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How Long Will Obamacare Live?

Is Trump right when he says the Affordable Care Act will collapse on its own?
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Inquisitive investors can read Patrick’s clarion insights in the Macro Growth and Income Alert newsletter, where he infuses each issue with a macroeconomic outlook that points to the strongest sectors and best-in-class stocks. His fundamental perspective on stock selection coupled with Robert Ross’s quantitative rigor helps subscribers earn a consistent annual income using stocks and secured options. Before joining Mauldin Economics, Patrick was the managing editor at All Star Fund Trader, an award-winning advisory service near the top of Hulbert Financial Digest ratings for eight years. For over a decade, he was a contributor to Weiss Research, and he served as an equity portfolio manager for high net worth investors. Add to that his experience as a stock analyst, securities and commodities representative, compliance officer, risk manager, and even as a military intelligence officer—and you’ll understand why Patrick’s second-to-none research intuitions make him a trusted member of John Mauldin’s inner circle. Check out Patrick’s latest market take with a model portfolio designed for consistent income. Subscribe to Mauldin Economics’ Macro Growth and Income Alert newsletter.

Like it or not, Obamacare lives. The question is, for how long?

President Trump is right when he says the Affordable Care Act will collapse on its own. Its condition is terminal, and Congress declined treatment.

Maybe that’s no big deal to you. Maybe you’re on Medicare, or get group health coverage from your employer, or are independently wealthy, or you’re in good health and confident you will remain so.

Unfortunately, millions of Americans who don’t fall into any of those categories may soon find themselves in a tough spot.

I don’t want that to be you, so today I’m sounding the alarm. You may enter 2018 with no access to health insurance, which means you will be at risk both medically and financially.

Now is the time to prepare.

Some Perspective on Global Health Care

The first step to solving a problem is admitting you have one. Some of us are in denial, so here’s a hard fact: We Americans spend far more money on health care than any other developed nation, but we’re no healthier.

We’re even less healthy overall.

The chart below shows the bad news. The horizontal axis is years of life expectancy. The vertical axis is per capita healthcare spending.

Ideally, you want to be in the lower right quadrant. That means your population has a relatively high life expectancy and relatively low healthcare spending.

France, Japan, Spain, Chile, and a bunch of others are clustered in that area. Their money buys more health than ours does.

The United States is in the upper right, which shows that our per-person healthcare spending is significantly higher than that of the other OECD countries. Switzerland is a distant second place.

Our extra spending doesn’t help us live longer. We actually die a little earlier than our peers in Japan and most of Europe.

You can quibble over details in this data, but the broad facts are inescapable. We spend too much on healthcare relative to the health it buys us. As long as that is the case, no reform plan will work.

Did Obamacare cause this? No. It goes way back. Here’s another graphic showing the changes over time.

You can see that the United States began diverging from other developed countries back in the 1980s. The gap has only grown wider since then.

Stranger yet, we spend all this extra money yet still leave millions of low-income citizens with little or no access to healthcare. Kaiser Family Foundation says some 2.5 million working Americans make too much to qualify for Medicaid, but not enough to receive Obamacare tax credits.

Brace Yourself for the Death Spiral

I showed you that data to say this: Simply returning to pre-Obamacare conditions won’t solve the problem. Obamacare exists because the system wasn’t working and we needed something better.

Before 2014, people with preexisting conditions were simply out of luck. They couldn’t buy health insurance at any price, unless their employers offered group health, which many didn’t. This was hurting both those people and the economy at large.

Obamacare, for all its flaws, at least tried to solve the problem. It helped some people but hurt others—and now it’s reached its limits.

Insurance works only if the risk pool includes enough low-spending people to offset those with expensive claims. That’s Obamacare’s core problem. The legal mandate to buy insurance hasn’t brought enough young and healthy people into the pool.

This is the “death spiral” you hear about. People with serious illnesses will buy insurance no matter what it costs. This drives up claim ratios, which then drives premiums yet higher and discourages young and healthy people from buying.

That can’t work indefinitely.

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