The Individual's Cost - An Overview:
Whoa, that is the only word to describe the ripple effect in the news that Obamacare has caused. Through the controversial passing to the recent government shutdown, it all comes down to one key point - insuring the American population. There are an insane amount of viewpoints on each minute detail surrounding the plan, although this article will focus on the cost to the individual and the correlation between an increased national debt and the Dow Jones industrial average.
Individual's Cost: Private Insurance vs. Obamacare
With a drive to compare the cost of private insurance to President Obama's subsidized healthcare program, I went quote shopping. For argument's sake, the criteria that I followed is as follows:
- A family of four
- Living in New Jersey
- An annual income of $51017
- No prior health concerns
This annual income number was not taken out of thin air, it is the median annual income in America in 2012. For those living in New Jersey, this may be higher, but so are property taxes!
Cost Through Obamacare:
I encountered a few problems registering on the Healthcare.gov website, a point that the Daily Show joked about. Instead I jumped onto Kaiser Family Foundation's subsidy calculator, and entered the above information. My result was that my yearly premium would amount to $3,511 and my government subsidy would be $6,240. Keep in mind, the subsidy is in addition to the premium and does not cover it. The total 'all in price' is $9,751.
Moving down the results, the website states that my out-of-pocket costs can be no more than $10,400 for the silver plan depending on the amount of healthcare services that I use. Keep these results in mind as we project the same criteria to find results through private insurance.
Moving over to the private insurance quotes, we find a number that seems close when applying the same criteria.
When we quote search for private insurance, we do not have to enter an income level. This is due to the fact that there are no subsidies in private insurance (just for argument's sake, prior to any subsidies that the Affordable Care Act would provide).
A monthly cost of $806.52 equals a yearly cost of $9,666.24. The out-of-pocket maximum cost for this plan is $12,700.00, including the deductible.
So What Are The Differences?
First off the bat, the cost for private insurance over subsidized insurance is $6,155.24 (9,666.24 - 3,511) per year. Moreover, the total un-subsidized cost through Obamacare is $84.76 (9,751.00 - 9,666.24) higher than the total cost for private insurance.
Other than being nearly one percent more expensive, Obamacare offers a directly cheaper price to the family seeking insurance, nearly one-third of the price. This example is to outline how subsidizing costs work.
Is It Really Cheaper?
One third of the price seems like a god-sent for those looking to save money on their family's health insurance, or does it? This price hides one very important point, will the subsidy's cost to the government hinder economic growth by an amount equal to or more than the savings per family?
This is a very, very complex question. It entails figuring out where the government is going to get the money from to pay for these subsidies. Moreover, if the costs involved with paying the subsidies take more out of the economy than the savings would, that would negatively affect the economy and its parts - specifically the population who utilize subsidized insurance.
Increase in Costs:
- Fox has reported that Obamacare will increase healthcare spending by $621 billion over the next ten years.
- The Congressional Budget Office, or CBO, states that over the next twenty years, Obamacare will cost nearly $4 trillion.
Proponents of the law argue that the Affordable Care Act creates over $500 million in new taxes and cuts $491 billion from Medicaid (I) to fund the subsidies, although these efforts are not set in stone - as can be seen by the recent government shutdown aimed at delaying Obamacare.
Reports, such as the one above, quote that in addition to the $14 trillion in national debt, Medicare, Medicaid and Social Security will amount to a total of $115 trillion. Other figures such as Pimco's Bill Gross have added that national debt is close to $100 trillion with the money guaranteed for Social Security, Medicaid and Medicare.
The above numbers seem very high and the national debt is already nearing $17 trillion and cresting to $100 trillion would be 6 times the current number. We have quadrupled the national debt in the past twenty years, so going up by a factor of six does not seem that far off when keeping in mind the cost of Obamacare, Social Security, Medicare, Medicaid and the growing national debt.
Back To The Subsidies
After looking at all of these trillions of dollars, that rounded 'six thousand dollar savings' from the example does not seem like much of a savings anymore. One of the main problems is the fact that Americans are content with paying less for insurance, as the bill goes to the government - when in reality the government's bill is their bill.
This bill and subsidies will be paid for through new taxes and cuts, although this is still a hotly debated subject on Capitol Hill. However as these discussions pan out, two things can be agreed upon:
- The national debt will go up faster due to Obamacare;
- Taxes to fund Obamacare will impact economic activity, whether negatively or positively.
(click to enlarge) Source
The above chart illustrates an interesting disparity - The Dow Jones Industrial Average (DJIA) increases as the national debt increases. The slight blip during 2009, was during the economic recession as both curves would be expected to part ways as the debt increased to buffer the DJIA's fall.
Interestingly, this website states that a 1% increase in national debt leads to an increase in the DJIA (DIA) by 2.33%. Extrapolating on this, if the national debt were to hit $100 trillion in twenty years as stated by some above, that would be about a 588% increase from the current amount (using $17 trillion). Now, using this website's statistics, 588% increase in national debt multiplied by the 2.33% increase in the DJIA equals 1,370.04%. Taking the current DJIA levels of 14,802.98 multiplied by 13.7 (1,370.04% / 100%) equals a Dow Jones industrial average of 202,800.826 - I don't buy it.
Over the past twenty years from 1993-2013, the DJIA has increased 320%. Over the prior twenty years from 1973-1993, the DJIA increased 276%.
The increased growth rate from the 1973-1993 period to the 1993-2013 period is 16.2% (320.89 / 276.1). Now to think that the correlation between the national debts' growth and the DJIA can amount to 1370.04% results in a growth rate of 427% for the period, over the prior period. Now that is impossible, in my opinion of course.
This is not a total growth of 427% for the DJIA's future twenty years, it is a 427% increase over the prior twenty year period's growth to achieve a total growth of 1370.04%. This is impossible in my opinion and these numbers cannot be extrapolated to intelligently produce a projection for the DJIA.
Obamacare's subsidies will be paid for through taxes and is still being justified and delayed on Capitol Hill. Generally, it will help the individual by helping them to reduce their out-of-pocket healthcare costs, although at the price of a greatly increased national debt. The direct correlation between the total price of Obamacare and the effect on the market through the taxes and costs that would have to be paid while having a healthier (totally insured) population is way beyond my simple calculations. Although this calculation would be extremely interesting, if we knew the answer to it, then we would not require the Democrats and Republicans to argue over costs and expectations - and who doesn't like watching C-SPAN?
Regardless, the correlation between the national debt ( and the factors contributing to it such as Obamacare) and the DJIA are pointless. In my opinion and as shown by my analysis, it produces a figure that is way beyond even the most uber-bullish projects for the market over the next twenty years.
Additional disclosure: his article is meant to be informational, always contact a financial professional before executing any trades. This article offers a concentrated viewpoint, and does not include all of the various aspects of Obamacare that have been covered through other articles.