The fiasco that is the Affordable Care Act or Obamacare is receiving criticism from all side because of technical issues related to the website that people must use to sign up for the program. Those who are trying to sign up for coverage or being forced to choose are finding out the hard way, that when government steps in to a formerly private industry, the results are less palatable than first thought. Forget efficiency – government run or sponsored programs share one thing in common – they rarely work as well as planned and never as efficiently as the private sector. The incentive is not efficiency or profits for the Affordable Care Act, but to provide a subsidized health care program for those who would not ordinarily qualify for coverage.
But there is a way to profit…
That focus on coverage rather than efficiency or true cost of coverage is going to wreak havoc amongst those who have coverage and on the economy in particular. The basic premise is quite simple. If you have no insurance, you must get it. And if you don’t get it, you must pay a fine to offset the cost to others. If you don’t have an employer sponsored plan, you have to buy insurance in a marketplace and if you are part of a healthy group, or young, you will likely pay more for coverage than before in order to subsidize those who are less healthy or less able to afford coverage. Here’s where it becomes an “economy killer”.
Right now these plans and the website are virtual in nature. The cash is not yet being shelled out. So, the impact on the economy is not yet being felt literally. Come 2014, the real dollars will be shelled out. Early evidence suggests that those who are self-employed and buy traditional insurance will end up spending anywhere from 30% to 60% more for coverage. One individual I checked with is going to see his family coverage jump from $1,200 per month to $1,680 per month.
The reasons for the increase are several fold. The cost of insuring those who have preexisting conditions is much higher than excluding them or charging them more. They will now buy coverage as if those conditions did not exist. Caps or limitations on how much insurance companies have to pay for claims will be non existent meaning much higher payouts from these companies in cases where previously coverage would have been exhausted. Children of those who have traditional coverage will be allowed to stay on their parent’s plans until age 26 resulting in higher family premiums. Finally, those who are healthiest will pay more…not less in order to subsidize the payments of those who are least healthy.
The impact on the economy will be felt, as disposable income will be reduced, substantially for many, especially younger, healthier individuals and those who are self employed. These two groups tend to spend more money on goods and services than those who are being subsidized.
The Affordable Care Act will have an impact on future economic growth as money to pay for it must come from somewhere and that somewhere is the disposable income that would likely be spent on goods and services. However, there are also sectors that will benefit. Specifically, generic pharmaceutical companies like Mylan (MYL) and Teva (TEVA) as well as insurance providers who are now in a position to receive massive amounts of new business with premiums being subsidized by the government and healthy individuals. The companies that stand to benefit are Aetna (AET), Humana (HUM) and WellPoint (WLP). This sector has powered forward by more than 32% this year, dwarfing the 24% gains of the S&P 500 this year. The gains for this sector are poised to continue well into the future thanks to the US Government.
To your wealth,
Banker X.
