Thursday, June 28, 2012

The fatal flaws of Obamacare

I've written a series of posts on this subject, with this being the latest. With today's ACA ruling, the Supreme Court has now surprised nearly everyone, by 1) rejecting the argument that the mandate to purchase health insurance is constitutional under the Commerce clause (thank goodness, since that helps limit Congress' power) and 2) interpreting the penalty for not purchasing health insurance to be a tax (which is sure to make proponents of ACA flinch) and therefore constitutional. Conservatives got some limits on government, but are stuck with a massive new government program; liberals got to keep Obamacare, but are stuck with what could prove to be a hugely unpopular tax.

The Court's ruling has eliminated three of the fatal flaws of Obamacare that I wrote about, but not all of them. The law has survived its constitutional challenge, but it is very likely to fail when it comes to being put into practice, if it is not overturned by a new Congress first. Here's a recap of the remaining fatal flaws as I see them, in the light of today's decision:

Fatal flaw #1: The tax imposed for not buying a policy is virtually certain to be less than the cost of insurance, because the ruling stipulates that the tax cannot be coercive. This, combined with the requirement that insurance companies may not deny coverage to anyone with a pre-existing condition, and must charge everyone the same, means that a large number of people will forgo signing up for a policy, knowing that a) they will save money and b) they can always sign up later for insurance if they turn out to develop a serious medical condition. Insurance companies are thus at great risk of failure, since they will be obligated to provide insurance coverage to everyone, but not everyone will always be paying for it. Moreover, the tax collected for non-compliance will go into the government's coffers, not the insurance companies' coffers. Therefore, insurance companies will have to increase the premiums paid by a dwindling number of healthy individuals willing to pay for coverage, and/or coverage will have to be limited, and/or the government will have to subsidize the entire healthcare industry. However this works out, it will be a huge, unintended, and unpleasant consequence. The law will not work as intended; Robert's seemingly clever solution of calling the mandate a tax may prove to be a poison pill in the end.

Fatal flaw #2: Regulating the price which insurance companies must charge for policies, coupled with a requirement that companies must rebate to their customers the amount by which their loss ratios fall below 90%, effectively turns these companies into government-run enterprises and would likely result in the effective nationalization of the healthcare industry. That is a violation of the Fifth Amendment, and of a Supreme Court requirement "that any firm in a regulated market be allowed to recover a risk-adjusted competitive rate of return on its accumulated capital investment."

Fatal flaw #3: A government-imposed restructuring of the healthcare industry can't possibly improve our healthcare system, and is extremely likely to make it worse. As Don Boudreaux has noted, "Trying to restructure an industry that constitutes one-sixth of the U.S. economy is ... so complicated that it's impossible to accomplish without risking catastrophic failure." No collection of laws or government bureaucrats can achieve anything close to the efficiency that free markets can deliver; the demise of socialism being the most obvious proof of this. Government control of healthcare will inevitably result in higher prices and rationing, leaving everyone worse off.

Fatal flaw #4: The law is riddled with loopholes. It explicitly exempts many people from paying the tax: those with religious objections (including Muslims), those not lawfully present in the U.S., those who are incarcerated, those who can't afford it, those who don't earn enough to require filing a tax return, those who are members of an Indian tribe, and those for whom coverage would represent a hardship. In cases wherein companies find that complying with the law would result in large increases in healthcare premiums that would threaten employees' access to a plan, the Dept. of Health and Human Services may grant a waiver to the company, and the list of waivers granted is already huge. As more and more people and companies escape the tax, those left abiding by it will bear a burden that at some point will become unbearable.

I will reiterate what I've said before: "the defects of this legislation are so massive and pervasive that it will never see the light of day."

