So while Congress “investigates” the political ramifications of targeted IRS attention, it ignores another IRS violation of law: rules for providing premium subsidies for individuals buying health insurance on a federally facilitated exchange. As the good folks at the HealthcareExchange.com blog describe the problem:

• The first problem – Lower-income individuals who would like some financial support may not be able to receive the federal subsidies despite the fact that purchasing insurance is now mandatory.
• This leads to a second issue – PPACA levies a tax/penalty on larger employers that do not offer insurance coverage to their employees as long as at least one employee receives a premium credit. Therefore, under current law, no employer in a state without a state Exchange could be issued a tax/penalty, effectively killing the Employer Mandate in those states.
• All this leads to a third challenge – Financing PPACA. Without the revenue collected by the federal government from non-complying employers, a major source of funding for PPACA is eliminated and the law is virtually unworkable. The Congressional Budget Office, for instance, estimates that penalties on employers nationwide would raise $28 billion dollars between 2014 and 2019 alone. With over half of states choosing not to operate a state Exchange, much of this revenue would not be collected.

The lawsuits have started, and shortly after the first penalty is imposed on a business in a state with a federally facilitated exchange, the lawsuits will flood the courts like the tsunami that hit Fukushima; laying bare the landscape, drowning the innocent, and resulting a nuclear meltdown of the law.

But wait, the unaffordability gets worse.

According to the Washington Times:

Internal cost estimates from 17 of the nation’s largest insurance companies indicate that health insurance premiums will grow an average of 100 percent under Obamacare, and that some will soar more than 400 percent, crushing the administration’s goal of affordability.

And there’s more.

The very people this brilliant piece of policy was meant to help may be in even more trouble when they cannot get enough work. From the Wall Street Journal:

Some restaurant operators are scaling back expansion plans because of uncertainty about the expense of insuring employees under the new federal health-care law.

The concerns are especially acute among smaller operators who are more likely to be on the cusp of the Affordable Care Act’s requirements for increased coverage of workers.

We’ll see how this all works out, but as I’ve said before, the only way Congress knows how to fix a problem (even one it created) is to create yet another government “solution.” They never realize that it was a government “solution” that created the mess in the first place.

Of all the things I learned in that class, one lesson has impacted my understanding of politics and economics like no other. Water always flowed through the path of least resistance. As I learned about economics, I discovered a natural law about money. Money is like water. Money will naturally flow through the path of least resistance. That is not to say we cannot try to redirect the flow of money (or water), just that, if left to its own devices, money will flow to the path of least resistance.

With this foundational Law of Money Flow, I was not surprised to learn that in the United States there is an estimated $2 trillion shadow economy.

Estimates are that underground activity last year totaled as much as $2 trillion, according to a study by Edgar Feige, an economist at the University of Wisconsin-Madison. That’s double the amount in 2009, according to a study by Friedrich Schneider, a professor at Johannes Kepler University in Linz, Austria. The study said the shadow economy amounts to nearly 8 percent of U.S. gross domestic product. – SOURCE: CNBC

There are many reasons why the shadow economy may have doubled during the Obama presidency. Here are just a few

Unemployment Benefits. With unemployment benefits lasting two years, for many people receiving the benefits, getting a lower paying job would not have resulted in enough income to justify foregoing the unemployment benefits. So getting any wage off the books allowed them to keep the unemployment benefits while earning additional income.

Taxes. While taxes are not high from a historical perspective, with about half of US households not paying any income tax, it is easier to avoid personal income taxes if your income remains in the shadows. No income tax liability is no resistance.

Obamacare. The much touted health care reform law imposes a number of costs on individuals and small businesses that will only work to force more money. Small businesses, to avoid certain taxes and mandates, are incentivized to not hire new workers on a full time basis. In fact, for many small businesses it may just be easier to hire people off the books to avoid Obamacare mandates and taxes. Subsidies for health insurance will provide another significant disincentive for people to earn more money.

When government puts too many barriers in the way of the flow of money like regulation and taxation, then money will find a way around those barriers. And since government only knows how to regulate and tax, the shadow economy will burst through like water bursting through a dam.

And when it does, I hope you have a life jacket.

The Obamacare meme in the news over the past few days has been the idea that the Health Exchanges mandated by Obamacare may not offer any real choice in a number of states.

