Critical Condition

Obamacare’s First Anniversary. Let’s Hope There Aren’t Too Many More.

This week marks the first anniversary of the passage of the Patient Protection and Affordable Care Act, aka “Obamacare.” The Obama administration and its allies will be hawking the law’s achievements, while its critics (present company included) will be touting its myriad problems, unintended consequences, and budget-shattering costs. 

For policymakers who want to move the country in the direction of a more market-oriented health-care system, the key to “repealing and replacing” Obamacare will be to define a narrative that links health care to the nation’s broader economic woes, and to avoid the trap of pigeonholing the Obamacare debate as a debate just about health care. It’s really a debate about the future of the American economy, and that’s a debate that should resonate with moderates, conservatives, and independents.

Here’s the key question: Will the U.S. economy (including in health care) be led by private sector entrepreneurs and consumers, who can pick and choose from a wide variety of innovative products and services, at a wide range of prices? Or will the economy be defined by Washington bureaucrats picking winners and losers (think: ethanol) with the spoils going to the players who can afford to hire the biggest lobbying firms? The first approach is about encouraging wealth creation, the second about capturing wealth transfers.

Framed this way, Obamacare is just a symptom of a world-view where the government tail wags the private-sector dog. It stretches government expertise and competence far beyond providing a health-care safety net for the poorest and sickest Americans, to the point where the government will tell you what health insurance you have to buy, what the policy must cover, what it must cost, and (eventually) what doctors and hospitals will be limited to providing in the name of ”universal health care.”

It doesn’t have to be that way. American health care has many problems, but it has many of the same problems as other sectors of the economy — like education — that are heavily regulated and subsidized, extraordinarily expensive, and ”boast” a long track record of uneven quality and little transparency.

Call them MINOs: markets in name only. In health care and education, costs keep going up and up, and yet insiders fight tooth and nail against any reforms (like school choice or vouchers for Medicare) that would actually give families control over how money is spent in their name — and produce real accountability and competition.      

Obamacare shares its central problems with every other government-centered sector of the economy:

Prices? What prices?  There are few consumer price signals in health care; on the contrary, Americans pay only about 12 cents for every dollar in health care, largely because the tax code favors open-ended subsidies for employer-based health insurance. When consumers think they’re getting a service for free, they have much less incentive to ask whether the new benefits and services are really worth the additional costs. Obamacare exacerbates this problem by adding a whole new set of subsidies on top of the ones that are already distorting health insurance and health-care spending. Because the subsidies in the exchanges will be richer than what many private-sector workers enjoy today, and the penalty for companies who drop coverage is relatively low, many companies may decide to dump their low-wage employees into Obamacare — exploding the costs of the program for taxpayers.

Price controls, price controls, price controls.  In any sector where the government sets prices, the behavior of buyers and sellers is woefully distorted, producing too much of some goods, and too few of others. Still, the allure is nearly irresistible for policymakers who want to promise everything, but not pay for it. Instead of letting consumers decide what they are willing to pay for health insurance and health care, the government dictates the prices providers must accept through programs like Medicare and Medicaid (and, given the way Massachusetts is evolving, eventually private insurance as well). How well has that turned out? Medicaid is the poster child for the failures of price-controlled medicine. Medicaid has a rich set of benefits on paper, but chronically underpays providers for their services — leading many doctors to limit or avoid Medicaid beneficiaries altogether. The result: worse health outcomes for Medicaid patients. Obamacare’s faux deficit savings also relies heavily on cuts to provider payments that the Medicare actuary believes are unsustainable. This doesn’t bother the Obama administration though: They’ll be long gone by the time Congress has to unwind this mess — and taxpayers have to foot the real bill.

Government regulation reduces competition from innovative entrepreneurs.  Harvard University professor Regina Herzlinger is the best at explaining why a thicket of regulations and price controls actively discourages entrepreneurs from offering better and cheaper ways to keep Americans healthy. Perversely, hospitals and doctors that keep costs down and quality high are actually paid less by programs like Medicare and Medicaid, unlike every other sector of the American economy. The few bright spots in the law that might encourage innovation — like the health-insurance exchanges — will likely be stifled by federal regulations that limit states’ ability to offer truly innovative insurance designs. The flexibility that the exchanges really need — and that many governors have called for — for spurring innovations that offer higher quality care at lower cost is not likely to be forthcoming from the Obama administration.    

Over the next several days there will be no dearth of op-eds — including from my friend and colleague Dr. David Gratzer — trumpeting the many flaws of Obamacare. Grace-Marie Turner, James Capretta, Thomas Miller, and Robert Moffit have developed an excellent book explaining “Why Obamacare is Wrong for America.” Stephen Parente and I offered our own prescription for reform. The solutions that we advocate include tax reform, entitlement reform (Medicare and Medicaid), and true competition in health care and health-insurance markets. Extra financial help should be carefully targeted, probably through high risk pools, to the relatively small number of Americans with pre-existing conditions who don’t have group health insurance and can’t afford to buy health insurance in the individual market. 

These reforms focus on making markets work better by empowering families and individuals, and controlling costs through competition and innovation. It’s a recipe for reforming not just health care, but for ensuring that America retools its economy and government to meet the economic challenges of the 21st century.

We will likely have to live through at least one more anniversary of Obamacare. But if policymakers link market-based health-care reforms to keeping America’s private economy strong and innovative, while also rethinking Washington’s unaffordable appetite for entitlements, Obamacare may be thrown on the scrap heap of bad ideas before its third birthday.     







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