UPDATE: Obama Wins the Battle, Roberts Wins the War, by Tom Scocca writing for Slate. HT: mi cuñado

Roberts' genius was in pushing this health care decision through without attaching it to the coattails of an ugly, narrow partisan victory. Obama wins on policy, this time. And Roberts rewrites Congress' power to regulate, opening the door for countless future challenges. In the long term, supporters of curtailing the federal government should be glad to have made that trade.
Full disclosure: I have a pre-existing condition that prevents me from getting an ordinary health insurance policy, so if Obamacare survives I will benefit from its provision which will allow me to get a policy for the same cost as everyone else. Nevertheless, I still think it is a bad law because it will make healthcare worse for everyone in the end.

34 comments:

Bill said...

It might just turn out to be what Romney needed to turn out the conservative base in full force in November to defeat Obama now that the left doesn't have the "vote for Obama so we can fix the Court" argument." Although I'm disappointed it wasn't struck down, the next best thing was to have this monstrosity characterized as a massive tax hike on the economy and it also didn't hurt that Roberts let folks know that there are consequences for electing fools.

Cabodog said...

Scott, an excellent summary.

My immediate thoughts are that today's SCOTUS decision on OwebamaCare may steer many undecided voters over to the GOP, which represents the last hope of killing ObamaCare.

However, insanity seems to be ruling our country at the moment, so all bets on rationality are off.

Paul said...

Scott,

"the defects of this legislation are so massive and pervasive that it will never see the light of day."

You're dead-on with the fatal flaws, but I see no evidence the socialists in charge will do anything other than sail us over the cliff going full-throttle.

Especially with today's win under their belts.

Frozen in the North said...

Certain facts need to be faced by all Americans: Your health care system is not only the world's most expensive, but it fails a great number of Americans. That's a fact, whether it be 10 million or 50 million Americans that are not covered in any reasonable way, this is a massive failure of society.

The status quo is simply not acceptable -- aside for 2010, health care costs are rising faster than GDP growth.

The solution proposed by Obama and his friends is far from perfect (very far) but at least it's a stab at the problem -- something the GOP is really reluctant to address.

The elegance of laws is that they can be changed, sometimes improved sometimes removed entirely. However, what is unacceptable is doing nothing, which is the GOP's plan (check it there is absolutely nothing being proposed in Romney's or other GOP contenders "plans for governing").

Actually, the heath care law forces American to take responsability for their healthcare needs. It is always ridiculous when you hear a 30 year say that he doesn't need health care; this cannot be an individual's choice because he does get health care is something happens -- its just that everyone else pays for him -- that's not facing your responsabilities

Dr William J McKibbin said...

Honestly, I believe the Supreme Court's decision essentially guarantees that Romney will be the next President -- his rally cry will be, "Repeal Obamacare!"

Unknown said...

More attention should be focused on why we are in this predicament in the first place. 2/3rds of all Americans are overweight or obese (1/3rd are obese). Until we start addressing the obesity epidemic in this country, this is a no win situation.

Could this be the first nation in history to be be brought to its knees by fat?

Andy from Beaverton said...

If this is a tax, will it be tax deductible?

William said...

I was feeling certain that someone would point out that the S&P 500 was off 14+ points and conclude that investors were turning thumbs-down on the survival of "Obamacare". Now with the market reversing sharply without any "news" from Europe, what to think?

brodero said...

In the end tell me what an undecided
voter in Ohio thinks...

Bill said...

It all depends on how many folks who like "free" stuff vote in November.

Donny Baseball said...

Yes, Obamacare has serious flaws. However, my worry is that utopian/central planning systems and schemes like Obamacare persist for a long time, building up combustibility, and fail catastrophically. All will look well until one day the system implodes, like Europe is today. It is no consolation that ObamaCare will one day self-destruct, that could be years away and in the meantime we all pay the costs.

txsaddletramp said...

Scott,

It passed with a majority and both houses of Congress, was signed by the president, and upheld as constitutional by the Supreme Court. I know you don't like it, but it has definitely "seen the light of day." Let's hope its problems are not insurmountable and its worthwhile goals are achieved.

John said...

The biggest fatal flaw remains: for-profit medicine. There is a profit motive to over-prescribe and over-treat, which is why it's so expensive.

