The Corner

Obamacare, Cronyism, and Discrimination

As Yuval Levin has noted, crony capitalism is one of the under-remarked characteristics of the Obama administration. Obamacare is but one example of how the administration picks winners and losers through a process susceptible to discrimination.

One small section of the Affordable Care Act illustrates in a microcosm how the administration has privileged big business over the free market in two ways: (1) by encouraging and solidifying market structures that favor huge insurance companies over small companies or start-ups; and (2) by giving government bureaucrats license to play favorites.

Section 1334 of Obamacare directs the Director of the Office of Personnel Management (OPM) to enter into contracts with health-insurance issuers “to offer at least 2 multi-state qualified health plans through each Exchange in each State.” Eligible health insurers must be licensed in every state. Subsection (c) provides an additional list of qualifications the insurer must meet in order to contract under this section. These provisions favor the giant insurance companies because they’re already positioned to be licensed in every state and to meet the other requirements of subsection (c). Smaller insurance companies are less likely to become licensed in every state and meet all such requirements. Obviously, new insurance companies are at an even more profound disadvantage.

#more#In short, this section erects yet another barrier to entry into the health-care market, further discouraging competition and encouraging monopolies in the health-care industry. It gives the titans of the health-insurance industry an advantage over smaller competitors. Historically, barriers that burden smaller enterprises more than larger ones tend to have an adverse impact on minority-owned enterprises.

From the perspective of the large insurance companies, the individual mandate delivers a vast new market of consumers who would be forced to buy the companies’ products. These companies are better positioned to absorb large numbers of newly-insured people because they already maintain more advantageous negotiating positions with hospitals, physicians, and the pharmaceutical industry.

The individual mandate works out particularly well for behemoth insurers because, as AEI’s Scott Gottlieb and Barak Richman, and the Manhattan Institute’s Avik Roy have noted, the health-care and health-insurance industries are already characterized by monopolistic practices. Consolidation among firms and providers is increasing as they jockey for position in the world of Obamacare. The power of large insurance companies has increased following the enactment of Obamacare as smaller insurance carriers have stopped issuing policies in entire states. For example, in Indiana alone five insurance carriers left the state following the enactment of Obamacare, and although Louisiana was already dominated by one carrier, smaller carriers began their exit shortly after Obamacare’s enactment.

Obamacare first picks winners and losers by exacerbating and encouraging existing structural biases toward large, entrenched firms. It then picks winners and losers by giving bureaucrats unencumbered power to pick between firms. Section 1334(a)(1) provides that the Director of OPM shall enter into these multi-state contracts “without regard to section 5 of title 41, United States Code, or other statutes requiring competitive bidding . . .” In other words, the Director of OPM doesn’t even have to shop around for the best deal when awarding these multi-state contracts. He can pick whatever plan he likes best, based on whatever bias he entertains: the large preferred provider network, the covered therapeutic massages, or that he went to college with the firm’s CEO.

It really doesn’t matter what the reason is. Under Obamacare’s crony-capitalism regime, the bureaucrat is king. Never mind that cronyism is inherently discriminatory, sometimes invidiously so.

Cronyism/discrimination is bad enough when it affects who gets a job or a contract. It may be even more troubling when it infects the provision of health care.

— Peter Kirsanow is a member of the U.S. Commission on Civil Rights. Carissa Mulder is a Special Assistant on the Commission. These comments do not necessarily represent the position of the Commission.

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