The Corner

Enough With Pretending Obamacare’s a Market

For months if not years, the Obama administration has used one analogy after another to describe how the health-care law’s market will work. But for the most part, these explanations just go to show how confused they are about what the law does or what a government mandate means. Here are two recent examples.

The first one is from a story, by New York’s public-radio station, that actually considers what will happen if not enough young and healthy Americans don’t enroll in the health-care exchange in the next few months: Rates could go into a death spiral. 

Here’s how a death spiral happens: Most of the people who sign up for an insurance plan are sick. It costs a lot to take care of them. So the next year, to cover the high health costs, the insurance company raises its premiums. But then only really sick people sign up. So the insurance company has to raise prices again. Eventually, the insurance gets so expensive that no one buys it, and the whole system falls apart.

But then the story continues:

The designers of Obamacare were aware of the dangers of a death spiral. That’s why the Affordable Care Act has both a carrot and a stick to encourage people to sign up. The stick is that penalty or fee for people who don’t buy insurance. But the stick is pretty small in the first year. The carrot: insurance subsidies for people with low incomes.

“It’s a great deal,” says Zeke Emanuel, one of the architects of the Affordable Care Act. “For an individual making between $15,000 and $20,000 this is, ‘Get health insurance 80 percent off!’ Where do you see sales like that?”

Notice that Dr. Emanuel likens the individual mandate to a retail sale in a private market. Only in the mind of someone with an incredible faith in government intervention can this be seen as a great deal or think it can be equated to a market transaction. At the heart of the market is the idea of voluntary exchange. In the real world when a company is trying to sell its goods and services, it has to convince costumers that whatever he is selling is worth their money.

What is described above hardly qualifies. For one thing, at the core of the health-care law is a mandate that requires nearly everyone to buy health insurance whether one wants it or not. In addition, as explained above, not buying health insurance will result in a penalty. That’s coercion. Rather than calling this a great deal, if you are among the people who didn’t want to spend a dime of health insurance because you are young and healthy and your probability of getting sick is very low, this is a terrible deal. Even with the subsidy, you’d end up having to spend money you didn’t want to spend on something you didn’t want to buy in the first place.

Dr. Emanuel is right: You don’t see much of that in the marketplace. (To be sure, some people weren’t buying insurance because they couldn’t afford it. We may find out today and in the coming months how big of a problem that was.)

The second analogy came via HHS Secretary Kathleen Sebelius when she was asked about the technical problems experienced by people trying to sign up for the exchanges this morning. She compared these glitches to what Apple experienced a few weeks ago. See for yourself, as the WSJ reports:

“I clearly have an iPad, and I also have an iPhone, and about ten days ago got the prompt that the operating system had changed and did I want to upgrade to the new operating system, and so I did, on both my iPad and my iPhone,” said HHS Secretary Kathleen Sebelius hours before the new insurance exchanges went live, building on a metaphor tested late last week by one of her top deputies, Gary Cohen, and then other senior administration officials in briefings with reporters.

“And then about five days after that, I got the second prompt saying, ‘Well, there’s a little problem with the iOS 7 system and now we have a ‘new’ new upgrade and why don’t you re-upgrade your upgrade,’” the secretary said.

OK, we think we know where this is going.

“Apple, you know, has a few more resources than we have to roll out technology, and a few more people who’ve been working on the system for a while, and no-one is calling on Apple to not sell devices for a year or to, you know, get out of the business because the whole thing is a failure.”

“Everyone just assumes ‘Well, there’s a problem, they’ll fix it, we’ll move on,’ said Ms. Sebelius. “And like many of their customers I put the ‘new’ new system on my phone and went on my merry way, but it was just a reminder that we’re likely to have some glitches. We will fix them and move on. Is this a sign that the law is flawed and failed? I don’t think so. I think it’s a sign that we’re building a piece of complicated technology, we want it to work, we want it to work right. We’ve got an incredible team working 24/7 to do just that.”

Here again, Ms. Sebelius is comparing the mandate to a voluntary transaction in the marketplace. It’s a poor analogy: Apple has to address glitches affecting customers who willingly bought Apple products. There is no mandate to buy Apple products. There is, however, a mandate to buy health insurance if you are an individual. Enough with the market analogies, please.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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