Health economists predict that in states that already have robust competition among insurance companies—states such as Colorado, Minnesota and Oregon—the exchanges are likely to stimulate more. But according to Linda Blumberg of the Urban Institute, “There are still going to be states with virtual monopolies.” Currently Alabama, Hawaii, Michigan, Delaware, Alaska, North Dakota, South Carolina, Rhode Island, Wyoming and Nebraska all are dominated by a single insurance company. The advent of the exchanges is unlikely to change that, according to Blumberg. – SOURCE: Stateline

Despite the absurdly robust application process (over 900 applications) initially reported by Gary Cohen, Director of the CMS’ Center for Consumer Information (CCIIO), (he pleaded dyslexia for his mistake) the truth later came out that only about 140 carriers have applied to be on the various State Health Exchanges. The Department of Health and Human Services (HHS) knows it has a problem, too. Just last night it issued guidance to health insurers that included an extension to submit their applications from today to Friday, May 3rd. Application does not equal selection, so we’ll have to assume that, despite the extension, many of these applicants will not have products ready in time that are exchange qualified.

There is a long way to go between 140 and a dozen, but it won’t take much to get there. With the feds responsible for 27 states, the only insurance companies that will be able to compete in the long term are the very large insurers with a national scope. There is essentially no difference in the products each company can offer on the State Health Exchanges as the plan benefits are largely dictated by Obamacare, and the specifics not mentioned in the law itself, have been created in the rules already written or to be written by HHS. These rules will mean that no company will have an advantage based on product design. The only areas to compete will be on price and customer service. In other words, health insurance will become a commodity where the company that can offer the cheapest price will win.

The health insurance market will become like the small town that gets a WalMart. All the smaller carriers shut down as they can  no longer compete on price, and the larger carriers suck up all the business.

So before long the health insurance market will be reduced to just a few large carriers competing on price.

Attribution: Michael Ramirez, Creators.com

Congress did a curious thing on its way to passing the Patient Protection and Affordable Care Act. In the midst of the debate, and in an effort to keep the CBO’s scoring of the law’s budget impact below $1 trillion, they created a tax on health insurance premiums. Congress creating a tax is nothing new, but the way they did it is.

In the height of the debate, the estimated costs of PPACA could have been a deal breaker for a couple of fence sitting Senate Democrats. (I know, Senators concerned about fiscal constraint is an oxymoron, much less Democrats.) Unlike other taxes Congress creates, where Congress picks a fixed dollar amount or percentage per entity paying the tax, they said this tax should collect $14 billion per year. The amount actually varies over several years. It starts next year with $8 billion, gradually rising over time. As with any tax Congress creates, there are exceptions. For this tax there are some very specific exemptions. As an example, one of them was written specifically for Blue Cross and Blue Shield of Michigan.

Back to the tax. I was tasked with estimating the tax impact, and came up with numbers ranging from 2.2% in 2014 on up to 3% or more by 2016. I’ve seen others estimate the tax impact from 1.7% to 3.7%. There is a catch with this tax: not all medical premiums are for health insurance as defined by the law. Some employers purchase a medical plan that is self insured, which are not subject to this tax. The employer assumes the risk in this case, but oftentimes, these self insured arrangements come with a stop loss policy as well. So the employer is accepting the risk…to a point. Self-insured policies are typically a good way to reduce health insurance costs for large employers, but because of the premium tax, smaller employers are also looking into self-insured health benefits. Even my employer of only 7 people opted for self insurance one year.

Currently about half of all employer-based health policies are self-insured. Without PPACA this segment of the market has been growing, largely because it helps employers contain their benefits costs, but now self-insured benefits have an additional feature compared to fully-insured policies, they aren’t taxed! So over time, as more and more employers opt for a self-insured solution, the number of fully-insured policies will shrink, but the total tax remains the same. The tax rate for these fully insured policies will increase faster and faster as fewer and fewer employers purchase them. This means that fully insured medical policies should be put on the endangered species list.

Only Congress can fix this inequality. Unfortunately, I think they will before too long. Problem is, whenever Congress fixes something, the American taxpayer will have to pay for it

The section of the law in question:

‘‘(2) PREMIUM ASSISTANCE AMOUNT.—The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of—

‘‘(A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a  State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act,

The highlighted part is the critical piece. Section 1311 refers to Healthcare Exchanges established by the states. So if you meet the income requirements you can get a subsidy for your health insurance premium. The states that have elected to set up a healthcare exchange are highlighted in the darker blue.

SOURCE: Kaiser Family Foundation

All of the states in yellow have decided to allow the federal government to manage the health care exchange in their state. These states, and possibly the states shaded light blue, will have what’s known as a Federally Facilitated Exchange (FFE) or a Federally Facilitated Market (FFM). These FFEs are described in the PPACA in Sec 1321. The premium assistance subsidies, however, are not available to people living in states where the federal government is managing the exchange.

This is the dangerous part.

The IRS drafted rules to implement the many provisions of the law. It’s final rules applying to the tax subsidies interpreted that Congress did not intend to differentiate between state run exchanges and FFEs, and, therefore, the part of the law that refers to premium assistance applies to individuals in all states.