And, yes, there needs to be some limits on malpractice litigation.

Bill said...

What's the alternative to for-profit medicine? Do you want the State to determine how much Drs should be paid? Wait, that's what Medicare does now and it's why many are leaving the profession. I guess the only alternative will be for the Govt tp force a segment of the population to work as Drs and when it's challenged legally the Supreme Court can simply call it a tax.

Benjamin said...
This comment has been removed by the author.
Benjamin said...

Romney---who supported Romneycare in Mass?

Meanwhile, The SCOTUS has become a joke. It is constitutional to tell wheat farmers exactly how much wheat they can grow, and even outlaw the growing of wheat for personal consumption.

Under the Patriot Act (supported by the statists Obama and Bush jr) my government can decide I am a terrorist and then kill me, a US citizen, without incarceration or trial, even on US soil. All e-mails and telephone calls in the US can be monitored and recorded (though in typical federal style, thus huge expense is largely waste, as we do not have enough Arabic translators).

We can take taxpayer money and give it corn farmers---$85 billion since 1995---and we can seize rancher private property (even for a private Keystone pipeline).

But Obamacare?

Rhyme or reason?

I do not support Obamacare.

But the SCOTUS is a joke.

Benjamin said...

Let's see--we need immigration for growth. Restricting immigration would be a huge structural impediment.

Here is Justice Scalia:

"Arizona's entire immigration law should be upheld, Scalia wrote, because it is "entitled" to make its own immigration policy. At one point, he cites the fact that before the Civil War, Southern states could exclude free blacks from their borders to support the idea that states should be able to set their own immigration policies.
The majority of the justices, including Chief Justice John Roberts, ruled that most of Arizona's law is unconstitutional, save for the provision that allows police officers to ask about immigration status during stops."

--30--

Even the Roberts decision bothers me. I have to carry a passport now while driving across town? How do I prove I am a US citizen?

Where is the right-wing concern about the economic impact of the anti-immigration fever?

William said...

John said...
"The biggest fatal flaw remains: for-profit medicine. There is a profit motive to over-prescribe and over-treat, which is why it's so expensive.

"And, yes, there needs to be some limits on malpractice litigation."

As a physician, I second John's remarks. Retired physicians I know (liberal and conservative) agree that only a single payer system such as Canada's will ultimately work partly for the reasons John just mentioned.

Donny Baseball said...

John and William-
Your perscription is a disaster for medicine. A single payer system (which we already have to a great extent) drives down reimbursements to the level where doctors refuse to perform services. My brother, a vascular surgeon, used to get $3000 life-saving stuff (bypasses, carotid endorectomy, etc)) for which he now gets $700. So, he's doing three things in response - doing more cosmetic vein work, refusing Medicare patients, and looking for non-medical work, like consulting, to supplement his income. Is this what we want to do to our most talented medical practitioners? The system is a disaster and one-payer will destroy it further. BTW, over-treatment and over-prescribing mostly comes from CYA medicine to keep lawsuits at bay and from the disconnect between payer and provider. You two have totally misdiagnosed the problem.

Joe said...

I don't know about you guys but I have lived with government health care in Germany for ~30 years and now in the US with employer-sponsored health care for about 10. I would take the public system the way it was in Germany 10 times over this horrendous caricature of "care" in the US. We had one child born in Germany, standard hospital birth and it cost me $200 out of pocket and we both parents stayed at the hospital for 10 days after the birth (this is standard in Germany). Here in the US the hospital birth cost me >$4000 out of pocket and we stayed 4 days at the hospital after massive fights wit hte insurance company. Unbelievable!!! And you are probably doing the greatest service to society possible by bringing a child into the world. Yet instead of thaniing you for it, they make you pay through the nose. Yeah, and this is supposed to be the country with justice for all. Whatever.

Joe said...

