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Washington Examiner

 

With Obamacare, It's the Economic Costs That Matter

June 27, 2012

By Diana Furchtgott-Roth

No matter what the Supreme Court decides over the constitutionality of the Patient Protection and Affordable Care Act, its economic costs are substantial. Here are five ways in which it will or already is slowing down the economic recovery.

1. Starting in 2014, the hiring of a company’s 50th worker will cost an extra $40,000 per year. PPACA raises employment costs by requiring employers to offer qualifying insurance coverage or else pay a penalty. Because this requirement will apply only to firms with more than 49 full-time employees, it will discourage the hiring of full-time workers. Firms with more than 49 workers will have to pay $2,000 a year for each employee without qualifying coverage (the first 30 workers are exempt).

This is one reason the unemployment rate is still above 8 percent three years after the end of the recession. Employers plan ahead.

2. PPACA encourages employers to substitute part-time for full-time workers to avoid the penalty. A firm with 60 employees would pay a penalty of $60,000 a year if it did not have qualifying health coverage. But if it put 11 workers on part time, and hired another 11 part-timers, it would not owe a penalty, because it would have 49 full-timers. The full-timers who become or are replaced by part-timers would obviously be worse off.

3. PPACA raises health insurance costs by requiring an overly generous plan. In order to be counted as a "qualified benefit plan," insurance coverage must cover routine health care -- such as checkups and contraceptives -- without co-payment. It must also cover maternity care, mental health and substance abuse. This means higher premiums for employers who provide insurance and their employees.

4. PPACA raises the cost of care by discouraging workers from shopping around for routine expenditures. If routine costs are free, individuals don’t care about the cost, and don’t seek the least costly provider. In contrast, when individuals have to pay for care out of their own pockets, costs go down. Costs of Lasik eye surgery and cosmetic surgery -- usually paid out of pocket -- have fallen steadily as competition has driven down the price.

Unfortunately, plans that encourage shopping around -- such as catastrophic plans with large deductibles and tax-deferred health savings accounts -- will be nearly impossible for anyone over 30 to purchase under PPACA. In 2010, the state of Indiana saved 11 percent on health care costs with its catastrophic health plan and health savings accounts, which were selected by 70 percent of Indiana state employees under the Healthy Indiana Plan.

5. The "free-rider" problem will remain unsolved. Even if the Supreme Court upholds the individual mandate, the penalty for not signing up for insurance, $750 a year, is too small relative to the cost of health care coverage -- about $5,500 a year. Because insurance companies are required to take all applicants, healthy people (especially the young) would be wise to pay the penalty rather than buy the insurance. This makes the pool of insured individuals sicker and more costly, on average, and their premiums will higher. With higher premiums, more people will choose to pay the penalty, and a downward spiral will unfold.

Nobel Prize winner Milton Friedman’s most famous book was titled "Free To Choose," a treatise on the centrality of choice to a free economy. PPACA militates against choice. The individual mandate is not just a constitutional issue, it is fundamentally an economic issue. The mandate explains why the law remains unpopular, and why politicians who passed it are not using it as the centerpiece of their campaign.

Original Source: http://washingtonexaminer.com/with-obamacare-its-the-economic-costs-that-matter/article/2500659

 

 
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