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home | Tea Party Economist | The Magnificent Failure of ObamaCare

The Magnificent Failure of ObamaCare

Gary North - January 06, 2014
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From the point of view of a defender of liberty, ObamaCare is the most magnificent welfare state program of our generation.

Premium expenses are going up for most people. Deductibles are going up for most people. Cancellation letters are going out to millions of people. The number of people signing up is less than the number of people who have received policy-cancellation letters. In short, the costs are being front-loaded, and the benefits are being back-loaded.

Always before, welfare state politics has been based on a specific strategy: "Benefits first. Costs later." This is called front-loading and back-loading. The best examples of this process are Social Security and Medicare. The costs are now coming due for these two programs. According to Prof. Lawrence Kotlikoff, the back-loaded cost of the two programs is now in the range of $200 trillion, present value. But no one really cares. Those costs will be imposed in the future. Politicians care only about the immediate future, namely, the next election.

The politicians come to the general public, and they promise that the state will intervene on the side of the middle class. The state will do so also to help the poor. The costs will be borne exclusively by the rich. Politicians are careful never to define how much money is going to be paid by the middle class, especially the upper-middle-class. This is always kept secret. The assumption is that only the wealthy will pay for the benefits that will be given to the middle class and the poor.

Then, step-by-step, the costs are imposed over years. There is a kind of definition creep involved. More and more of the middle class is defined as being rich. This is never made public. But it does become operational when the tax bills come due.

The way around this has been to increase the amount of borrowing by the federal government, and by other agencies of state and local governments. But, primarily, it has been done through the federal government.

In order to keep interest rates low, the Federal Reserve System intervenes in order to create money out of nothing, in order to purchase the IOUs of the United States Treasury Department. This conceals the extent of the cost of the welfare state programs that have been passed into law by an enthusiastic Congress, and supported by an enthusiastic electorate.

By front-loading the benefits, and by back-loading the costs, the politicians have extended the welfare state to encompass virtually every area of life.

ObamaCare is the exception. ObamaCare is front-loading the costs, and it is back-loading the benefits.

That is the nature of all insurance. Insurance programs force you to pay for the coverage now. You will receive the benefits later, if in fact you become eligible by means of some disaster in your life. Whatever you have insured against takes place, and you receive payment from the insurance company.

In this case, however, the costs of insuring the poor must be borne by people who buy the policies now. The poor cannot be excluded because of prior conditions. So, this is not insurance; this is a welfare state program, pure and simple. But it is being covered by the illusion that it is, in fact, an insurance program.

People who have pre-existing conditions that exclude them from getting insurance in the free market are rushing to sign up for the welfare program. People who are generally healthy, meaning younger people, are not rushing to sign up. They don't want the program. They have been outvoted. They had not understood that they are the targets of the program. They do not understand the economics of health insurance, when coupled with the economics of ObamaCare, have made them the big losers. They are not rich. They are barely middle class. But they are the ones who are going to pay the freight for the poor people and the old people who are sick and cannot get insurance.

The front-loading is taking place today, in a congressional election year. The pain will be imposed on middle-class voters and younger voters prior to the election. It will build all year long.

The subsidies come in the form of tax credits, but half the voters do not pay income taxes. So, they will get no relief. Supposedly, the government will pay for any increased costs of their insurance policies. This will prove to be an illusion. It is a poorly timed illusion from the point of view of the Democrats, and a magnificent illusion from the point of view of the Republican Party. The Republican Party voted across the board against the program. So, it took a position in 2010 that it would front-load the cost and back-load the benefits.

In 2010, the liberal media piled on the Republicans, calling them heartless opponents of the poor and the weak. In 2012, this proved to be an ineffective attack on the Republican Party. In 2014, the costs are being imposed directly, and the Republicans have escaped the political liability. We now see Democrats running for cover. All of a sudden, ObamaCare needs delays. All of a sudden, ObamaCare does not look like such a good idea.

Because of the timing of the increased premium costs, which are coming this year, the traditional back loading strategy has hit the Democrats right between the eyes. It took too long to get from the promise, which was made in 2010, and the benefits, which are only appearing this year. But the benefits are being extended only to people at the margin. They are people who almost certainly would have voted for the Democrats anyway. Meanwhile, the costs are being imposed on voting groups, especially young adults, who tend to vote for the Democrats, and who are now caught by the details of the law that Nancy Pelosi said Congress would not be allowed to read until Congress voted for the bill. Congress voted for the bill, and now the targeted losers are finding out just how large the bill really is. They're finding this out in an election year.

Because of the unique situation in which all Republicans voted against the bill, it is now possible to gain political acceptance by Republicans for the principle of the repeal of ObamaCare. That will have to require the election of a Republican president and Republican majorities in both houses of Congress in 2016. If, as expected, Democrats lose ground in the Senate in 2014, the scene will be set for a complete repeal in 2017.

The ability of Republican moderates to get a replacement program is minimal. There will be domestic opposition from the Tea Party movement. But there will not be opposition by the Tea Party movement to repeal. So, it will be much easier to repeal ObamaCare than it will be to get a Republican substitute. This has not happened before. Always before, some Republicans voted with the Democrats on particular welfare state programs. Unified opposition across the board has not happened before. But it happened this time. This makes ObamaCare unique.

Democrats insist that once the program gets rolling, a majority of voters will support it, and Democrats will be re-elected. This is Harry Reid's position. He has stated clearly. This is the position of the mainstream media. They are hoping, though of course not praying, that there will be enough beneficiaries on the rolls to offset the losers who had their policies canceled, their premiums increased, and their liabilities increased. So far, this hope is an illusion.

The horror stories are going to begin very soon. These horror stories will be people who have had their deductibles increased, and who are hit by a medical bill. They will find out that the deductible must be paid every year. If they get hit by a multi-year disease, they will pay these high deductibles every year from now on. The political pain will be intense. While the mainstream media may not feature these stories, there will be lots of them on the alternative media. Horror stories gain readership. These are human interest stories. There are going to be thousands of them every year.

Again, the Democrats have made a mistake. They have voted as a party in favor of a program that has front-loaded the costs and back-loaded the benefits.

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