The Community Reinvestment Act and subsequent policy coerced lenders into making mortgage loans to individuals who would not qualify for them otherwise.  The lenders, forced to comply, wrote the loans.  Then, they packaged them with some higher quality loans and sold off the unacceptable risk, immunizing their investors from the forseeable consequences of making inadvisable loans.  This outcome seems utterly predictable.

When the consequences of mandating these bad loans ultimately reverberated through the economy, only the politicians were shocked.  Even now, some proponents believe that the sale of these loans, not the unsustainable loans themselves, caused the banking crisis.  When 2 plus 2 turns out to be 4 yet again, only in Washington, is the outcome shocking.

Well, it's about to happen again.  President Obama's "public option" will have some predictable negative consequences and when they occur, politicians will be shocked and dismayed as they have assured us against these outcomes.

There are myriad proposals in varying states of development.  It is clear, however, that a payroll tax is in the works at or about eight percent of gross payroll for those employers who do not provide health insurance through the workplace.   Those who currently provide health insurance that costs more than eight percent against an employee’s gross wages will probably replace their plan with the eight percent solution (public option).

A Henry J. Kaiser foundation study in 2007 found the employer’s share of a group policy for family coverage averaged $8825 per year.  Assuming a modest five percent increase per annum, the 2009 employer’s share rises to $9698.  $9698 is eight percent of $121,225.  It stands to reason that most recipients of group health insurance make less than that, maybe $45,000.  What does this tell us?  The employer is already paying 21.55 percent against wages for the $45,000 employee.   What will this employer do when presented with an eight percent alternative.   He or she will dump the private insurance in favor of the public option.  Even if the employer is so dedicated to his employees that he chooses to stay in the private plan, he would put himself at a gross competitive disadvantage against those who select the public option.

This employer who is paying $9698 to cover his employee would be competing against a neighbor insuring the same $45,000 employee for $3600.  It is important to note that the insurance "company" for the public option is the government.  They are not reinsuring the risk.  They own it.  So the government promises insurance to a larger pool of people for a fraction of what the private market charges and there will be no rationing of care.

The public option will be the death of private insurance and only the politicians will be surprised when it happens.  When the subsequent rationing and tax increases follow, that will no doubt shock them too.