The IRS scandals have definitely re-invigorated skepticism of Obamacare, especially considering the fact that the IRS will have a pretty big role in its implementation. Who is comfortable with an agency that engages in blatant political targeting being involved in our healthcare? But that’s just a tactical question. A more fundamental reason to be skeptical is its effect on small business. Reason’s ‘Hit & Run’ blog just posted an excerpt of an email that circulated at Capterra, a Virginia small business that is grappling with how to deal with escalating healthcare costs:
We’re considering a switch from CareFirst to United because CareFirst is increasing their rates by 28%. We may be able to switch to United without any increase in our premiums for the next year; our insurance guy will confirm this over the next couple weeks.
The email then goes on to explain the implications of the change, one being that some doctors may not accept United insurance. Keeping the same plan, of course, means that employees will need to pay a larger portion of the bill, and the company will have less money available for raises, new hires, and the like. The email goes on to lay out a number of options and to solicit opinions from the staff. It also provides some context about how we got here, and serves as a good reminder about hell and good intentions:
Back in the 1940s, our federal government enacted wage controls that restricted what some businesses could pay their employees. (There were smart people who spoke out against this terrible idea but unfortunately not enough.) This resulted in businesses looking for other ways to compensate their employees and the IRS decided that it would not treat benefits such as health insurance as taxable wages. Until then people generally paid medical fees out of pocket in the same way they paid for virtually anything else out of pocket. The fees up until were relatively small for two reasons: 1) medicine was not very advanced so when something catastophric happened there was not often much that could be done to help the patient and therefore no huge expenses were incurred and 2) since people were paying their doctors directly it was a very efficient and fair market.
So 70 years later, even though the wage controls thankfully disappeared, the IRS treatment of health insurance did not. Health insurance benefits continue to not be taxed as income. At first glance by the uninformed citizen (such as me until a few years ago), this appears to be a good thing. But in reality it is actually a terrible thing.
Why is it terrible? There are a lot of reasons, but the most important one is that we become detached from the actual costs. We have little to no incentive to consider price, and therefore prices go up – imagine how different the contents of your grocery cart might look if you paid a fixed price every week. These problems, of course, predated Obamacare. However, Obamacare does make the problem go from bad to worse by mandating coverage of things like acupuncture, chiropractic, weight loss surgery, and infertility treatments. Perhaps these are worthwhile things to cover, but they are expensive. One of the most expensive additions, however, will come from mandated coverage of preexisting conditions. The email from Capterra summarizes the problem nicely:
one big reason that our rates are skyrocketing is that it is becoming illegal for CareFirst and all other health insurance companies to deny someone with a preexisting condition. What insurance provider in their right mind would cover someone new who say, just contracted flesh eating bacteria, for example? It’s the equivalent of a home insurance provider accepting a new customer whose house was already burning down.