Sunday, November 14, 2010

The six fatal flaws of ObamaCare

In a series of posts earlier this year in which I discussed the growing list of fatal flaws in healthcare reform, I opined that "the defects of this legislation are so massive and pervasive that it will never see the light of day." Arguably, that's still true today, especially as we can now add one more fatal flaw to the list: you don't have to comply with the law because you can get a waiver! To date, 111 firms have been granted waivers by the Obama administration, and the list is sure to grow by leaps and bounds. The very fact that many firms need to apply for waivers is good evidence that ObamaCare is fatally flawed. To celebrate the increasing likelihood of ObamaCare's eventual demise, let me recap the fatal flaws as I see them:

Fatal flaw #1: The penalty imposed for not buying a policy is very likely to be less than the cost of insurance for a great many people. This, combined with the requirement that insurance companies may not deny coverage to anyone with a pre-existing condition, means that a large number of people will forgo signing up for a policy, knowing that they a) will save money and b) can always sign up for insurance if they turn out to develop a serious medical condition. Thus, the actual revenues will far way short of projections.

Fatal flaw #2: The government has no ability to enforce the penalty for noncompliance.

Fatal flaw #3: Mandating that people buy a health insurance policy simply because they are alive is arguably unconstitutional. It is also a way of hiding the fact that young people will effectively be paying a huge new tax in order to subsidize older people.

Fatal flaw #4: 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 #5: 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."

Fatal flaw #6: 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. As evidence of the first five fatal flaws accumulates, and as healthcare insurance companies continue to raise premiums to pay for the unintended consequences of government attempting to regulate an entire industry and hundreds of millions of people, more and more companies are likely to apply for waivers. At some point the whole edifice will come crashing down of its own weight. 

I have a more detailed discussion of each of these flaws here, here, here, here, and here.

UPDATE: Lest I be accused of offering only non-constructive criticism, I refer readers to previous posts about the right way to reform healthcare, here, here, and here.


Benjamin Cole said...

Health care is ever a conundrum, unless one resorts to dogma.

Free markets? The free market fails in some areas, notably pollution. Milton Friedman proposed taxing pollution. Health care seems to fall into a grey zone.

I find Obamacare too complicated, but I confess I am unsure about people who lose their jobs losing their health care too. It strikes me as odd that Thailand now has national health insurance, but the USA says it cannot afford it.

Perhaps the single payor route, run by a consortium of private companies, would have been better.

However, the record of publicly funded services, from the military, to the USDA, to Medicare, is abominable. Costs invariably escalate, new fantastic expenses become accepted as norms. Missions inflate and never deflate.

Grannis has bashed Obamacare, and rightly so. But what does Grannis pose as an option?

brodero said...

I felt in 2006 that the current healthcare
system was going to implode on its
own by 2016. Obama has paid the price for trying to deal with it.
I believe the Tea Party will pay the price for not dealing with it.
To think otherwise is naive. Read
some comments from Frank Corvino.

Paul said...

"Grannis has bashed Obamacare, and rightly so. But what does Grannis pose as an option?"

Just guessing, but probably some variant of the Milton Friedmanesque market-oriented reforms the Republicans offered Obama before he and Pelosi kicked them out of the room.

Frozen in the North said...

I suggest that although all your comments are valid, and correct, it remains that all these issues can be addressed by modifying the legislation (what's a coupe of hundred more pages when the bill is already 2,000 page long).

To think that all issues (and unintended consequences) can be fixed on the first pass, is unrealistic.

Healthcare is very very complicated. There will always be issues and shortfall. What was clear was that the status quo was unacceptable.

Scott Grannis said...

No amount of modification will fix Fatal Flaw #5.

Charles said...

Why is health care so expensive? The short answer is government. What will happen when government control extends from today's 50% to 99% of health care spending? It will get more expensive. What will happen when Obamacare drives medical costs through the roof? Answer: rationing. That is to say you will be prevented from using your own money to buy the health care you want from practitioners who want to accept your business. A paranoid fantasy? This is the situation today in Medicare and has been the case for almost 20 years.