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October 15, 2013

The ObamaCare Death Spiral and Britain's NHS, Coming to an American Town Near You

First up, via @benk84, who spends his mornings Bringing It and then Brings It in the afternoon as well, a former NHS director has died after her operation was cancelled four times. (Note: A commenter alerts me that this article is from two years ago. I missed that, but it's still a useful point. Let's call this a "flashback.")

I'll say one thing for the NHS: At least it traps its Ruling Class in its baleful machinery, as well as the smallfolk.

Margaret Hutchon, a former mayor, had been waiting since last June for a follow-up stomach operation at Broomfield Hospital in Chelmsford, Essex.

But her appointments to go under the knife were cancelled four times and she barely regained consciousness after finally having surgery.

Her devastated husband, Jim, is now demanding answers from Mid Essex Hospital Services NHS Trust - the organisation where his wife had served as a non-executive member of the board of directors.

He said: 'I don't really know why she died. I did not get a reason from the hospital. We all want to know for closure. She got weaker and weaker as she waited and operations were put off.'

There's some irony there, of course. But there's more irony coming.

Megan McArdle, meanwhile, writes that the poor implementation of ObamaCare will increase the likelihood that it not only destroys itself, but, more ominously, the entire American health insurance industry.

Here's why. ObamaCare relies upon hidden taxes to pay for the insurance for the poor. They avoided a direct tax because they didn't want the public to see it. Instead, ObamaCare has been sold as "only" imposing a cost of $340 billion (over ten years) on America.

This is a lie. Not only will that direct cost be 2 or 3 times as high, in reality, but that acknowledged cost is only part of the taxing mechanism to pay for insurance for the poor.

The other mechanism is, of course, forbidding insurers from imposing high costs on those who have already become sick and need their medical bills paid for by a third party.

Now, how can an insurer "insure" against not a risk but an actual fact? That is, it's one thing to insure against a 1-in-1,000 risk that any healthy adult will become seriously ill in a year and rack up medical costs in excess of, say, $100,000. It's fairly cheap to do that, as the $100,000 cost (let's say) only costs $100 per year to insure against ($100,000 cost at a 1-in-1000 rate equals an expected cost of $100 per person; add in overhead and salaries and profit and such).

But what if the odds of someone becoming that expensively sick are not 1 in 1000, but rather 1 in 1? Well then the cost of carrying that person's medical bills is simply the full $100,000 -- plus overhead, salaries, and profit. Ah, forget profit. There will be no profit here. This is straight-up loss.

Now, if insurance companies were simply forced to pay for non-customers' health care bills, they'd simply go bankrupt. So instead, what they're allowed to do -- demanded to do, actually -- is jack up rates for the healthy in order to underwrite the costs of the sickly.

But note that that hidden subsidy -- the carefully hidden tax in ObamaCare -- only brings in money if the young and healthy actually enroll, and pay those exorbitant not-so-hidden taxes on their health insurance.

McArdle has a fear or possibly a prediction: In addition to the straight up undo economic burden of carrying health "insurance" -- where you're now not just insuring yourself, but straight-up paying for the uninsurable, and it's all hidden in the new improved Skyrocketing Rate Structure imposed by your insurer (but really imposed by Obama) -- the massive difficulty and frustration of actually signing up for this economically-ruinous boondoggle will further discourage the young and healthy from entering the system to subsidize the older and sicker, thus exposing not only ObamaCare to failure, but the insurance companies themselves to bankruptcy.

If the exchanges don’t get fixed soon, they could destroy Obamacare -- and possibly, the rest of the private insurance market. The reason that the exchanges were so important was that they were needed to attract young, healthy people into the insurance system. The worry was that if insurance is hard to buy -- if you have to do your own comparison shopping and then call the insurance company, and fax in some paperwork and two years of tax returns -- that the young and the healthy simply won’t do it. Sick people and old people who were getting huge subsidies -- and maybe the ability to buy insurance on the private market for the first time in a long while -- would overcome any obstacles, because if you’re spending $15,000 a year on health care, it’s worth a lot of your time to make sure that you have insurance. But if your biggest annual health-care expense is contact lens solution, you may just decide to skip it and pay the fine.

The administration estimates that it needs 2.7 million young healthy people on the exchange, out of the 7 million total expected to apply in the first year. If the pool is too skewed -- if it’s mostly old and sick people on the exchanges -- then insurers will lose money, and next year, they’ll sharply increase premiums. The healthiest people will drop out, because insurance is no longer such a good deal for them. Rinse and repeat and you have effectively destroyed the market for individual insurance policies. It’s called the “death spiral,” and the exchanges, like the mandate, were designed to keep it from happening.

Without the exchanges, the death spiral seems almost assured.

@johnekdahl also notes that Obama, by demanding that insurance cover "kids" up to 26 years old on their parents' plan, has further depleted the the number of young and healthy enrollees from its subsidy-farming operations.

Andy (@theh2) notes this:

One more thought along those lines: the pre-existing condition bar means insurance companies can't deny coverage. But to keep people from opting out of insurance and waiting to get coverage when they're sick they're forced to pay a penalty (that's a tax -- CJ Roberts).

Is that penalty paid to the insurance companies to make them whole for the impact of adverse selection driven by the plan design? Hell no, it goes to the government.

The insurance companies cut their own throats when they signed onto this.

McArdle argues that if this thing is to work at all -- something she doubts even under best-case circumstances -- it is absolutely necessary to delay ObamaCare in order to reboot it.

But of course the Democrats will not permit that.

So there's the final irony: ObamaCare itself contains its own Death Panel. And the Bureaucratic Overseers of the Death Panel that will euthanize ObamaCare are Barack Obama, Kathleen Sebelius, Harry Reid and Nancy Pelosi.

By the way, McArdle's piece contains far more than I've excerpted, and I suggest you Read the Whole Thing.

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posted by Ace at 04:02 PM

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