Donny Baseball-
The main problem in US health care is cost. It is completely insane what the medical complex charges here for a procedures vs. other industrialized countries. Why does an appendix surgery at a US hospital with a US surgeon have to cost 5x as much as in Germany? I mean it's not that appendices in the US are 5x bigger here. I tell you if costs have already come down a bit as you say I tell you they have a long way coming down to be even remotely comparable with Germany. This si completely out of whack. When I see a doctor or hospital bill in the US I am under shock every time.

Bill said...

The cost of health care in the US is higher partly because we subsidize the cost of R&D for new drugs/procedures that the rest of the world gets for free. You're probably right that if you're realtively healthy it's better to be in a country with socialized medicine but ask those with serious illness where they'd rather be for treatment and I think you'll get a different answer.

Lawyer in NJ said...

Sure, Obmneycare is flawed, but the problem it was designed to address (e.g., rising costs driven in part by freeloaders) would remain with or without it, and the only meaningful solution Republicans have offered over the last 25 years is the mechanism that forms its underpinnings.

If instead of distorting it merely because Obama chose to support it (recall that as recently as 2007, uber-conservative Sen. Jim DeMint said that the MA plan should be a model for the country), they had offered amendments to improve it, as for example, David Frum has suggested since 2010, we would have a better legislative work product.

Unfortunately, the chose the low road, and have distorted what it is and what it aims to achieve.

Squire said...

Healthcare is more costly in the U.S. because the medical care system is one big government supported industry government cartel. Providers are not subjected to competition the way other industries are. They are exempt from anti-trust laws. They don’t have to give you a price up front and they can charge you anything they want. They can charge different prices based on who you are, which is illegal in every other industry. There is massive cost shifting because there is massive free health care to massive amount of immigrants, unemployed, and poor. Germany doesn’t have this problem. There is massive cost shifting away from older people who get Medicare nearly for free. Old people live good in the U.S. The U.S. patient subsidizes German’s drug and medical device cost. And Germans, like the rest of the freeloaders off the U.S. aren’t the slightest bit contrite. At least I never heard of a random postcard coming from a European citizen or Canadian for that matter thanking a U.S. citizen for subsidizing their health care costs.

That there are some people with no or limited access is not an argument that socialized medicine is better. That costs are high is not an argument that socialized medicine will reduce cost. Negative, difficult, or unfortunate external factors never make an argument in and of itself that government can do something better.

Paul said...

"Sure, Obmneycare is flawed, but the problem it was designed to address (e.g., rising costs driven in part by freeloaders) would remain with or without it..."

And so with all the subsidies and taxes on other people built in, where exactly do the freeloaders get their comeuppance? Fact is people with healthcare use it about 2x as much as people without it, so the problem has only been made worse. And alot of those "free loaders" were paying out of pocket, something that actually helps bring the cost curve down. Further, under the Obamacare same-size-brown-shoes-for-everyone approach, catastrophic plans that have high out-of-pocket deductibles are eliminated. The 3rd party payer problem, as Milton Friedman called it, has only been exacerbated.

In short, Obama did nothing(other than the Council of Elders who will ration care under IPAB) to bend the cost curve down. To the contrary, the taxes, regulations, and 32 million new healthcare plans are going to drive premiums through the roof.

Paul said...

"And you are probably doing the greatest service to society possible by bringing a child into the world. Yet instead of thaniing you for it, they make you pay through the nose."

Oh, thank you! Thank you soooo much...

William said...

Donny Baseball said...
....My brother, a vascular surgeon, used to get $3000 life-saving stuff (bypasses, carotid endorectomy, etc)) for which he now gets $700. So, he's doing three things in response - doing more cosmetic vein work, refusing Medicare patients, and looking for non-medical work, like consulting, to supplement his income."

You're brother exemplifies a large part of the problem with some physicians. They feel "entitled" to their lavish income and won't stoop to take elderly patients on Medicare. Doesn't that tell us that your brother is in medicine for the money and not for treating the ill.

By the way why does he feel that he is "entitled" to $3000 for one hour's work? Because that is what his colleagues set as the fee way back when. His fees were never established on any rational basis or by competition - because there is extremely little competition between physicians. Primarily because they don't want to kill the goose that layed their golden eggs.

