My Take on Obamacare

So much BS is flying about over the Obamacare issue that I can?t resist the temptation to put in my two cents worth.

There was no chance this was going to work on day one, and I warned senior administration officials as much on many different occasions. Even the Massachusetts health care plan only saw 100 sign ups in the first month, and it was supported by both parties.

The fatal flaw? They believed the website developer, which anyone who runs on online business, such as myself, will tell you, is a great way to ruin your life.

The truly shocking revelation is that the lead development contract was handed out to a Canadian company. Hey, we out here in Silicon Valley have web development companies! One wonders why the government didn?t hand the whole project over to Google.

While the administration has applauded the millions who rushed to sign up in the early days, I believe that the headline we will see in six months or a year is that almost of them were already sick and uninsured, with diabetes, hypertension, or even cancer. Why the rush?

The government is essentially attempting to create 50 Amazon?s overnight with the many state insurance exchanges. It took Amazon, itself, 20 years to create just one Amazon, and that?s with my old friend, the brilliant Jeff Bezos, calling the shots and taking huge risks.

Having worked with the US military for 40 years, I can tell you that the government never throws anything away, not old tanks, old fighters, old weapons, and yes, old software. I can?t tell you how many times I jumped into a Navy or Marine cockpit, looked at the instrument panel, and said to myself ?You?ve got to be kidding. This thing belongs in a museum.?

For example, the B-52 Stratofortress intercontinental bomber, which was first designed in 1946 and built in 1952, is not scheduled for retirement until 2050, when it will be nearly 100 years old. Thank goodness for preventative maintenance!

So it is no surprise then to hear that the root of Obamacare?s software problems lies with its inter platform communication. ?Some of the software is brand new, some is 10 years old, and some 20 years old, and custom written by programmers who are probably dead by now. But it all has to talk to each other to function. Good luck with that!

Health care accounts for 12% of our GDP, or about $2 trillion, and employs about 18 million people. That amount of money generates gargantuan fees for lobbyists to maintain the gravy train for the private companies who run the system. This is an industry that has been sheltered from competition until now, which is why costs have been running away for 30 years.

As a result, virtually all information about Obamacare disseminated by the media is inaccurate.? You see kids being interviewed on the street asked how much more they will have to spend on Obamacare compared to no coverage at all, and the figure comes to about $2,500 a year.

This is for kids who make $30,000-$40,000 a year. It is a big hit to be sure. But no one asks what will happen if they get hit by a car, or fall off their skateboards. That?s because there is only one answer: go to county hospital, and then file for bankruptcy. Still, most will end up paying the first year fine, which is $85.

This week?s talking point, manufactured by political consultants working in ill lit rooms for unknown companies funded by anonymous donors, is about the millions of cancellation letters that have been sent out by insurance companies individual alarmed private policyholders. I have read a few of these letters.

It turns out that the insured in question had bargain basement policies that really didn?t cover them for anything. They don?t find this out until they try to make a claim, which then gets denied. By setting new, higher standards to fit in the round holes of the public exchanges, the government is forcing the providers to raise the quality of care or quit the business, which they are doing in droves. Somehow, Obama was supposed to know they were going to do this when the law was written five years ago.

The policyholders don?t know this because they have never read their own policies, and are unaware of what the government plan offers. They are having to comparative shop for health care for the first time in their lives, and they don?t like it. Most just paid up for the annual price increases without question.

The alternative, of course, is to then go out and get an Obamacare policy, which offers more care at a cheaper price than these cancelled policies. Yes, it is true that polices in rural constituencies may cost more. But that?s as it should be. It always costs more to provide service in the middle of nowhere than it a city.

There has been a lot of hand wringing about the higher cost of Obamacare policies. Everyone I have talked to here in California is seeing a savings of about 50%. A part time schoolteacher friend of mine was just given notice that her Blue Cross policy was doubling from $200 to $400 a month. She then went to https://www.healthcare.gov and got a better, more comprehensive policy for $220 a month.

Finally, I have had no insurance for six years. I loyally paid $500 a month into Blue Cross for one of their high-end policies for 20 years. When I shifted coverage from one of my companies to another to get a tax benefit, I was told I had to file as a new applicant. What was my new rate? $3,500 a month. So I asked to restore my old coverage. Blue Cross said no, because I had pre existing conditions. What was my pre existing condition? I was then a 55-year-old white male.

So I called around to find out what my health care actually cost. A broken leg ran $50,000, while a heart attack was $250,000. But if I paid cash, they would cut the bill by half. So I told Blue Cross to get lost. My total health care costs have run about $500 a year since then, mostly for bandaging my sore feet from 50 miles a week of mountainous backpacking and an annual commercial pilot?s physical. I reckon that I am one heart attack ahead of the game by now.

