Tuesday, October 15, 2013
What's wrong with Obamacare, anyway?
Before beginning I should mention two things: First, I'll mostly focus on economic issues. But in addition there are important ethical, political, and Constitutional problems with ACA which I'll largely ignore. That's not to imply they are unimportant, for they are; but because the budget and debt ceiling are first of all economic issues, I'll stick to the economics. Second, any criticism of ACA should not be taken as a defense of the status quo. To the contrary, the pre-ACA status quo was unacceptable. The problem with our current "solution" is, in a nutshell, that it retains and reinforces many of the bad parts of the status quo while it jettisons many of the better parts.
In fact, perhaps that's a good place to start. The basic problem with the American health care system was incoherent prices and overall costs that were spiraling upwards. But what would you expect when consumers (patients) not only didn't directly bear the costs of the health services they used, they couldn't even find out what prices were? The medical equivalent of the recent food stamp (EBT card) fiasco in Louisiana, that's what you'd expect. The way health insurance is structured, the cost of getting additional services is effectively zero for consumers. Why economize when goods are essentially free? Fill up those shopping baskets with everything your doctor happens to suggest.
But of course health care services aren't free. The consumption of services as if they were free means a much higher quantity demanded. To the extent prices are free to fluctuate, this demand makes them rise, which in turn drives up the cost of insurance. And to the extent prices aren't free, other kinds of costs -- e.g. availability and waiting time for a doctor -- increase. Exacerbating this is that doctors themselves have incentive to recommend procedures of limited or doubtful usefulness without regard for cost. Since the patient doesn't bear the cost, the patient might possibly benefit, and the doctor certainly benefits -- what's not to like? Given all this, it's not surprising that health care spending has been high with a rapid rate of growth.
A genuine solution would involve the consumer-patient directly bearing costs of what he uses, so that he and his doctor would have incentive to weigh expected benefits against costs before adding more procedures. Unfortunately, ACA goes in exactly the opposite direction, further divorcing the patient from the decision making process. All insurance policies must meet government standards; they must be comprehensive, coverage amount must be unlimited (good grief!), and insurance premiums must largely avoid risk rating. And since insurance is now mandatory, we should expect enrollment to increase. And to the extent insurance enrollment increases, so does demand for health care -- demand that is uncoupled from careful consideration of costs. If you expect this to do something other than further drive up prices, well, back to Econ 101 with you! A real solution puts patients in charge. ACA does the opposite, largely eliminating patient choice with its mandates and dictates. (BTW, CBO omitted this from their analyses, mostly because because law forbids them from incorporating theory into their projections, but I suspect also they were pressured to do this. I think this because some CBO reports specifically raise the possibility of increased demand affecting prices and dismiss it, rather than simply noting it.)
To make matters worse, the increased expense forced upon existing health care plans (they too must meet guvamint standards) drives their prices up. Also, the ACA forces most firms to either provide this more expensive insurance for all their "full time" employees ("full time" is now 30 hours, according to the ACA) or pay fines. Since insurance is quite expensive relative to the fines, many firms are choosing to cancel their insurance programs and send their employees to those wonderful Obamacare exchanges. And because ACA raises the price of insurance, firms are also cutting back on full time employees and increasing the use of part time workers. This helps lock-in underemployment and at the same time imposes higher premiums with higher deductibles on the underemployed.
ACA imposes two basic solutions to these problems. The first is IPAB, the Independent Payment Advisory Board, a commission that gets to decide what procedures will be covered by Obamacare, and what they will cost. Think Gosplan and you'll have the idea. IPAB also has what is effectively control over federal spending on health care -- it requires a 3/5 vote in Congress to override IPAB's diktats on spending. Hence it is unConstitutional and will likely face a challenge before SCOTUS at some point. Regardless, the Gosplan method of blocking innovation, cutting services, and imposing price ceilings is one way to cut costs... but it's a highly destructive one.
The other "solution" ACA provides is to subsidize poorer people when they buy insurance. This certainly doesn't reduce costs, it simply makes someone else pay them. But that's the problem in the first place -- when people suppose someone else is paying, they don't weigh costs and benefits. These recipients will become one of the vested interests who will fight for ACA if it is fully imposed. They will also fight for expansion of subsidies and benefits. And if the "opponents" are the likes of Mitch McConnell, John Boehner, and the rest of the "reasonable" Republicans, they'll win. That's why, from the start, I suggested that ACA would eventually lead to an American national bankruptcy.
These are just a few broad economic criticisms and hardly a complete critique. But they are fundamental problems with Obamacare, not issues that can be fixed with a few tweaks. The entire program is badly conceptually flawed, if your goal is to fix what was wrong with the American health care system. On the other hand, if the goal is to eliminate most private insurance, make citizens increasingly dependent on the government, augment the power of the state over the people, and perhaps wreck the United States in the process, Obamacare is just the ticket.
I think many citizen supporters of the ACA are well-intentioned -- they believe that this program will increase insurance coverage, reduce prices, and make Americans better off. After all, that's what they've been repeatedly told by their leaders. I don't believe that advocates of ACA among the political class are well-intentioned at all, nor do they believe what they've said about it. That's why Congress specifically insisted on exemptions for themselves and their staffs. That's why union leaders and some big businesses have been crying for exemptions. That's why Obama himself is exempt. They know it is a bad plan and also know the implementation is being bungled badly. But their goals never were to fix problems in health care and to make Americans better off. Their goals have always been power and wealth, to be had at the expense of the America people.
And that's what's wrong with Obamacare.