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Obamacare: Utterly Self-Destructive?

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Neodoxy Posted: Wed, Nov 7 2012 1:20 AM

Okay, well because there's very little chance that Obamacare is going to be repealed now. I'm wondering exactly how Obamacare looks to anyone to be in any way sustainable, and how they think that it will not obliterate the entire health insurance industry. Most republicans, of course, label the bill as "bad" and they say that it will have bad side effects, but I have yet to see anyone claim that it will annihilate the health insurance industry itself (upon which the healthcare industry hinges in our world) to the point where, if the government does not step in, that healthcare itself will be either totally unaffordable or health insurance will simply cease to exist.

The reason that I've come to this conclusion is because of a very simple argument I heard Stefan Molyneux make years ago that went along the lines of this:

The seed of destruction found within Obamacare is found within its very core component: The fact that health insurance companies can no longer deny people for preexisting conditions. This would seem to spell the end of healthcare as we know it because it now gives no actual incentive to be on a healthcare plan except for the knowledge that you will be taxed (fined, whatever the hell the supreme court decided that it was) if you do not do so. Now even if we assume that the tax is high enough that it makes economic sense to just suck it up and get health care, the fact is that different levels of healthcare are offered.

This means in turn that it makes financial sense for the consumer to pay for the lowest level of healthcare possible, let's say that it only covers 1 percent of healthcare expenditure. Now he would normally have the problem that he would have to pay through the nose if he were to have health problems, but now if you come down with some serious malady then all he has to do is to sign up for a higher level of health insurance which will pay for, say, 90% of healthcare costs. Sure, the premium might be 3,000 dollars a month, but you're still much better off than paying the tens of thousands of dollars most serious treatment costs. If you broke your face and you need treatment and expensive surgery then the health insurance companies have to cover you.

This would mean that insurance companies end up receiving very little and paying out huge cash sums every time that things go wrong. This would continue to the point where one of the following must happen:

1. The minimum premium for any sort of healthcare coverage is now less than the fine and it makes sense to just stop paying for health insurance. This either collapses the industry as a whole, or causes the government to take action and raise the fine (bringing about another one of these results) or respond with legislation (leading to one of these other results)

2. The minimum premium rises to the point where people cannot afford the premium and they demand political action

3. Costs rise so high the government steps in and nationalizes the industry or lifts the inability to deny for prexisting conditions

4. Health insurance companies have to only provide low premiums which cover very little. With the height of current costs this would make healthcare unaffordable for the average person/family and leading to political action.

5. Health insurance is only offered at a "mid point" where coverage is mild, as are premiums. I find this unsustainable because as soon as one person offers less coverage at a lower premium then every individual has an incentive to just switch to that service and wait till they need healthcare to the other service, driving us to 4

Indeed it would make sense for everyone to just sign up for "Neodoxy's health insurance company". You pay 50 cents a month, and if you get sick then I'll cover a dollar for every thousand dollars of healthcare costs you pay. It doesn't matter to you that I only pay .001 percent of your healthcare costs because I'm not there to pay your healthcare costs. I'm there to be sexy and to get you out of paying a thousand dollar fine every year, instead you just have to pay 6 bucks a year. That's a savings of like a thousand dollars! And in return you get one sexy non service. This doesn't impede your healthcare costs because then as soon as the shit hits the fan you can just switch to real health insurance provider.

So I don't see this talked about... Pretty much anywhere except for in the Stefan Molyneux talk that I mentioned. If this is true this is a big deal, and it would mean that either we face the unbridled horror of facing the full price of healthcare (which is close to unpayable for a real or malady), or more likely an inevitability of socialized medicine.

Thoughts? Why is this not being talked about? Is there a simple refutation?

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I've had this discussion with a socialist before. He said that it was the "point" of Obamacare to fail, to pave the way for full nationalization.

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Neodoxy replied on Wed, Nov 7 2012 1:40 AM

I remember hearing a speech Obama gave early on in his candidacy where he basically said directly that he thought that socialized healthcare would have be phased in.

I was just wondering if there's any way that this isn't sustainable... Like seriously the fact that it's unsustainable and can be shown to be unsustainable in such an easy manner would seem like something that the GOP would jump on in a second... But they don't! Why? I have to assume it's because there's something wrong with what I'm saying.

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The fact that health insurance companies can no longer deny people for preexisting conditions. This would seem to spell the end of healthcare as we know it because it now gives no actual incentive to be on a healthcare plan except for the knowledge that you will be taxed (fined, whatever the hell the supreme court decided that it was) if you do not do so.

What if the rule was that you must be on a plan for a certain time period before you can claim?  If you had to hold the plan for a year before you could claim, you couldn't just go on a plan when something comes up, since the problem might be urgent and the plan could do nothing for you.

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Relevant, shocking articles:

http://mises.org/daily/3855

http://mises.org/daily/3914

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Neodoxy replied on Wed, Nov 7 2012 8:52 AM

^

The second article is much more relevant and even he doesn't seem to outline the problem as being quite as simple and self-evident as I have. I'm just curious why this is... Even though it reminded me of something which might actually be Obamacare's saving grace: Healthcare is primarily provided by employers. This itself could actually save the industry if firms don't act in the above way.... It's also important to note that this might not happen anyway if people don't realize the fortunate nature of their predicament... Strange that perhaps the only way that a governmental action can survive is by hoping that everyone in the economy acts irrationally.

He also doesn't make what would seem like a relevant conclusion and show that, since price discrimination is permitted depending upon age (something I didn't know) then it would seem that since the elderly would have the highest chance of performing the above action (since they are the most likely to get sick) that premiums for them could just go through the roof... No, perhaps that isn't this isn't the case, because it would still be financially viable, in fact much more financially viable, to offer the elderly limited coverage because you never have to pay out with limited coverage, they just switch to a higher healthcare coverage level

@Aristippus

Then that alone would radically curb the phenomenon which I'm talking about. It would still happen but not nearly to the same extent. That's part of what makes it so confounding to me: This would be so easy fix with simple legislation.

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Aristippus:
What if the rule was that you must be on a plan for a certain time period before you can claim?  If you had to hold the plan for a year before you could claim, you couldn't just go on a plan when something comes up, since the problem might be urgent and the plan could do nothing for you.

As I see it, that's the purpose of the "universal mandate". People are required to either purchase a certain level of health insurance or pay a fine tax fine tax... The point of that is to prevent people from not "paying into the system" until they come down with some serious injury or illness.

I think the likeliest course for "ObamaCare" to take is hidden nationalization of healthcare. As it will do nothing to cut costs - on the contrary, it will accelerate their increase - more and more people will flock to the government-subsidized exchanges until essentially everyone but the wealthy elite is using them.

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