2. Premiums will continue to rise.
The entire premise of creating the PPACA was to avert what seemed like an exponential growth in health-care costs due to high hospitalization and prescription drug costs. However, it appears that the usually conservative Society of Actuaries believes otherwise.
The SOA released a report (link opens PDF) two weeks ago that showed ACA-driven non-group member claim costs are expected to rise by a whopping 32% over the next four years, with 37 of 50 states seeing costs jump by 20% or more. The SOA’s reasoning included the addition of higher risk patients to the coverage pool, employers dropping group coverage, and higher morbidity levels caused by patients who would previous have been uninsurable (think those with pre-existing conditions).
Higher premiums are also an end result of the insurance industry itself — it’s a for-profit business. We’ve already seen that regulators have been unsuccessful at pushing for less reliance on government subsidies, so why should we expect that insurance premiums would stand pat as the required number of benefits required under the PPACA — and the subsidies required to fund up to a 16 million person expansion under Medicaid — expands?
3. It will encourage job and R&D outsourcing, as well as domestic hourly cutbacks.
This could be perhaps the most visible and negative immediate impact of Obamacare — the outsourcing of American jobs and research and development, as well as the hourly cutbacks associated with the higher costs of providing subsidized group coverage.
In the health care sector, the reaction has been decisive and swift. Stryker Corporation (NYSE:SYK), a maker of medical devices, implants, and supplies, shed 5% of its workforce because of the impact of the 2.3% medical device excise tax in a move expected to save the company $100 million annually. Keep in mind, this isn’t an after-profits tax; it’s 2.3% off a company’s top-line revenue figure that goes to directly to pay for the Medicaid expansion. The world’s largest medical device maker, Medtronic, Inc. (NYSE:MDT) , is another perfect example. It announced its intentions to hire up to 1,500 people last year, but commented that the majority of hires would be in markets abroad, like China.
But, the truly dangerous aspect of Obamacare is that its outsourcing and hour-cutting aspects aren’t just limited to the health care sector. For some large corporations, the cost of supplying subsidized health coverage to its employees versus cutting back their hours to part-time status and avoiding that requirement altogether is simply too great. In January, 11 franchised The Wendy’s Co (NASDAQ:WEN) locations in Nebraska cut back hours for about 300 non-management employees in an effort to save costs since part-time employees are not required to be covered under the PPACA. Unfortunately, this isn’t — and won’t be — the only instance of this, and could negatively impact hourly employees’ wages, as well as their potential to obtain health coverage.
4. Hospitals and physicians will be overwhelmed with the influx of millions of newly insured people.
There’s a give and a take with every situation. Yesterday I proposed that one of the greatest benefits of Obamacare is that it will open up the opportunity for previously uninsured or underinsured persons to get regular preventative care screenings. The downside of this scenario is that it will absolutely overwhelm our current health-care network.
In 1996-1997, 46,965 first-time and multi-time applicants applied to medical school, according to data from U.S. Medical Students and Applicants. In 2011-2012, that figure has actually fallen to 43,919! Further, the actual graduation rate of people with a medical degree has only increased by an average of 0.3% — that’s right, 0.3% — since 1982-1983. How is the current system expected to react by the introduction of up to 30 million new members in a matter of years when the number of qualified physicians is increasing by just 0.3% annually?
My suspicion is that patient care will be negatively affected, and those wanting covered but non-necessary exams as deemed by physicians, will be waiting even longer for the care they desire.
5. The middle class will pay, pay, and pay some more.
In order to fund the PPACA, it was expected that higher taxes on higher-income individuals and cost reductions in the form of fewer reimbursements to private health insurers would keep the wheels turning. In reality, it appears that Obamacare’s insurance subsidies, Medicaid expansion, and higher taxes are going to aim squarely at the middle class that President Obama has fought so hard to protect.
Higher payroll taxes have already begun to take a bite out of the middle-class worker’s paycheck. Learning to live with less will become the norm since the federal poverty level subsidies will begin to phase out for a good chunk of the middle class, exposing these individuals to lofty insurance premiums caused by a greatly expanded health benefits package.
In addition to expected higher premiums and taxes with fewer subsidies for a majority of the middle class, the individual mandate will require a tax of up to 2.5% of a person’s adjusted gross income in 2016 if they fail to carry health insurance. Two other changes brought about by the PPACA that will be most unwelcome by middle-class families include a flexible spending account cap of $2,500 each year — FSAs allow families to use pre-tax dollars to pay for special needs education and other medical expenses — and a boost in the medical itemized deduction from a minimum of 7.5% of adjusted gross income to 10% of AGI.
Obamacare will certainly hammer home reform, but not before hammering much of the middle class with taxes and restrictions first.
Having seen both the benefits and weaknesses of Obamacare, where do you stand? Sound off in the comments section below.
The article 5 Ways Obamacare Will Fail originally appeared on Fool.com.
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.The Motley Fool owns shares of Medtronic.
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