Finally, coronary artery bypass surgery (with your brother's $3000 fee) were vastly over performed by cardiovascular surgeons. For some time objective studies have shown that patients do just as well on medications. Bypass surgery doesn't prolong a patient's life expectancy and they should seldom be performed.

Kurt said...

The escalation of the prices for medical care, such as the $3000 procedure mentioned, are in large part driven by the costs of litigation and malpractice insurance to deal with it. And note that Obama and the Democrats dug in their heels and did NOTHING in the direction of tort reform, which proves that they do not give a rip about reducing healthcare costs.

William said, "You're brother exemplifies a large part of the problem with some physicians. They feel 'entitled' to their lavish income and won't stoop to take elderly patients on Medicare. Doesn't that tell us that your brother is in medicine for the money and not for treating the ill."

And so what if a physician is in it for the money? What business is that of yours? What do you want, a planned economy? What do you do for a living? Repair cars? Cut hair? What if you were told that you should be ashamed of what you charge for your services because you are in it for the money and not for the altruistic goal of treating ill cars or making hair look better? What if Obama's minions told you that you that starting tomorrow you can only charge half of what you are charging today? What a bunch of socialist manure!

Joe said...

I don't know why some people have to follow their ideology regardless of reality here.
If a government-controlled health care system like in Germany can provide an appendix surgery 5 times cheaper than the private or whatever controlled US system, then the government-controlled system is vastly more efficient and superior. Why can't we simply choose the better regardless of who controls it?

Johnny Bee Dawg said...

Txsaddletramp:
This bill has YET to see the "light of day." NO ONE got to read this bill before voting on it. Unelected bureaucrats are deciding unilaterally on important rules and applications of its details.

It BARELY passed by one vote. It squeaked thru WITHOUT A SINGLE VOTE from the other Party. An unAmerican and shameful abuse of power. Every opinion poll showed Americans were and are overwhelmingly against it. It barely got the 60 required votes in the Senate, while at least 3 of the Democrat Senators voting for it were APPOINTED to office, never elected.

It is CLEARLY unConstitutional by any reading of the actual words. Nobody even on the Left has yet made sense of Roberts' convoluted and embarrassing last minute switched opinion. This bill was about as far from a moral legislative undertaking and ruling as it can get...more suitable for a bannana republic run by a secret cabal than the USA.

We The People were bamboozled into this tyrannical destruction of our natural rights, and we are stuck with it for now. Your comment is absurd. We may get the bill repealed, but how will we ever get our Constitution back??

Johnny Bee Dawg said...

Scott Grannis...unfortunately, this ruling does NOT limit the future use of the Commerce Clause, and does not set any precedent, because it was not the "Opinion of the Court" but only a section of Roberts' convoluted opinion (Part III, A) where he was writing for himself, and not for a majority. He was not joined in that part of the opinion by the other dissenters. That matters for precedent. George Will and Slate magazine are simply wrong. George is grasping at straws, and Slate is trying to convince us to like it and take it.

I find it troubling that informed people still think that the "Fatal Flaws" of this bill...essentially the destruction of the insurance industry and making the companies mere wards of the State...are unintended. Many people involved with the decades-long design and implementation of this law are self-described socialists or even Marxists. Self-described. A clear stated goal of an old-style "Marxist Revolution" is the evaporation of wealth, ending private enterprise, and making all citizens 100% dependent on government for their very lives. Fundamental Transformation (a modern-style more "enlightened" updated name for Marxist Revolution which causes a grinding-down and redistribution of wealth, but without the logistically inconvenient and unpopular actual shootings) is the POINT of this so-called "Health Bill," not a mere unintended consequence.

