How ObamaCare Will Gut Muni Bonds (Especially in These 7 States)

There is a reason that adults are told to don their oxygen masks before assisting children in the event of an emergency on an airplane. If the most capable people are disabled, the weakest are unlikely to be able to help themselves.

The same adage applied to the U.S. economy when Barack Obama took office in January 2009. In the midst of the worst financial crisis in a century, it was imperative that everything be done to address the causes of that crisis and to strengthen the fabric of the economy to position it for sustainable economic growth. That wasn’t done. Instead, the president made a historic decision that will rank among the great policy errors of the 21st century. He decided to pursue his dream of universal healthcare.

It’s been an economic and political nightmare.

The result, as you might expect, is the infliction of enormous damage on the American economy and tens of millions of Americans whose medical care has been turned upside down in the name of providing another entitlement without asking anything in return of the recipients. ObamaCare has increased medical costs, deprived Americans of their chosen physicians and treatments, and contributed to a culture of dependency that has no place in a land of liberty.

And now, in 2016, it’s about to gut municipal bonds.

Please keep reading.

The Disaster That Is ObamaCare

Mr. Obama decided to pursue healthcare reform despite opposition from a majority of the American people and a near-majority of Congress. He managed to sneak the legislation through by a bare majority using a reconciliation process designed for budget items and sold it as a phony civil rights measure. In the rush to pass the highly complex law before losing his Congressional majority, neither the president nor the vast majority of those who voted for the law read the bill or evaluated its unintended consequences.

For one thing, it unleashed an enormous merger wave, which has resulted in a series of mergers among health insurers, hospital chains, and pharmaceutical companies that were unopposed by antitrust regulators.

The law is also, predictably, a financial shambles. While the Obama administration claimed that ObamaCare would be revenue neutral or save money, estimates now place the cost at close to $2 trillion (conveniently incurred after Mr. Obama leaves office).

Eleven of the 23 regional coops formed under the law have failed. The largest health insurer in the country, UnitedHealth Group Inc. (NYSE:UNH), warned that it may withdraw from state exchanges after suffering hundreds of millions of dollars of losses. We are also learning the true costs of the law’s expansion of Medicaid to the states – and they are nothing short of catastrophic. While the Obama administration thought it could conceal the true costs of the law by pushing them off until after it leaves office, the chickens are already coming home to roost.

ObamaCare was designed to incentivize states to expand their Medicaid programs by offering to pay 100% of additional costs through 2016, dropping to 90% by 2020. This free money led many states to take what appeared to be a great deal, but they are learning that there are no free lunches.

According to the Associated Press, at least 14 states have seen new enrollments exceed their original estimates, causing seven of them to increase their cost estimates for 2017.

  • California expected 800,000 new enrollees after the state’s 2013 Medicaid expansion but ended up with 2.3 million.
  • Enrollment outstripped estimates by 44% in New Mexico
  • 73% in Oregon
  • And more than 100% in Washington state.
  • Illinois, which is already hopelessly bankrupt, originally projected that its Medicaid expansion would cost $573 million for 2017-2020; but 200,000 more people enrolled than expected, and the cost has increased to about $2 billion. Where the state is going to come up with this money is anybody’s guess.
  • Enrollment overruns in Kentucky (which just elected a Republican government who promised to end the Medicaid expansion) forced officials to double their estimates of the cost for 2017 to $74 million from $33 million and the figure may rise to $363 million in 2021.
  • Ohio, home of presidential candidate John Kasich, has seen state spending on its Medicaid program grow by $5.8 billion since 2011. It now projects the total cost of its Medicaid program to hit $28.2 billion in 2017 – a 59% increase during Mr. Kasich’s tenure.

Why is this important? Among other things, states have to balance their budgets by law. If their Medicaid budgets are blowing up, they are going to have to make sharp cuts in other areas or raise taxes significantly. Municipal bond investors are going to have to pay special attention to deteriorating credit quality in states that decided to enter the Devil’s Bargain known as ObamaCare.

This law is profoundly flawed and is going to have to be repaired or repealed before it completely destroys the American healthcare system.

But in the meantime, muni bond investors beware.

17 Responses to “How ObamaCare Will Gut Muni Bonds (Especially in These 7 States)”

  1. Charles Scouten

    Solution is to repeal The Emergency Medical Treatment and Active Labor Act – Reagan’s act. If you don’t have insurance, you are left on the side of the road to die. If you are a child without insurance, tough. If your’re old, be put outside to catch pneumonia; I’m told it’s a good way to go. In any case, it doesn’t cost much to kill that way. Look, any businessman knows the quickes and surest route to improved profits is to cut costs by eliminating un- or less-productive people. Infants, children, the disabled and the elderly are prime candidates, Get rid of ’em. And make US workers compete on strict productivity with workers offshore. If US workers can’t keep up, get rid of ’em. Obamacare is responsible for lousy schools, dumb workers, crooked cops, and home-grown terrorists.

