Politics & Policy

Obamacare: Wrong in Practice, Wrong in Theory

Even if the implementation can be improved, it’s still bad for Americans’ health.

President Obama admits that the new health-insurance exchanges are going to be buggy. He could hardly say otherwise. Small businesses won’t be able to shop online for at least a month. Some online marketplaces will be unable to verify whether applicants qualify for federal subsidies, so they are defaulting to the honor system. Some exchanges will lack the ability to calculate the size of those subsidies or Medicaid eligibility or both. Others are displaying misinformation about private insurance plans.

Meanwhile, a government audit found that key cybersecurity measures likely won’t be ready. The American Enterprise Institute’s Scott Gottlieb tells CNBC’s Larry Kudlow that “if there is one thing that could really put Obamacare in trouble, it’s going to be massive data-security breaches, and there is a real possibility for that.”

#ad#But, hey, stuff happens. As Obama said reassuringly last week, “Like any law, like any product launch, there are gonna be some glitches as this unfolds.” So be cool, people.

Let’s call this the Disneyland Defense, first offered by John Hammond, the fictional billionaire CEO of genetic-engineering company InGen and creator of the infamous Jurassic Park resort. Even as cloned dinosaurs run amok and start chomping people in the 1993 film, the pollyannaish Hammond keeps the faith: “This is just a delay, that’s all this is. All major theme parks have had delays. When they opened Disneyland in 1955, nothing worked, nothing.” To which math genius and chaos theorist Dr. Ian Malcolm replies, “But, John, if the Pirates of the Caribbean breaks down, the pirates don’t eat the tourists.”

Indeed, the Magic Kingdom’s debut was pretty glitchy. Newspaper columnists called opening day “Black Sunday.” As the Associated Press reported: “Tickets had been counterfeited. Fantasyland was closed because of a gas leak. Decks of the Mark Twain riverboat were awash because of overcrowding. Rides broke down from too many passengers. Women’s spiked heels stuck in the sun-softened asphalt of Main Street. Food and drink disappeared after a few hours.” Some disgruntled customers even accused Walt Disney of purposely installing too few water fountains so the park could sell more soda.

But Disneyland was soon operating smoothly, and within seven weeks it had attracted a million visitors. Perhaps the Obamacare exchanges will follow a similar arc. Then again, Uncle Sam is not nearly the efficiency expert that Uncle Walt was. And the exchanges pose a pretty gnarly IT challenge. The federal data hub will have to seamlessly link the Departments of the Treasury and Homeland Security with state databases and private insurers, while also conducting various eligibility and subsidy-level calculations and ensuring user privacy. What could possibly go wrong?

Obamacare supporters point to the Medicare Part D rollout as recent example of a massive government program that won over skeptics and confused users despite a buggy launch. A less cited comparison is the FBI’s decade-long attempt to modernize its computer system. The 9/11 terrorist attacks highlighted the agency’s information-sharing woes. The first attempted fix, a project called Virtual Case File, was abandoned in 2005 after wasting three years and $170 million. Its $450 million successor, Sentinel, finally went live in 2012 after going over budget and suffering three years of delays.

Look, Obama might be right, and before we know it exchanges will work as smoothly as Amazon or Expedia. But what about the malfunctioning economic theory at the heart of Obamacare, the one that relies on bureaucratic schemes rather than market forces to lower costs, create value, and generate innovation? A new analysis from the Clayton Christensen Institute outlines the way many aspects of Obamacare discourage the sort of disruptive innovation that makes previously pricey and complicated products more accessible to more people. For instance, the highly regulated exchanges “essentially put a floor on the low end of coverage, thus limiting opportunities for entrants to provide different types of coverage and methods of care delivery.”

Obamacare’s operating system might be fixable; its faulty economic logic surely isn’t.

— James Pethokoukis, a columnist, blogs for the American Enterprise Institute.

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