The only "genius" in Roberts' ruling was in exposing this generation as the poster child for a lazy, uninformed, disengaged electorate. Roberts is saying this is OUR fault as voters, and threw it back in our faces in the political realm...making us fight for our very lives against an increasingly rigged system perverted by conniving politicians. Roberts' shocking ruling says dont you dare expect 5 guys in black robes to bail you people out!! It never should have gotten this far in the first place. Tough love to a lazy teenager. Either get up off the couch or you people will get the crappy governance you deserve and the coincident erosion of your protective document which, by the way, only TRUELY protects your rights as long as you INSIST IT DOES.

This is the moment that We The People are going to have to take responsibility of a long line of unConstitutional destructive socialist policies like this bill, along with the "Great Society", the "New Deal", which now threaten to bankrupt the country, and shred individual rights beyond repair. These erosions were allowed to come to pass by an intellectually lazy electorate who did not properly educate their children in Liberty and morals. We have accepted these purposefully unsustainable policies a little at a time for the sake of expediency and temporary comfort. "I made my earnings this quarter once again, so why worry??"

There are NO victories in this stunning ruling...only a desperate last gasp call to the American People to WAKE UP!!! God help us if we dont. We risk being nothing more than a bad example for future generations.

Paul said...

"If a government-controlled health care system like in Germany can provide an appendix surgery 5 times cheaper than the private or whatever controlled US system, then the government-controlled system is vastly more efficient and superior."

Nope. Too many variables left out. And nothing in Obamacare creates the environment for future medical procedures will be timely, quality, and less expensive.

Unknown said...

I don't like paying expensive medical fees but they a great deal of work to get their medical license. Spent many years in school, with expensive tuitions, while most of us were out spending our middle class paychecks.
It may seem over priced but most people don't complain when they have to pay for a lawyer. Why does this country feel entitled to free/cheap healthcare? If you want minimal healthcare then get Medicaid or an HMO.

If you were really sick I'm sure you would want to get good quality care, promptly and with the best diagnostic tools available.

Try getting that with government regulations.

Why aren't we regulating lawyer's fees, car prices, vacation prices? Most people buy a car in their price range (yeah some pretend to be wealthier with leases). We vacation where we can afford it.

YOu pay for what you value. If the availability and quality of healthcare doesn't matter to you then don't pay BUT don't go into my healthcare facilities and expect the same treatment - because then I have to pay for you - not the "governmen" not "obama". Tax payers, the insured have to pay for those who are getting a free ride.

I'm curious which industry is really going to profit from this "Obamacare"?

No I am not a doctor, nor do I have any physicians in my family.
I do pay significant $ for my health insurance and drive a very old car.

Unknown said...

I don't like paying expensive medical fees but doctors put in a great deal of work to get their medical license. Spent many years in school, with expensive tuitions, while most of us were out spending our middle class paychecks. Their office equipment is expensive. Hospitals have a huge overhead to keep a clean, state of the art facility, with adequate staff.
It may seem over priced but most people don't complain when they have to pay for a lawyer.

Why does this country feel entitled to free/cheap healthcare? If you want minimal healthcare then get Medicaid or an HMO.

If you are really sick I'm sure you would want to get good quality care, promptly and with the best diagnostic tools available. If it was your loved one do you want them to wait and get just the basics?

Try getting comprehensive care with government regulations.

Why aren't we regulating lawyer's fees, car prices, vacation prices? Most people buy a car in their price range (yeah some pretend to be wealthier with leases). We vacation where we can afford it.

YOu pay for what you value. If the availability and quality of healthcare doesn't matter to you then don't pay BUT don't go into my healthcare facilities and expect the same treatment - because then I have to pay for you - not the "government" not "obama". Tax payers, the insured have to pay for those who are getting a free ride.

I'm curious which industry is really going to profit from this "Obamacare"?

No I am not a doctor, nor do I have any physicians in my family.
I do pay significant $ for my health insurance and drive a very old car.

I have worked in healthcare 30 years and hate the abuse and entitlement.

There are some people in certain situations who need help from society but so many people have abused the system that it ruins it for those who truly have a hardship. NOt that they don't want to work, not that they don't want to spend money on health insurance, not that they prefer to use the ER instead of a doctors office, not that they feel entitled.