Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


A Few Things That You Need to Know about Obamacare

The media has done an extremely poor job of reporting on Obamacare, I suppose largely because reporters, like most others, do not understand the program. Therefore I’ll mention a few things that both investors and average Americans need to know about Obamacare here.
The most critical fact about Obamacare that everybody should understand is that it is not a national health insurance program like Medicare, Canadian Medicare or the British National Health. Instead, Obamacare is best understood as a series of subsidies and penalties designed to extend the existing health insurance system in the United States to cover all Americans. It seeks to extend private health insurance to all working Americans and government programs to all of the poor.

That being said, Obamacare will have profound effects upon all Americans that investors and businesspeople in particular need to understand. Some of the major effects include:

  • The Obamacare penalty will increase by around 250% for the 2015 tax year. The penalty is actually a tax increase designed to force middle and working class Americans to buy health insurance or take jobs that offer health insurance. This will be a boon for health insurers like UnitedHealth Group (NYSE: UNH) and for tax preparers like H&R Block (NYSE: HR) as well as software solution providers like Intuit (NASDAQ: INTU). This will undoubtedly have some political effects next year.
  • The state and federal health insurance exchanges that are supposed to provide working and lower middle class people with subsidized health insurance are not working. They’re cumbersome, poorly designed, and hard to use. They also offer a very poor selection of health insurance plans and frustrate even fairly intelligent Americans that try to use them. Public anger against these bureaucracies is growing and will get worse.


  • Republicans love Obamacare and have no desire to see it go away anytime soon. The GOP likes Obamacare because it gets them lots of votes. The public hates Obamacare, which is the major reason why the Republicans are now in control of both houses of Congress. Obamacare is the best issue the Republicans have, in some cases the only issue. Basically, the Republicans are so far off from the American mainstream of opinion now that they need to latch on to any issue that gets them votes. Expect to see lots of Republican attacks on Obamacare but no real efforts to dismantle it.


  • Medicaid is the Achilles’ heel of Obamacare. Medicaid, the federal health insurance program for the poor, is what will destroy Obamacare. Basically, Medicaid is a federally funded health insurance program that is administered through the states. Some states want it, and others do not. One key aspect of Obamacare is a massive expansion of Medicaid (in reality, an attempt to expand the number of state government bureaucrats and the number of likely Democratic voters). There is little or no political support for this and a lot of anger about how the Democrats are trying to pay for it by taking money from Medicare—the federal health insurance program for senior citizens—and federal programs that fund hospital operations. Political battles within state governments and the state and federal governments have already erupted over this, and they will get worse. Congress will have to deal with this issue sooner or later, whether it wants to or not.


  • Obamacare is a job killer. The Obamacare requirement that any business with more than 50 fulltime employees provide health insurance is a job killer. It gives businesses a strong incentive to utilize alternatives to new hiring, such as automation, outsourcing, contract labor, illegal immigrants, having existing employees work overtime, etc. Politicians will have to address this issue if they want economic opportunity for average Americans, particularly in an age of growing income inequality.


  • Obamacare has had some beneficial effects upon the economy. Pharmaceutical houses, drugstore companies, health insurance companies, and large retailers that operate pharmacies and in-store clinics do benefit from it. UnitedHealth Group’s revenue increased by nearly eight billion dollars between December 2013 and December 2014. In December 2013 UnitedHealth reported a TTM revenue of $122.49 billion; in December 2014 it reported $130.47 billion. Drugstore operator and prescription servicer CVS Health (NYSE: CVS) saw its revenues grow by more than $12 billion in the same period; CVS reported a TTM revenue of $126.76 billion in December 2013 that grew to $139.37 billion in December 2014, and mega grocer Kroger (NYSE: KR), which filled 164 million prescriptions in 2013, saw its TTM revenues grow by over $10 billion between January 2013 and January 2014. In January 2013 Kroger reported a TTM revenue of $98.38 billion that increased to $108.47 billion one year later.


  • Obamacare is not expanding the healthcare system or health coverage, because it does not address a serious shortage of healthcare professionals. Nor does it do anything to extend healthcare infrastructure to service a large percentage of the population. Large companies like Kroger, Walmart Stores Inc. (NYSE: WMT), and Walgreen (NASDAQ: WBA) are trying to address this growing crisis, but government is not.

All this being said, Obamacare is a very poorly designed and highly ineffective program that will fail. From what I have seen of it, it is clear that those who designed Obamacare have no real understanding of the realities of American business, economics, healthcare, and insurance.

The program is completely unrealistic, and in my opinion, it will collapse. One possibility is that it will flounder on widespread popular opposition and resistance much as Prohibition did in the 1920s. What happens when tens of millions of Americans simply say I’m not buying health insurance and I’m not paying the tax penalty—what then? Does the IRS have the resources to track down and prosecute all those people?

I also predict that Obamacare will become so unpopular that many Democrats, including major figures like Hillary Clinton, will turn against it at some point. If Hillary really wants to be president, she should start bashing Obamacare every chance she gets now.

So what should America do about health insurance? My suggestion is that it is time for Americans to grow up and join the rest of the world by setting up a real national health insurance system that pays for basic healthcare for all citizens.

The easiest way to do this would be to allow all Americans to participate in Medicare. That would free business from the burden of providing health insurance to employees and increase the level of employment. It would also reduce costs by eliminating the need for expensive Medicaid bureaucracies in each of the 50 states. Instead, the poor could simply participate in Medicare for a low premium or no premium; others would pay more based on their income.

Such a solution is coming sooner or later. It’ll take time, but keep in mind a quote from a great man who was half-American:

“You can always count on Americans to do the right thing—after they’ve tried everything else.”

–Sir Winston Churchill

It’ll be the same with healthcare; after Obamacare crashes and burns and destroys a lot of political careers with it, we’ll set up a real national health insurance system to replace it.

Disclosure: Your writer owns shares of Kroger and plans to keep them for very a long time because he thinks that it is a great company.