Under the proposed regulations, the term Exchange has the same meaning as in 45 CFR 155.20, which provides that the term Exchange refers to a State Exchange, regional Exchange, subsidiary Exchange, and Federally-facilitated Exchange.

Commentators disagreed on whether the language in section 36B(b)(2)(A) limits the availability of the premium tax credit only to taxpayers who enroll in qualified health plans on State Exchanges.

The statutory language of section 36B and other provisions of the Affordable Care Act support the interpretation that credits are available to taxpayers who obtain coverage through a State Exchange, regional Exchange, subsidiary Exchange, and the Federally-facilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges. Accordingly, the final regulations maintain the rule in the proposed regulations because it is consistent with the language, purpose, and structure of section 36B and the Affordable Care Act as a whole.

In case you didn’t catch that, the IRS made the “interpretation” that Congress intended to provide the subsidies in states with FFEs. In other words, the IRS wrote LAW. I am not a Constitutional expert, but I have not been able to find any section, clause, or phrase of the Constitution that gives the Executive Branch the authority to write law. Yet, the Obama administration has done just that.

If the People, the Congress and the Courts do not attempt to hold the Executive Branch in check, then we accept that this nation is no longer a nation based on the Rule of Law, but a nation based on who is in power.

Well, last week, on April 1st (this is not an April Fools’ prank), the Department of Health and Human Services announced that the SHOP Exchange will not be implemented until at least January 1, 2015, a one year delay.

The Obama administration plans to delay a piece of the federal health law designed to help small businesses shop for insurance policies, citing the need for additional time to prepare. – SOURCE: Wall Street Journal

This delay was predictable, we were warned last Fall:

The Department of Health and Human Services has extended the deadline for states to declare their plans for a state-based health insurance exchange for one month to accommodate many governors who were waiting until the election outcome to decide whether to move ahead. – SOURCE: Healthcare IT News

Today, concerns about enrolling individuals in a health plan are bubbling up in a number of places:

Millions will be eligible to shop for insurance in the new online marketplaces, which open for enrollment Oct. 1 with the coverage taking effect Jan. 1.

But six months before the process begins, questions are mounting about the scope and adequacy of efforts to reach out to consumers – especially in the 33 states that defaulted to the federal government to run their marketplaces, also called exchanges. The Obama administration has said little about outreach plans for those states, and neither the money nor the strategy is apparent.

“I’m getting very worried,” says Stan Dorn, a senior fellow at the nonpartisan Urban Institute, who studies outreach and enrollment for health programs. “Most health coverage expansions have not reached their target populations very quickly.” – SOURCE: Kaiser Health News

A recent vote in the Senate showed just how weak portions of Obamacare truly are:

A majority of U.S. senators recently voted to repeal an unpopular medical device tax that was folded into the Affordable Care Act.

The vote to eliminate the 2.3 percent tax on revenue generated by medical device-makers is nonbinding and won’t become law. – SOURCE: Kansas City Business Journal

Delays, opposition to specific provisions, and ineffective processes to enroll small businesses and individuals will result in a failed law. This is the worst possible outcome for America.  Congress has created many of the problems in our health care delivery system, and a it created the Abominable Obamacare to “fix” our nation’s health care delivery system. If Obamacare fails, Congress will try to fix it again. The next fix is the one I’m really worried about. The next fix will put even more focus on government “solutions” because people in government only know government “solutions.”

Like Rahm Emmanuel famously said, “You never let a serious crisis go to waste.”

Children

Under Obamacare, all health insurance policies must include a dental and vision benefit for children. For those who buy their health benefit through the state health exchanges, this child benefit for dental will be allowed to be a separate purchase. In short, it will no longer be necessary for a parent to buy dental insurance in order to cover their children. I suspect a significant number of people who currently have dental insurance will no longer opt for that benefit, especially if they do not need it to make sure their children are covered. I have previously estimated that 10 million or more adults will drop their dental coverage. Even more importantly, the purchase of health and dental benefits through the exchanges will convert the market to a more individual based market, as opposed to the current group-based market.

Spouses

In addition to separating children from their parents, many of the taxes imposed by Obamacare will encourage employers to drop insured spouses.

By denying coverage to spouses, employers not only save the annual premiums, but also the new fees that went into effect as part of the Affordable Care Act. This year, companies have to pay $1 or $2 “per life” covered on their plans, a sum that jumps to $65 in 2014. And health law guidelines proposed recently mandate coverage of employees’ dependent children (up to age 26), but husbands and wives are optional.

Some “experts” are predicting trauma for couples who are forced to seek separate health insurance coverage.

