Against the Gods: The Remarkable story of Risk is a classic. It seems the Democrat, President Obama did not read it. Greg Ip’s article in today’s US print edition of the Wall Street Journal, titled “Obama Health Law’s Instability Is Intrinsic” does a nice job exposing the fallacy of the Affordable Care Act. And it has nothing to do with the social need to offer healthcare to those that can’t afford it.
Mr. Ip shows clearly how the ACA distorts the insurance market and limits how insurers price risk. Insurers are no longer allowed to differentiate as much across different risk groups. For example, if you have a teenager at home your motor vehicle insurance goes up; if you are elderly your health care risks tend to be higher so your insurance goes up. They still do differentiate but now are limited in the scale that used to work and fund the market. Now those limits are forcing risk premiums to be neutralized and the result is two fold:
- The healthy are paying more than their risks warrant
- The sick are flocking to the insurance system (though mainly due to the use of pre-existing conditions being waived)
The unintended consequences are that the healthy are now leaving the system or downgrading health coverage. And costs are going up as the number of healthy to non- healthy members declines. Insurance companies have no choice but to leave the system, which just reinforces the cycle. We don’t need more policy and red tape to tinker with the system. We need a rethink. And it’s not that hard.
Insurance is broken. The market has been massively distorted. The problem is Obamacare. It was a policy focused on breaking the market and forcing government intervention. It created increased governmental costs, and so larger government. The system is broken.
Knowing what we now know, and if we had listened to some of the economists back then, we should never have passed Obamacare. We should have done two other things:
- Focused on changing how established programs like Medicare and Medicaid reward patient wellness, rather than focus on workload. This would have helped address the big issue of costs in healthcare indirectly by focusing on the most important outcome. Too many politicians want to create new rules and overheard to control costs directly (which is another fallacy – think Freakonomics).
- Establish a funded healthcare safety net for those that cannot afford private insurance through taxation and the money since spent on red tape and healthcare administration. This could even have been a federally devolved system funding a state-level safety net. It did not need anything as large, complex, costly or disruptive as Obamacare.
Alas we have another example for how capitalism has been abused, under the guise of what some might call progressive and socialist policy. Again it is not capitalism that is broken; it is the ideas of the people that get into a position of power on the backs of The Myth of the Rational Voter (another classic well worth reading).