  2. And the worst is that people think they are insured but they are not except, maybe, in the case of a catastrophe. Deductibles and co pays are so high that it’s insurance in name only. In 2016, I’m going to go un insured and I’ll pay the penalty. In CA it should save me about $ 8,000! If there is a catastrophe, I’ll bid my time between February and November and subscribe again.

  3. You’re right on. Obama promised to fundamentally change America and, unfortunately, he has. As a (pathological??) liar he has tried to assume dictatorial power and succeeded to a large extent. And he plans on staying in DC after he is out of office, the first President to do so. Much more could be written (like his use of Presidential Memorandums that have the same force as Executive Orders but, unlike Executive Orders, aren’t recorded.)

    A group of Pastors met with Obama shortly after he became President. Their consensus: “Obama is a wicked, evil man.” That certainly has proven to be true.

  4. Roger Cracknell

    In your commentary above you say things like “contributed to a culture of dependency that has no place in a land of liberty, you make what Canadians have and prize (universal healthcare), something to be demonized. Our healthcare system is far from perfect, but I shudder to think what we would have if it was here. My father ended up in a hospital in Florida and when I seen his bill and what was charged for, I was shocked and horrified to think what a serious illness would have cost. Rather than throw the baby out with the bathwater, maybe show a way for it to work, or at least “try”.

  5. When can we start impeachments…. He has to be the most decisively horrid person in the white house in ever. He talks with forked tongue. I have unh and now should I worry about coverage??I wish somebody would come on here and give some clear direction on where and what to invest in if our muni’s are in trouble. I hope my money morning will get this and help us out of horrid outcomes.

  6. As with most Socialist Pipe Dreams…..the chickens do not come home to roost for several years down the road. After decades of runaway spending in Europe…..and here…..the ugly day of reckoning is soon to come. As the author notes, Obama had hoped that he would be out of D.C. before HIS whole mess blows up. I hope he is not that lucky. He has sold America down the river….and his legacy, should the truth ever be told by our sorry press……will be one of abject failure.

  7. Good short article; concise and factual.
    How can lawmakers avoid this; Oh I know,
    opposition will not help them stay in power,
    Ignoring it is the best course.
    -passive resistance of any type seems
    to be our only recourse.

    Bob , MN

  8. Isn’t it completely baffling? Do any of these state governments have
    at least one employee that can do 5th grade math?
    Of course Obama Care is a failure!
    The entire Fed Govt is a failure.
    Our ‘once greatest country in the world’
    is so close to inevitable bankruptcy it nearly
    makes me cry.
    And those ^holes in DC have been led by
    the nose by Big Banks who are orchestrating
    the entire destruction of healthcare and the retirement
    of millions.
    So what do they want to talk about?
    “We need more gun control laws!”
    the 670 existing gun laws aren’t enough.
    “We should let TENS of thousands of un-vetted MUSLIMS
    into the USA.”
    Well, I agree that any government official who supports
    that view should be required to sponsor the MUSLIM at
    their home, with their family,… and be accountable for their
    actions, even as far as imprisonment for losing track
    of their candidate.

  9. I had understood that this was flawed to begin with yet I was unaware of the extent of it. Thank you… Municipals were stable through the depression… they are now certainly at serious risk and everyone should understand that there are no free rides.

  10. 1. Unclear what this has to do with municipal bonds. Cities don’t pay for the ACA.
    2. In what sense is Obama’s vision a “dream” when the US is the only major developed nation without a program for universal care?

  11. We found out last month that Humana is pulling out of Colorado and we will lose our coverage. We are left scrambling to find coverage at a 100% increase in deductable and a 33% increase in premiums. I predict Obamacare will be finished by this time next year just in time for him to leave office.

  12. There are always consequences to our actions or in actions.
    If I always over spend the result is bankruptcy.
    If I gut the military and say ISIS is a JV team it only encourages the enemy to build up and strike when ever they like.
    If I tell a lie long enough I may believe the lie but is still does not make it true.
    I could go on but we need a leader like JFK or Ronald Reagan.
    They both build up the military and the United States people.
    It is better to have a big stick and not use it than to lay it down and hope no one else can pick it up.

  13. Cheryl Ann Alexander

    If enrollment in the Medicaid expansion in these states outstripped the expected by so much, what does that tell you about the need for medical care in these areas? How do you propose to get health care to these people?

  14. Insurance is for large unexpected expenses. You carry homeowners insurance but do not file a claim to paint a room or hire a cleaning lady. You carry auto insurance but do not file a claim to fill the gas tank or buy new tires. Why do you think that your medical insurance should cover every little sniffle. Medical insurance is for an accident, or cancer, or some other prohibitively expensive UNEXPECTED happening. Why do we nut understand this? If your doctor only had to file insurance for the big stuff, the office would need less staff and the bill would be less. It is very easy for someone to collect $30 as you leave but much more difficult to have to file the claim and argue with the insurance company so it costs more.

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