Couples then have to decide whether to stick together, even if it means losing benefits, or to split up so at least one spouse maintains coverage. If they separate, they may also have to choose which plan to insure the kids under, or whether to use different plans for each. “It certainly makes the family unit have to do some real soul-searching and figure out what works best for them,” says Karen McLeese, vice president of employee regulatory affairs for CBIZ Benefits & Insurance Services. The decision, she adds, will likely come down to dollars and cents.

I don’t know how families will juggle this separation of benefits, but for some, this will clearly be a point of familial angst.

One of the goals of Obamacare is to provide access to primary medical care for all Americans. The costs of Obamacare, however, prevented Congress from also implementing a basic dental coverage in the Essential Health Benefit. They did manage to include a children’s dental benefit, though. The Chicago Dental Society issued a report last week that highlighted the dismal state of access to dental care for the city’s neediest.

The Chicago area’s dental safety net — the oral care it provides to underserved patients — “is in the midst of collapse.”

From 2006 to 2011, more than a quarter of the region’s low-cost dental clinics were shut, according to a 30-page white paper released Thursday by the Chicago Dental Society. The report details how the local availability of dental treatment has declined for the neediest patients, leading to what one dentist calls a “perfect storm of an oral health crisis.”

It’s awful, I know. But there was a statement by the lead author that caught my attention. Discussing the priorities individuals give to their dental health, Dr. Susan Becker Doroshow had this to say,

When people are strapped financially, they take away the things from their budget they think are the easiest to postpone.

Well, this economic principle is going to permeate our society under our new health care delivery regime.

Most of the adults without health coverage today are young adults. They typically choose to not get health insurance because they are young and healthy and insurance plans do not provide enough value to this cohort given the cost of premiums. The irony of Obamacare is that it will actually INCREASE premiums for this group of people

Insurers point to several reasons that premiums will rise. They will soon be required to offer more-comprehensive coverage than many currently provide. Also, their costs will increase because they will be barred from rejecting the sick, and they will no longer be allowed to charge older customers sharply higher premiums than younger ones.

SOURCE: The Washington Post

Doesn’t make sense, does it?

So to bring Dr. Doroshow’s comment back into the mix,

• The people who have the least amount of disposable income will have even less after Obamacare is fully implemented.
• As a result they will cut back on the things that can be postponed easiest
• Dental care can identify other health problems and is one of those things that will be cut
• People will go without treatment longer, making the cost of care (dental and health) even greater.

Is that what they intended when they wrote this behemoth?

As I have predicted before, when it comes to getting quality medical care under our new Obamacare world, cash will be king. Here is an example in my own back yard.

Dallas doctor switches to hybrid concierge care

Dr. Connie Casad thinks she has found a better way.

The Dallas gynecologist transitioned her practice in August from the traditional model to a hybrid concierge model. The new approach gives choices to patients who want a concierge-style of medicine, but doesn’t force the physician’s longtime patients to find a new doc.

SOURCE: Dallas Business Journal

What’s really interesting about the business model Dr. Casad has implemented is found deeper in the article:

In Casad’s case, she has added a physician assistant to manage most of the day-in/day-out appointments and wellness checks. That allows her to spend more time with concierge patients so she can truly educate them, rather than sending them on their way with a prescription in their pocket but no long-term plan, she said.

Got that?

If you are paying with insurance, you get the physician’s assistant. Pay an annual fee of $1,800 beyond what your insurance will pay, and you get to see the doctor.

In the future of healthcare, Cash is King!

It goes like this:

1. Employers are NOT penalized for not offering health benefits to part time employees
2. Employers drop part time employees health plans,
3. As they discover the savings, employers will find a way to reduce hiring of full time employees and reduce full time employees to part time hours.
4. The financial advantages to hiring part timers becomes evident to employers and so their reluctance to hire full time employees grows stronger.

There have be a few high profile cases of  employers dropping benefits for part time employers, here is another:

Universal Orlando plans to stop offering medical insurance to part-time employees beginning next year, a move the resort says has been forced by the federal government’s health-care overhaul.

The giant theme-park resort, which generates more than $1 billion in annual revenue, began informing employees this month that it will offer health-insurance to part-timers “only until December 31, 2013.”

The reason: Universal currently offers part-time workers a limited insurance plan that has low premiums but also caps the payout of benefits. For instance, Universal’s plan costs about $18 a week for employee-only coverage but covers only a maximum of $5,000 a year toward hospital stays. There are similar caps for other services.

Those types of insurance plans — sometimes referred to as “mini-med” plans — will no longer be permitted under the federal Affordable Care Act. Beginning in 2014, the law will prohibit insurance plans that impose annual monetary limits on essential medical care such, as hospitalization, or on overall spending.

SOURCE: Orlando Sentinal