"If you think health care is expensive now, just wait until you see what it costs when it's free!"
-- P.J. O'Rourke, The Liberty Manifesto (1993).
I've heard this clever quip about health care reform many times before, but this quote by P.J. O'Rourke was supposed to prove meaningless thanks to the passing of the Affordable Care Act in 2010... right?
Crafted by President Obama and lawmakers, the ACA, also known in shorthand as Obamacare, was to create a competitive pool of insurance companies competing for consumers' premium dollars which would help drive the costs of medical care and premiums lower. In addition to creating these pools, the ACA:
- Required insurers to spend at least 80% of patient premiums on care or return the difference.
- Would not allow insurers to turn away patients with pre-existing conditions.
- Would expand the existing pool of qualifying government-sponsored Medicaid patients.
- Would establish a medical device excise tax that would collect 2.3% of revenue from all medical device makers to help pay for the Medicaid expansion.
- Would mandate individuals to carry health insurance.
Remember those savings? Yeah, not so fast...
Despite these sweeping reforms, the Society of Actuaries released a report (link opens PDF) this month showing that the ACA-driven costs associated with non-group members participating in the insurance pools are set to see an average increase of 32% in underlying claims costs by 2017. It's true this report didn't take into account the effects of pool pricing competition and focuses solely on non-group participants (those not covered by employers), but it's still very concerning as actuaries are often conservative in their estimates.
Sure, the SOA's report demonstrated strength in certain states, with five expected to see underlying claims costs drop. However, that means costs are expected to rise in the remaining 45 states, with 37 of those states expecting costs to jump by 20% or more. According to the SOA's report, Ohio and Wisconsin can expect their claims costs to jump by 80% or more.
This leads me to question whether our medical costs are about to soar under Obamacare?
Not an encouraging start
The precursors to Obamacare going into full effect next year haven't been encouraging. Medical device manufacturer Stryker (NYSE:SYK) cut its workforce by 5% in direct response to the added costs of the medical device excise tax while the CEO of NuVasive (NASDAQ:NUVA), Alexis Lukianov, threatened to move his research and development operations overseas because of the device tax last June. Similarly Medtronic (NYSE:MDT), the largest medical device maker in the world, has been investing heavily in China in order to take advantage of cheap labor and a more favorable tax situation.
The CEO of insurer Aetna (NYSE:AET), Mark Bertolini, had this to say about the potential for premium price hikes in anticipation of the full implementation of Obamacare in 2014: "We've all done the math, we've shared it with regulators, we've shared it with all the people in Washington that need to see it, and I think it's a big concern."
That didn't stop Aetna from hiking premiums by as much as 21% in some states last year in anticipation of pricing caps soon to be put in place by Obamacare.
The negative effects, though, extend far beyond the medical sector. Papa John's (NASDAQ:PZZA) CEO John Schnatter heavily criticized the costs associated with Obamacare last year, riling up consumers after parceling out its precise costs to the company at $0.11 to $0.14 per pizza.
Don't get me wrong -- there are some very clear positives derived from health-care reform, including some 32 million people that were previously uninsured gaining insurance under Obamacare. That's progress, as is the fact the quality of coverage should improve in some cases from a bare-bones policy to something more encompassing.
Still, this report from the SOA wasn't an encouraging read and could put the President and the entire health care industry on the defensive until proven otherwise.
What's your take on Obamacare? Is this good for America, a necessary evil, or a failure from the get-go? Share your thoughts in the comments section below.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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