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Robbing Peter to Pay Paul – and the IRS of Course

March 21, 2010

Obama claims that his health care plan will allow people who are content with their current health care solution to keep it. You can say that, roughly, Americans currently with health insurance are pretty happy with what they got. So those most affected by ObamaCare will be Americans without health insurance. This group, people without health insurance, can be roughly devided into two categories: people who don’t have health insurance because they cannot afford it but would like to have coverage, and people who don’t have health insurance because they consider themselves low risk and have better things to do with their money.

The first group of uninsured (A) probably consists of average risk people who are not more likely to need medical care than the rest, but aren’t less likely to need it either. It can be argued that they are above-average risk, though, if you admit that some people don’t have coverage precisely because they are high risk, ie because their insurance would be particularly expensive.

The second group (B) of uninsured, those without a desire to buy health insurance, are typically young and healthy people. They are at the beginning of their professional career or about to enter the job market and don’t have an enormous income. Because there are a lot of good things to buy with money and because they’re healthy and have no reason to expect high health care costs in the near future they don’t want to buy insurance. (They probably will buy insurance once they have reached a higher income as well as a higher age.)

Assuming that Obama is correct when he says that people with health insurance who like what they have won’t have to change it, and assuming that so many Americans are, in fact, happy with their current coverage so that, for simplicity’s sake, you can state that nobody with coverage will change anything about it once ObamaCare is passed, what ObamaCare boils down to is a redistributive scheme among the uninsured.

Those who can afford coverage but opted so far to do other things with their money, ie group B, will no longer have that possibility because of the individual mandate. And those who couldn’t afford coverage, ie group A, will (presumably) be given subsidies so that they can afford coverage. Group B is low risk: they’re less likely to need health care service, this is precisely why they have not been insured. Group A is average, maybe even high risk. In any case they’re more likely to need health care services than group B. Obviously, group B will be paying for group A’s health services.

Put this way, the young and healthy group B will be paying for the health services of group A. Whether that’s fair or not is open to debate (and that debate will never result in a unanimous conclusion). But the answer probably depends on who is in that group A. And that depends on how ObamaCare decides who is eligible for subsidies to buy health insurance and who isn’t, in other words: how it devides the group of uninsured into group A and group B people.

Presumably, income is the decisive factor. If you are above a certain income threshold you are group B, if you are below that threshold you are group A. (Remember that there is such a thing as Medicaid, really poor people are all covered already.) The trick is to have enough people in group B to pay for group A’s expenses or you end up with a deficit. But to predict group A’s expenses is no job for a government committee: they just don’t know. An insurance company would be more up to the task because, after all, that’s what those people do for a living.

Come to think of it: the insurance companies already have calculated how much group A would cost. And the result was that it was too much for group A to pay – if it weren’t so group A would be insured. If the insurance companies could get group B to pay for group A and a little on top for the profits, neither group A nor group B would be uninsured. But insurers were unable to offer group B contracts that made sense for group B members – which is why they are uninsured. This means that with ObamaCare group B people will be forced into contracts that they wouldn’t accept if they had a choice. Namely, they will simply be forced to pay for an insurance they don’t need – while of course the money is actually used to pay for group A’s health services.

Keep in mind also that few people are uninsured for a long period of time. For some people having no coverage is a temporary situation, eg in between two jobs. It makes perfect sense to drop coverage when your finances are a little stretched and you don’t have any chronic conditions that need constant treatment. You can survive a nasty cold without health insurance, or postpone seeing a dermatologist because of your acne, if you need to live on a less than your income average for a (reasonably predicted) limited period of time. Of course, with the individual mandate your thriftiness will be interpreted by Obama and Co as you being so well off that you can pay for other people’s health services. Alternatively, you might be so lucky as to be on the receiving end of the redistribution scheme and receive health coverage that you don’t need with the money from people who don’t want to pay for you. Either way, there will no longer be a need to refrain from visiting a doctor even for more trivial issues and demand for health services will go up. That also means that health care costs in total go up.

Ultimately it’s very simple: if everybody will love ObamaCare as much as Obama and his allies claim, then why didn’t insurance companies set up such a system on their own? After all, offering people insurance contracts that make sense for them is what insurance companies do. The difference between the health insurance market and ObamaCare is that a private company cannot force you into a contract. Which is why group B people are not in the insurance pool: it makes no sense for them. ObamaCare will force them to participate even though they don’t want to. Ask them how much they love ObamaCare once it’s enacted.

All that Obama has to take care of is that there are more voters in group A than in group B. If all goes well for ObamaCare then, during future elections, the majority (group A) will vote for the minority (group B) to continue to pay for them. What’s likely going to happen, though, is that ObamaCare will run up enormous deficits. Group B will grow smaller and smaller and group A will grow larger and larger. Add to that an increase in demand for health services (since you pay for it, why not have some acupuncture sessions against that hay fever?) and the increase in bureaucracy costs (like $10 billion dollars to increase the IRS).

If you ask the French Cowboy then the individual mandate really is like a tax on life. You’re alive, you have to pay up. It’s not as if you get anything in return unless, of course, you get so sick that at least all your contributions to health care will be returned to you in form of health services. The difference to a tax on income, for instance, is that you really don’t have to do anything in order to have to pay health care premiums. If you don’t want to pay an income tax you just don’t earn any income. (Or more sensibly: if you’re without income you’re spared the income tax.) But once the individual mandate is in place you won’t be able to just live and breathe – you will also have to pay for health insurance. A tax on life.

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