Now Obamacare is requiring me to get health insurance once again. If I don?t sign up, the fine is 1% of my gross income in the first year, and 2.5% in the second. Oops! Don?t want to go there! I?d end up buying the government a new hospital every year. So I signed up for Obamacare. Their lowest level ?Bronze? plan will cost me $235 a month. That I can handle.

The Affordable Health Care Act will probably bring more positive changes to the US economy since the slaves were freed in 1863. As with Thomas Edison?s introduction of electricity, Steve Job?s personal computer, and Tim Berners-Lee?s World Wide Web, its impact will be so broad that it is impossible to predict the ultimate impact.

For sure, it will allow US companies to get out of the health care business once and for all, which has left them at a globally competitive disadvantage for decades. This is why Fortune 500 CEO?s have been conspicuously mum on the issue.

You can bet that the next time your firm has a bad quarter, they will cancel your Cadillac plan to cut costs, boost profits, give you the https://www.healthcare.gov website address, and say ?Good Luck? (click here to see if you can open it. You should).

In any case, the premiums on company provided plans costing more than $10,000 a year are now taxable as ordinary income. I know from my own experience that investment bank and oil major plans cost over $25,000. So goodbye to another tax free benefit.

There will be other momentous changes. Innovation and streamlining of the health care industry is accelerating at an exponential pace as companies, spurred on by competition for the first time, rise to the challenge. We, as the consumers will only benefit, with lower costs for a higher quality product.

The new plan will create 2 million new jobs, and add 0.5% a year to US GDP growth. That assumes that the same number of people are used to provide care that we currently see, or one health care provider for every 15 people.

The great misperception about Obamacare is that it is government provided health care. It has not taken over the hospitals and required doctors to go to work for it, as has been the case in Europe. The government is only facilitating the exchanges, much as it has already done for the stock and commodity exchanges through the SEC and the CFTC, and then paying for the poorest participants.

If you took the name ?Obama? out of Obamacare, you would think that it was a program designed by the Republican Party. Free market capitalism, competition, and open exchanges are supposed to be what they are all about. Obama is only giving them what they have been asking for during the last 30 years, and was already implemented by a Republican governor in Massachusetts, Mitt Romney. Maybe if it were called Obamacare on the coasts, and ?Tea Party Care? or ?Cruz Care? in the Midwest and in Texas it would be less controversial.

Every industrialized country already has national health care. They have been able to limit the growth of health care?s share of their economy to only 8% of GDP, compared to our 12%, but enjoy life spans 5-10 years longer. They had the wisdom to do it when it was cheap in the late 1940?s and early 1950?s.

Unfortunately, the US suffered from fears of a communist takeover then and was undergoing the McCarthy hearings, so there was no chance of adopting socialized medicine. We are supposed to be the smartest people in the world, so we have a better shot at making this work than anyone.

There is a huge investment story here. The health care industry is about to get 30-40 million more customers with government guaranteed payments. This is one of the best free lunches granted to any industry in decades and will be great for business. This is why I have been recommending the Health Care Select SPDR ETF (XLV) since the summer, recently one of the market?s top performing sectors.

Anyone who knows anything about the mathematics of insurance exchanges, such as Lloyds of London, already knows that Obamacare is going to work. Yes, it is possible to insure more people for less cost with the per capita burden carried by a greater number of people. This is why insurance is one of the oldest forms of commerce, originating in London in the mid 17th century, back when they still had to deal with the black plague.

Competition should reign in health care costs. As it matures in a decade or so, Obamacare will become actuarially sound and cost the government nothing. The payoff will be lower overheads and higher profits for US corporations. This is probably what the stock market is trying to tell us by going up almost every day. Since the Obamacare launch on October 1, stock S&P 500 (SPY) has tacked on an astonishing 5.5%, in what is historically a terrible month for stocks.

Obamacare distills down individual policies to plain vanilla securities, which can be traded like stocks, sucking in capital at market prices, much like the derivatives markets do today. You can bet that Wall Street will soon get in on the act as well. They will rapidly introduce hedging strategies, customized securitizations, and even ETF?s, so risks can be laid off here and abroad, creating new profit streams. In a decade the health insurance markets will become unrecognizable and far more efficient than they are today.

I don?t side with either party on this issue. A pox on both their houses. I?m on my side first, then your side, as a paying reader. Hence, this analysis. Overall, the plan is brilliant.

In fact, I wish I had thought of it first.

Bitch all you want about Obamacare, but it?s here to stay. In the meantime, I?m going to make hay why the sun shines, and stay healthy.

XLV 10-30-13

SPY 10-30-13Is There a Connection With Obamacare?

 

Obamacare siteMore Than Meets the Eye