In the dust of the Tea Party standoff with the Progressives, the implementation of Obama
healthcare Care appears unstoppable.  In the coming days, months and years, we will witness first hand which economist; Adam Smith or John Maynard Keynes was correct.  And we will pay the price or reap the reward. 

In the initial roll out of ObamaCare, we see how challenging managing 20% of the US economy can be.  From a technical point, the challenges of the website will eventually be overcome, however, the ability of the government to efficiently manage anything so large and complex will plague the Affordable Health Care Act for years to come. 

Despite rampant fraud and inefficiencies, the government through cost shifting, has been able to deliver medical care near competitive rates.  Cost shifting occurs when large customers, in this case the government, uses their size to drive down “their” cost.  Another cost shifter are indigent patients.  To the extent that reimbursements are driven below market, providers increase their price to the public and insurance companies – the hidden subsidy.  The ability to cost shift will be limited as the government consumes more of the market.  The elimination or reduction of cost shifting is how advocates justify savings and opponents warn of exploding cost.

If we ignore the challenges of efficiently managing so much of the economy and we ignore the effect of cost shifting, Obamacare has the challenge of defining what “acceptable” medical coverage is.  During WWII the progressives enacted price wage freezes to keep inflation at bay during hyped up government spending to support the war effort.  As an unintended consequence, industry started to offer health care in lieu of increased wages to attract employees.  And thus the genesis of employer provided health care.

As time passed, health care cost became more and more expensive.  The increase in cost is the result of removing the consumer from the purchasing process, but this debate is for another day.  In order to keep cost in line companies engaged in cost sharing with their employees and policy design.  A careful balancing act has been managed by industry to offer enough coverage but exclude costly items.  Large companies much like the government are able to shift some of their cost to smaller weaker consumers and thus offer richer plans.  But no matter who you work for in industry, most employees have seen their pay cut from increased cost sharing (from zero to 20%) and reduced coverage. 

As part of the ObamaCare legislation the government has defined what is acceptable in a medical plan.  Unfortunately, as with all well intended progressives, their desires to cover everything exceeds most pocketbooks.  We are already seeing this in the private insurance market.  Individuals weighing cost with coverage, opted for plans that are less rich than the new government standards.  There is no doubt that there does need to be standards established.  Some plans calling themselves insurance definitely fall short of any rationale person’s definition.  But there is a big chasm between pseudo coverage and government standards. 

Today, we see several thousands of private policies being canceled because they do not meet the new government standard.  The new plans, because they are richer, cost more.  The question is, does the consumer value the new features and more importantly, can they afford them?  Companies, like individuals, have been making this tradeoff between cost and coverage for years.  So will their plans meet the test?        

When it comes to large corporations who have benefited from cost shifting, there will probably be little impact initially.  But for small and midsize companies, where most of America works, the increase to government standards may be too much for them to shoulder.  The current penalty for a company who does not offer coverage is 2,000 – 3,000 per year.  The current cost to cover a single employee averages 5,000 and 15,000 for a family.  As health care cost increase due to mandated plan changes, small companies will be forced to analyze the cost of meeting the mandate vs. the penalty.  The exchanges with their subsidies offer a false alternative to employer provided coverage.  Over time, more and more companies will make the decision to stop offering coverage.  This will become the “Great American Pay Cut”. 

The pay cut will occur gradually, not suddenly, as companies struggle with cost containment.  Because it will occur gradually and to small groups of people, the public outcry will be muffled.  This is not a partisan attack but instead a realization of economics.  The Progressives will undo their unintentional “gift” of employer paid health care and provide America the “Great American Pay Cut” in their attempt to solve inequality. 

Even John Maynard Keynes, the progressive’s economic juggernaut, realized that the invisible hand is hard to advert when in his waning days he observed “I find myself more and more relying…on the invisible hand (Adam Smith) which I tried to eject from economic thinking twenty years ago”.

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