The Unraveling of Obamacare and How Not to Fix It

Mario Rizzo*

Apologies to the readers of this blog. I said in my previous post that the quotation from Adam Smith was enough (for now). Well, “for now” wasn’t for long. I can barely contain myself. Every hour that passes things get worse. 

Two days ago a wise person, who shall remain nameless, told me that he never expected that Obamacare would go down so fast. I suggested that it was due to the incompetence of the Obama administration. He said no it was because (or as if) there were saboteurs in the administration. The failure is too thorough for simple incompetence. Of course, this was a sarcastic statement. The failure is due to incompetence derived from hubris. This is the worst kind.

The fix that Obama and friends are now proposing would allow people to keep their current health insurance, if they like it, for one more year – just pass the midterm elections. This is so cynical I can almost not believe it. It is also a cruel hoax.

How would this fix work? Frankly, I do not know. But more surprisingly, Obama doesn’t know. He says that it is up to the insurance companies and the state regulators!

Keep in mind the fix would apply only to those who have already had their policies withdrawn (or not renewed) because, accordingly to the new law, did not meet the requirements of good coverage. If an individual, say through his employer, has coverage that has become more costly due to mandated add-ons, he cannot escape all that in return for a lower premium.

Suppose a person’s policy has been withdrawn. Now Obama gets his wish and the Congress passes a fix that allows this person to keep the old policy. Will the insurance company even offer it? How many people would choose to retain it? How much should the insurer charge? Will state regulators approve the premiums?

But if the insurance companies offer the old coverage then how many people with specific characteristics will sign up for the new plans on the exchanges?  How will that affect the profitability of new plans at the currently proposed prices? I assume these prices will rise, if only because of the (Knightian) uncertainty that has been added to the situation. So it seems that it would not be in the interests of insurance companies to allow the old plans to continue if they are still required by the law to offer the new plans.

Let the fix require insurance companies to offer the old plans. Then the premiums charged will likely rise significantly. These plans will be the source of many problems. They will further undermine the profitability of the new plans in a highly uncertain way.

I believe that the result of the fix will be a net increase in the number of the uninsured.

There is no patch-up solution. The law needs to be scrapped and piecemeal changes in the health insurance and medical markets must begin, informed by sensible economics. I am not optimistic that this can happen soon. It may all fall victim to deadlock.

To quote one of my least favorite politicians: 'How's that hopey, changey thing working out for ya?' "

Postscript

When writing this I assumed that Obama would ask Congress for legislation that would authorize the fix he proposes. How naïve of me. Apparently, he thinks it is in his executive authority simply to decree the fix.

I will leave it to the legal experts to determine legality of this. My naïve position is that I thought the dates for implementation of Obamcare were in the law. I guess we are in a post-law society in which there is rule by executive order.

 

*Dr. Mario J. Rizzo is associate professor of economics and co-director of the Austrian Economics Program at New York University.  He received his BA from Fordham University, and his MA and PhD from the University of Chicago.  He was also a fellow in law and economics at the University of Chicago and at Yale University.  He currently lectures for the Institute for Humane Studies and is an adjunct scholar of the Cato Institute. Professor Rizzo is also a member of the NYU Journal of Law & Liberty's Board of Advisors.