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Obamacare - Swimming Against the Tide

Zurab Chiaberashvili
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The government of the Georgian Dream coalition and its supporters who advocate the state taking the leading financial role in the health care sector will probably not like the tendency observed in “socialist” Sweden: tired of waiting in long queues and dissatisfied with poor quality medical services, Swedes increasingly purchase private health insurance policies.

In a country with a population of 9.5 million, the presence of up to half a million private health insurance beneficiaries might not appear too high a number, but the trend is apparent. It should also be noted that the health insurance fees of these half a million people are, in most cases, covered by their employers.

Swedish employers deem these sums to be worth paying: an employee who requires surgery under the universal public health insurance scheme will probably not be able to fully get back to work within a year because of the long queues at hospitals, whilst an employee covered by a private health insurance scheme will probably be able to do so within a couple of weeks.

[Before continuing, I want to clearly state that I am not supporting the idea of obliging private businesses in Georgia to purchase private health insurance policies. This would actually become a new tax and would further complicate the already grave condition of the Georgian economy.]

It is noteworthy that from the late 19th century until the 1970s, Sweden pursued a market-oriented policy manifested by a “small government” and few regulations. During the 1970s Sweden began the redistribution of the wealth it had accumulated over the previous 80 years, but within some 20 years of doing so, in the 1990s, Swedish socialism showed its first cracks.

The Swedish response to the crisis of the 1990s was to deregulate a whole number of industrial sectors and to begin privatizing public services. Secondary schools in Sweden are profit-oriented (which is supported by a voucher system analogous to that introduced in Georgia during the “nine-year regime”), whilst at least one of private hospital is registered on the stock exchange with the price of its shares showing constant growth.

Sweden cut income tax and today it is lower than in France, Belgium or Denmark, whilst the state spends 53.3% of its gross domestic product (GDP) instead of the 71% it spent in 1993. [Yet another note: we must not take the Swedish 53.5% as an example. Countries like Georgia must not receive more that 30 percent of GDP in the form of taxes – the threshold that is now ensured by the Liberty Act, which entered into force on 1 January 2014.]

The President of the United States, Barack Obama, a proponent of big government, chose the opposite path to Sweden’s trend. The Affordable Care Act, aka Obamacare, that he proposed was adopted by Congress three years ago on the premise of “assisting” some 30 million uninsured Americans in gaining access to health insurance.

To this end, through Obamacare, insurance exchanges were created on federal and state levels – a platform through which citizens either purchase insurance policies for themselves or their employers purchase this for them. The difference is that members of Medicaid and Medicare (or, in our vernacular, the database of socially vulnerable people) as well as previously uninsured people are either fully or partially subsidized by the state.

Obamacare entered into force on 1 January 2014, though the registration of people in the system began in November 2013. The first results are grave.

A survey conducted by The Wall Street Journal has proved that uninsured people do not purchase the health insurance packages offered under Obamacare: as of 28 December 2013, the majority of the 2.2 million people who have joined the Obamacare scheme were already recipients of private health insurance. A survey by McKinsey & Co. showed that of those who joined the health care program via Obamacare, only 11 percent were previously uninsured.

Furthermore, surveys by Gallup prove that in November 2008, when Barack Obama was first elected President of the United States, 13.9 percent of Americans had no health insurance, whilst today that figure stands at 16.1 percent. This is not surprising. Instead of increasing the motivation to engage in health insurance schemes, Obamacare has in fact caused such motivation to decrease. This has been conditioned by several factors.

Since joining the scheme would increase their health insurance costs, many employers in small and medium business have refused to continue insuring their employees, thus leaving them to cover part of their health insurance fees from their own pockets. The state subsidies intended for them, provided they are even eligible, cannot compensate for that loss sustained by such employees.

It should also be noted here that, as a result of pressure from large employers, Obama, the great “sympathizer”-of-the-poor, postponed the enactment of the obligations envisaged in Obamacare for employers for one year. Employers, however, are already taking measures to dodge huge costs next year. In reality, this means the refusal to purchase health insurance policies for their employees. The president, though acting with good intentions, has actually worsened the lives of those he claimed to care for.

Christopher Conover, a research scholar of the Center for Health Policy & Inequalities Research at Duke University believes that of those 189 million Americans who are health insurance beneficiaries today, more than a half will be left without health insurance policies by the end of 2014, whereas those who manage to retain their policies will have to pay more. Avik Roy, a senior fellow at the Manhattan Institute, believes that health insurance policies will on average become 41 percent more expensive.

Some six million people have already lost their health insurance as a result of increased prices. According to the data of the US Department of Health, 75 million people enjoy health insurance that is provided by their employers. One can only imagine the scale of the problems that have emerged upon the enactment of Obamacare.

For those who have paid the cost of health insurance themselves and have not benefitted from Medicaid-Medicare subsidies, the transfer to Obamacare will push up the price of their health insurance policies. As normally happens in socialist systems, a public good offered to someone for free is not free in reality, it comes at someone else’s expense. This “someone else” is the middle class of the United States.

Furthermore, the younger the employee, the higher the cost of health insurance. Obama’s calculation was that a larger number of younger Americans (who fall under the least risky group and are thus less motivated to purchase health insurance) should be registered on the insurance exchanges in order to spare health insurance companies from the heavy burden of costs for older people in higher risk groups. The goal of this was to prevent the entire insurance system – which comprises one-sixth of the US economy – from collapsing.

But this is a “vicious circle:” the more people who join the Obamacare scheme, the further the financial state of insurance companies will deteriorate, the greater the price of insurance packages will increase and, consequently, fewer people will manage to join the scheme.

Things have already reached such a point that the Health Department deemed it permissible for citizens to purchase “catastrophic insurance” plans – a type of health insurance coverage which Obamacare had opposed from appearing on the market as these packages fall below the minimum requirements. But unless they are able to offer such policies, insurance companies will fail to collect the sufficient number of clients that allow them to cover their basic costs.

This will not, however, save the US insurance system from collapse. The authors of the Affordable Care Act thus provided a form of double insurance for themselves: (1) participation in Obamacare is voluntary – in other words, if involvement in this socialist state program proves unprofitable for an insurance company, it may withdraw from it; (2) the Affordable Care Act envisages a bailout by the state. By various estimates, Obamacare will destroy the US insurance system to such extent that the government will require tens of billions of dollars to bail it out.

There is an assumption that insurance companies will offset any damages sustained due to Obamacare at the expense of the people they insure. Certain questions thus arise: Will American citizens be able to use the service of those same doctors whom they have consulted over many years? Will they be provided with the same level of medication? Will they have to stand in long queues waiting for their turn to see a doctor?

In a following article (“On the Verge of Death”) I will talk about the similarities and differences that the Georgian health insurance system has with the tendencies seen in the two countries mentioned above. Here, however, I will note just one thing:

I am not particularly concerned about the fate of Georgian insurance companies (if I am concerned, it is only for the general condition of the Georgian economy). They failed to use the opportunities that were created during the rule of the United National Movement. Although the black PR directed against them was exacerbated by the actions of our bureaucrats, the key mistake these companies made was the failure to gain the trust and respect of the people they insured.

The relative share of responsibility of the bureaucrats, medical personnel (who, putting it mildly, are not fond of insurance companies) and the insurers themselves, is a topic for separate discussion.

The topic of the next article, however, will be the effect that the pullout of insurance companies from the health care sector will have on the delivery of quality medical services to Georgian citizens at an adequate cost.

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