There is a fundamental difference between economists and lawyers (or legal scholars) when it comes to resolving complex social and economic problems. Economists believe that human behavior and the functioning of institutions are based upon incentives. Lawyers and legal types believe that one can resolve complex problems by passing laws and imposing regulations. The latter think one can legislate away the problem.
I like to describe the approach by lawyer-types to such problems as “rain laws.” They are like trying to resolve the problem of flooding from heavy rainfall by means of a law making it illegal for it to rain. Or solving droughts by passing a mandate that it must rain. Making global warming illegal is a pretty close runner-up idea. An example of a rain law in the area of health care would be to solve shortages, health care inflation, and inadequate coverage by passing a law making it illegal for people to get sick. A second example would be Obamacare.
The entire matter of Obamacare is so complex that most people have lost sight of the fundamental problems within it and especially its rain law aspects. Instead, the media and much of the public are concentrating on tangential matters, like whether or not the software on the Obamacare web sites is functioning properly.
I will not attempt here to spell out all the issues and problems with Obamacare. I would just like to point out a few of its flaws in simple words, and these should be sufficient to understand why the entire apparatus will fail.
1. Provision and production of health care services involves resources. Those resources cost money. The real costs of those resources will not be reduced under Obamacare. Doctor, nurse, and technician salaries will not be reduced. The prices of medical equipment will not be reduced. The costs of hospital buildings and infrastructure will not be reduced. The costs of resources used for developing and producing medicines will not be reduced. Costs of other factors, such as the notoriously high expense of malpractice insurance thanks to the rather loony American tort system, will not be reduced.
2. If anything, the costs of all the items cited above will rise under Obamacare. That is because the most important openly-stated goal of Obamacare is to expand access to medical services and coverage for the uninsured. In simple words, Obamacare seeks to expand consumption of or demand for medical services, without changing in any significant way the supply of medical services. The number of man-hours, the amounts of medication, and the set of equipment required to perform any medical procedure or service will not change because of Obamacare. Raising demand without any shift in the supply function produces inflation in the prices of medical services.
3. When demand expands but the supply function does not, the only way to prevent this from manifesting itself in inflation is using price controls. But price controls produce shortages, long queues, denial of access to services, and diminishing quality of services. The main mechanism for controlling costs in other state-run medical systems, ranging from the British Health System to Medicare, is indeed price controls and shortages and queues. Since Obamacare does nothing to change the cost of the inputs used in producing medical services, the only manner in which it can seek to prevent the inevitable inflation from expanded “coverage” is price controls.
4. Price controls with regard to insurance itself have the same consequence as price controls regarding particular medical treatments and services. They produce shortages. The price controls regarding health insurance packages contained in Obamacare mean that the market for Obamacare-defined health insurance will unavoidably fail to clear.
5. In every place they have been used, in every country and in every period of history, price controls create shortages and cause reductions in quality. Ask tenants in NY rent-controlled apartments about this.
6. To an extent, some of the shortages produced by price controls can be disguised with government subsidies. But “suppressing” inflation of health care services with price controls does not really eliminate the inflation. It just means that people will pay the higher prices through taxes instead of directly out of pocket as consumers. Consumers will quickly figure out the scam.
7. You can lead a horse to water but you cannot make it drink. The Democrats can define a minimally acceptable health insurance package, but they cannot ensure that sufficient Obamacare insurance packages will be offered to consumers by the insurance industry to clear the market. The more that Congress tries to twist the arms of the insurers to provide more policies to clear the market, in other words, the more it tries to escalate the level of regulation of insurers, the worse the problem will become. The shortage in Obamacare insurance policies means that those who fail to find such coverage are left with the option of buying non-Obamacare health insurance, and this augmented demand will significantly raise the prices of such “private” non-Obamacare health insurance.
8. From the start, the “problem” of the uninsured in the United States was very different from the way it was presented in the media. Before Obamacare the number of Americans who did not have health insurance because they were too poor to buy it was basically zero. That is because the truly poor could get their health insurance from Medicaid. On the other hand, millions of healthy young Americans were choosing NOT to buy insurance because they preferred spending their money on other things, like education, child rearing, and housing. This was no more of a social problem than the fact that few 30-year-olds save for their old age, while few 50-year-olds do not. At 30, people have other concerns on their minds. At most, a case might have been made for requiring that people get a high-deductible catastrophic health insurance policy, a bit like some states require car owners to have insurance that covers injuries their car may cause to other people. Instead, Americans got Obamacare, a law whose pages must be measured by the kilogram.
9. Denying the ability of medical insurance providers to differentiate insurance premiums based upon risk is idiotic and self-defeating. It is like requiring that life insurance companies charge the same exact rates to 25-year-olds and 80-year-olds. It simply ensures that the 25-year-olds will not want to buy life insurance and will probably refuse to buy it EVEN if they are charged a penalty for remaining uncovered by life insurance. Indeed, such suppression of differential risk pricing is what lies behind much of the “uninsured” population “problem” and explains why these people have refused to buy insurance. This suppression of differential pricing is a thinly disguised form of income and wealth redistribution. It is as silly as requiring that non-smokers agree to pay higher insurance premiums in order to offset the high premiums that smokers would ordinarily be charged for coverage by the market. Come to think of it, Obamacare contains THIS subsidy of smokers as well.
10. A bureaucrat in Washington cannot effectively define the managerial principles and rules that would lead to the efficient functioning of an ice cream soda fountain outside of Washington. Washington bureaucrats cannot deliver the mail with any semblance of efficiency or competence. Why would anyone think they can create a system of regulations that will lead to the efficient functioning of thousands of medical providers?
The Declaration of Independence promises Americans they are free to pursue happiness. It does not guarantee that they will be happy. A governmental regulatory bureaucracy that set up regional exchanges to supervise consumer happiness and formulate definitions and regulations establishing the adequate amount of happiness would be an absurdity. A set of rules that insisted that Americans have an entitlement to happiness, defined in the exact same way for all people as a “one size fits all” notion, without anyone bothering to contemplate how happiness is produced or what its costs of provision are, would be even more absurd.
So just why is Obamacare any less absurd than this?
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