’s made them raise rates, which drives away more people and ultimately creates a vicious cycle.

Insurers have no incentive to stick around and lose money—and they must decide by June 21 whether to stay in the Obamacare exchanges for 2018. In some states, filing deadlines are even sooner.

Yet the Senate seems in no hurry to act. The odds that they will hash out a bill and get the House and the president to agree in the next five weeks are pretty low.

Moreover, they can’t just extend the deadline. Insurers need months to reprogram systems, train staff, and build provider networks. Congress can’t dawdle into summer and then unveil something entirely new.

If they do, the 2018 rollout will be a catastrophe.

Insurers Are Pulling Back

So insurers are doing the rational thing. They’re either backing out or raising rates to compensate for all the unknown risks they will be taking.

Early signs are ugly:

  • Maryland’s top insurer, CareFirst Blue Cross, has requested an average 50% rate increase for 2018.
  • In Virginia, Anthem Blue Cross is asking for 37.7% higher rates.
  • Aetna said it will be pulling out of all Obamacare exchanges nationwide.
  • Iowa is down to only one carrier, Medica, which only covers a few counties.

We’ll see more such stories in the coming months. Barring some legislative miracle, the result will be an individual health insurance market with sky-high rates and deductibles—if your area has any insurers at all. Many won’t.

But There’s A Twist To This, One Few People Are Noticing

I learned it from healthcare policy expert Robert Laszewski, whom I’ve quoted before.

He says Obamacare won’t explode or collapse, even if Congress does nothing. That’s because most of the beneficiaries will still be heavily subsidized under current law.

They won’t care what the price is.

Here’s how Laszewski explains it.

The health insurance companies' defensive strategy is simple: Limit the plan offerings available to ones that bring in the most premium and then drive the rates as high as they need to be in order to protect the insurance company's solvency. Health plan executives realize this will push the unsubsidized and partially subsidized people off the rolls, but leave a core enrollment of taxpayer subsidized people insulated against the costs and ultimately profitable for the insurers.

Some experts have said that a death spiral by its very nature cannot be stabilized. Under Obamacare, that is not necessarily true. Because of the uniqueness of the program's subsidy system, there is likely a point where a health plan can concentrate its pool of covered people from among the most highly subsidized participants and collect enough premium to end the red ink. That is what these latest big increases are about.

So, health insurance companies are happy to take taxpayer money as long as they don’t have to take most taxpayers as customers. They only want price-insensitive poor people.

But in cold, hard business terms, it’s probably their best move.

Bottom line: In 2018, Obamacare will still exist, but only as taxpayer-provided indigent care. The program’s heart and soul—the grand vision of “Affordable Health Care” for every American—will be gone.

What’s left will be a mere shell, stumbling around and consuming resources.

Or, as Laszewski called it, Zombiecare.

The Middle Class Will Take The Biggest Hit

Aside from taxpayers, who loses in this scenario?

Not the poor—they’ll have subsidized health insurance.

Not the wealthy—they’ll have employer coverage or just pay out of pocket.

Not the elderly—they’ll have Medicare.

The losers will be in the middle: Working-age people who make too much to get Obamacare subsidies, but not enough to do without insurance.

They’re small-business owners and their workers, solo-practicing lawyers and other professionals, independent contractors, and others without employer coverage.

These folks are important to the economy. And next year, many will be uninsured. Insurance companies will identify the pain point and raise rates above it to keep them away.

Some in this group will get serious illnesses, have accidents, or otherwise need expensive healthcare that they won’t get—which will make them less productive to the economy.

The labor market is in an odd balance right now. Even while many remain out of the labor force or underemployed, good workers are scarce in some areas and occupations. Losing productive people to health problems won’t help.

But regardless, it appears set to happen.

The Healthcare Industry Will Feel Some Pain, Too

This will likely show up in stock prices. Hospital stocks are especially vulnerable, since hospitals are legally required to stabilize anyone who checks into the emergency room—even if uninsured and unable to pay.

Medical-device and pharmaceutical companies might see lower revenue as well, since uninsured people may not be able to afford the latest drugs and technology.

With the economy already stuck in slow-growth zombie mode, we don’t need zombie healthcare too. But it’s what we are going to get.

The good news: The impending fiasco might convince the powers-that-be to try some new ideas. Other developed countries have found better ways. We can, too.

FREE PREMIUM REPORTS: 3 Stocks You Need (and 3 You Don’t) in 2017

Discover the best and worst stocks in 2017. This bundled series of exclusive reports reveals three companies set to soar and three you should steer clear of (one of them will surprise you). Download Three Deadly Dow Stocks and Three Top Picks for Income & Growth for free now.

John Mauldin Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in