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5 Ways Obamacare Will Fail

Tuesday - 4/9/2013, 6:01pm  ET

Whether you're ready for it or not, the Patient Protection and Affordable Care Act, known collectively as Obamacare, is going to be fully implemented in less than nine months. The blatant rising costs of health care in this country, compounded by the successful implementation of socialized health care from our neighbors to the north, pre-empted President Obama and lawmakers to vote for change in 2010. Yesterday, in fact, I examined five ways that this bill will improve the scope of health care in this country.

However, not everyone is on board with the proposed changes set forth in this bill. In fact, the opposition has tried everything under the sun in order to get Obamacare repealed without any success.


Source: White House on Flickr

Today, I propose to turn the tables and examine five areas where Obamacare appears destined to fail.

1. Health insurers will keep most of their leverage.
If you recall, one of the key points I touched on yesterday where Obamacare is a boon for paying members is that it requires the insurance industry to spend at least 80% of its premium revenue on actual health services. This will cap the profit potential of insurers and is expected to cancel out unwarranted premium hikes under the PPACA.

Conversely, there's little in the way of fines and regulations that will ultimately stop health insurers from raising their premiums or from shocking current members with huge premium hikes in advance of the full implementation of the PPACA in 2014. Obamacare was expected to take the power of premium pricing away from health insurers and put it into the hands of consumers in a competitive marketplace, but it appears it will be more of the same even after the bill is put into action.

A perfect case in point is the complete 180 that the Centers for Medicare and Medicaid Services, or CMS, pulled on Medicare Advantage providers last week. In February, insurers like Humana and Universal American that provide Medicare Advantage -- a broader-care coverage plan for seniors that involves fewer out-of-pocket costs -- were informed that their Medicare reimbursement rates would drop 2.3%. Following weeks of rigorous lobbying to lawmakers, the CMS reversed its decision from a 2.3% reduction in reimbursements to a 3.3% increase, claiming that it changed the scope by which it expected doctor pay to fall as its reasoning. In essence, by complaining and lobbying, the insurance industry orchestrated itself a nice raise and completely debunked the premise of Obamacare, which is to reduce the reliance of private insurers on the governments' wallet.

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 , 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 , 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.

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