Could the Healthcare Act End Upward Mobility?

One of the beautiful things about America and other economically free countries around the world is the ability for people to go from poverty to middle-class or middle-class to wealth in one generation.  As some of the recent minting of billionaires at Google, Amazon, and Facebook have shown, it is even possible to become insanely wealthy with a great idea, a whole lot of hard work, and a bit of luck.  Because people are rewarded for meeting the needs of others by getting to keep most of what they are paid and because there are property rights that keep others or the government from seizing the property they have amassed, there is the opportunity for virtually everyone to increase their station in life.

It is true that few people take advantage of this.  Most people in the middle-class spend just a little more than they make each month.  They therefore end up with little to show at the end of their careers.  Because of people living beyond their means they are also not able to pay for things like college for their children and major repairs like new roofs or air conditioners without taking out large loans, resulting in a lot of wasted labor going towards paying interest.  Still, contrast this with countries like Soviet-era Russia and India where the government or societal traditions dictate your station in life.  I maintain that any worker in the United States – at least the United States of 1990 – can become a millionaire by the time he retires.  Those in the middle and upper middle-class – those making $50,000-$150,000 per year, say – can become multi-millionaires.

This may very well end if the Healthcare Act, a.k.a. Obamacare, is implemented over the next few years.  We are already starting to see some of the effects of this law as businesses get ready.  For example, a lot of businesses are cutting the number of fulltime workers so that they will not need to provide heath insurance.  This is resulting in a lot of 24 to 30-hour per week workers, either cutting incomes or forcing people to take two jobs.  Perhaps this is by design – many in the Communist party advocate for a 30-hour week so that employers will need to hire more workers to do the same amount of work.  They fail to understand that an employer cannot afford to pay a worker full-time wages for part-time work.

Indeed, the reason businesses are cutting worker’s hours and positions isn’t because they are heartless and don’t want to see their profits cut.  The issue is that the profits from each worker are so low in those businesses that they cannot provide the comprehensive insurance required by the law and make any profit.  After all, no one will go to a fast food place and pay $10 for a hamburger.  At some point the cost of labor will become so high that people will stop going out to eat and cook at home, meaning these jobs will disappear.

The largest flaw in the healthcare law isn’t the requirement that people get insurance.  Everyone should get insurance unless they have enough money to self-insure.  (In other words, you have a few million dollars in the bank and can just pay for virtually all medical procedures.)  The reasons that healthcare costs are so high, however, are that:

1)Healthcare plans cover everything, and people go to the doctor and pick the highest cost options without thinking about anything more than the co-pay if there is one.

2) Rates listed on bills are a lot more than insurance companies actually pay, making it difficult to determine what the real prices are.  If you don’t believe me, try asking what the price is for a procedure – chances are even the front desk at the doctor’s office won’t know.  Aspirin may be listed at $10 each in the hospital, but they are probably happy just getting $2 each for them.  There is a lot of hassle and negiotiation involved for those without insurance to get these rates, however.

3) A lot of people don’t pay for their healthcare, particularly at hospitals, meaning that those who do pay and up paying a lot more than the true cost plus a reasonable profit.  You’re paying for both your procedure and that of ten others who don’t pay.

Obamacare goes in exactly the wrong direction, however.  The right direction would be to require everyone to save money in a health savings account so that they can pay cash for the little things and to have a high deductible plan for the big procedures that don’t happen very often.  This is true insurance because most people don’t have heart surgery in any given year, as opposed to what is called health insurance now which is really just paying for expected healthcare through insurance companies rather than just paying directly.  Because everyone would be paying the doctors, the prices would drop.  Insurance rates would also drop because they would only be paying for the big things and everyone would be paying the hospitals through insurance so hospital rates would drop.

Obamacare will just add a large government workforce on top of this with its own costs.  People will still be going to the doctor for everything and not caring about the cost of their procedures since they will be paying the same amount no matter what the insurance, or the tax payers, pay.  This will eventually result in the government trying to cut costs by deciding who gets what procedures, and you can bet politicians will be the first in line.  (I haven’t heard any calls to eliminate the Senate physician role and government workers unions are fighting not to be put on Obamacare.)

Under the new law, young people will see the cost of their health insurance rise by about $5000 per year during the early years, and probably by a lot more within a few years.  This will not be because the cost of their healthcare will be anything more than a few hundred dollars per year before they are about 50.  It is because a lot of their money will be used to pay for the older generation who will be using a lot of healthcare.  Indeed, like Social Security, this is a huge transfer of wealth from the young to the old.  At least in this case they elected the officials who enacted the law, unlike Social Security in which they had no vote because their grandparents weren’t even born yet.  (You do have a vote now, however, hint, hint.)

Some will simply not pay for insurance because they can’t afford it or don’t want to see so much of their money going to something they will not use for years.  Instead they will pay a couple of thousand dollars in fines or lie about their income to get higher subsidies.  This will drive the costs for those who are paying higher.  Other will see a huge new cost when they don’t have a lot of extra money left over after each paycheck.

The real unfortunate thing about this is that young people will not have the money needed to save and invest with this huge new cost on their plates.  A few thousand dollars per year is all that is needed to become wealthy.  With Obamacare, this money instead will be going to fines or healthcare that they will not use while they are young.  When they are older, they will be forced to take whatever they can get from the system because they will not have money saved up and therefore not have any choice.  They had better hope the system is as great as supporters of the law say, because they will have no other choice.  If the plan is to prevent people from moving up in society, this is the way.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

One comment

  1. I think the main issue is forcing a product (insurance) on someone that doesn’t want it for whatever reason. They obviously shouldn’t receive free care as that puts an undue burden on people that aren’t cheating and are paying. But of course then a moral issue comes up. If someone goes to the emergency room do you treat them if they can’t pay? Well of course you do out of human nature, but what if you feel it’s not a real emergency (or they have the means to pay but decide not to since they know they can get away with it) and that they’re just gaming the system. Well with current laws you still must treat them.

    The issue is of course complex and has gotten worse over many years of increased regulation , which you note primarily in point number 1. You point to HSA’s and HDIP’s as the answer but what if someone really wants to pay for tons of insurance. They should have the freedom to purchase that. Just as someone can pay for collision insurance on their car. Is that really the solution? I think eventually a breaking point will be reached and most people (who don’t get group insurance at work) just will go uninsured or will lie to get subsidized insurance.

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