Congress Can’t Repeal Economics
It’s raining! I don’t like it! Why hasn’t Congress passed the Good Weather Act and the Everybody Happy Act?
Sound dumb?
Why is it any dumber than a law called the Patient Protection and Affordable Care Act, which promises to cover more for less money?
When Obamacare was debated, we free-market advocates insisted that no matter what the President promised, he and Congress couldn’t repeal the laws of economics. Our opponents in effect answered, “Yes, they can.”
Well, Obamacare has barely started taking effect, and the evidence is already rolling in. I hate to say we told them so, but . . . we told them so. The laws of economics have struck back.
Health insurers Wellpoint, Cigna, Aetna, Humana, and CoventryOne will stop writing policies for all children. Why? Because Obamacare requires that they insure already sick children for the same price as well children.
Sick Children
That sounds compassionate, but—in case Obamacare fanatics haven’t noticed—sick children need more medical care. Insurance is about risk, and already sick children are 100 percent certain to be sick when their coverage begins. So if the government mandates that insurance companies cover sick children at the lower well-children price, insurers will quit the market rather than sandbag their shareholders. This is not callousness—it’s fiduciary responsibility. Insurance companies are not charities. So, thanks to the compassionate Congress and President, parents of sick children will be saved from expensive insurance—by being unable to obtain any insurance! That’s how government compassion works.
In 2014, the same rule will kick in for adults. You now know what to expect.
This is just the beginning of reality’s backlash. President Obama promised that under his scheme no one will have to change medical plans, but some 840,000 Americans are already left without coverage because their insurer, the Principal Financial Group, decided to leave the market.
“[T]he company’s decision reflected its assessment of its ability to compete in the environment created by the new law,” the New York Times reports. “Principal’s decision closely tracks moves by other insurers that have indicated in recent weeks that they plan to drop out of certain segments of the market. . . .”
A recent bombshell was that McDonald’s may drop coverage for its 30,000 workers unless the Obama administration waives some rules. The central planners of the Obama administration decided in their infinite wisdom that all insurers should spend at least 80 to 85 percent of their revenues on patient care, a mandate aimed at minimizing administrative costs. It’s natural to assume that higher patient-care ratios are better for consumers, but there’s no proof of that. Health economist James C. Robinson explained years ago that “medical loss ratios” are just an accounting tool and were “never intended to measure quality or efficiency. . . . More direct measures of quality are available.”
The Wall Street Journal reports: “Insurers say dozens of other employers could find themselves in the same situation as McDonald’s. Aetna Inc. . . . provides [similar] plans to Home Depot Inc., Disney Worldwide Services, CVS Caremark Corp., Staples Inc. and Blockbuster Inc., among others, according to an Aetna client list.”
McDonald’s may get a waiver, but I like the Cato Institute’s Michael Cannon’s take on that: “Sorry, but I don’t find it comforting that Obamacare gives HHS the power to waive these regulations on a case-by-case basis. Power corrupts. We’ve already seen HHS Secretary Kathleen Sebelius use other powers granted her by Obamacare to threaten insurers who contradict the party line.”
In a letter to the trade group America’s Health Insurance Plans, Sebelius wrote there would be “zero tolerance” for companies that attribute “unjustified rate increases” to Obamacare. “Simply stated,” she wrote, “we will not stand idly by as insurers blame their premium hikes and increased profits on the requirement that they provide consumers with basic protections.”
In other words: “We have repealed the basic laws of economics. Insurance companies must now give people more but not charge them for it. If you do charge more, you must not tell your customers why. Shut up, obey, and don’t complain. We are your rulers.”
Comment by Dan Griffing on 22 December 2010:
Before Obamacare, the cost model for the health care industry was sick because demand was severed from the supply costs. Third party tax exempt employer-paid insurance benefits gave most of us the illusion of free medical benefits. Why not always demand the utmost when cost wasn’t seen as a factor. With Obamacare, the sick health care industry is now on life support. The danger is that when Obamacare fails after having destroyed the insurance industry there will be a total government takeover of what’s left.
It will be difficult getting back to free market mechanisms after people have gotten used to getting health care that they haven’t had to pay for, and couldn’t afford to get in the long run.
Comment by Russ Nelson on 22 December 2010:
Bing! Dan has hit the nail on the head. Obamacare won’t work … and is designed to fail. After the “free” market has failed to provide “free” healthcare, obviously the government will need to step in with single-payer health care, just like in the UK and Canada.
Comment by ChrisnNJ on 22 December 2010:
There’s not a thing wrong with health care, or with just about any other “ill” in the economy, that government did not in some form or fashion CAUSE in the first place — and not an ill that would not be more quickly, efficiently AND compassionately solved with widespread benefit to all, if the men and women who pursue their visions of grandeur and utopia under the rubric and mantle of “government” would just STOP meddling, get out of the way, and let those of us living in the real world get on with our lives and our business.
As one of the three only TRULY great and truly American presidents once said (Washington, Jefferson, and Ronald Reagan)”I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it. …” (Jefferson)
Comment by Richard Briggs on 22 December 2010:
Congress sets minimum wages, maximum salaries, and taxes for Social Security, Medicare and Medicaid all of which violate laws of economics.
Comment by Drik on 24 December 2010:
Where’s my government-supplied house, car, food, clothing, since, like health insurance, I “have” to have all of those? And since all of those are dependent on my purchasing them at sometime, certainly the government should be mandating what Ipurchase and when, wince my purchase of all of those will indirectly affect commerce somewhere.
In fact, since I have to do all of those purchases anyway, why bother with money as an interim step. I will just show up to work and “work” all day, then at the end of the day , stop at the government supply depot to pick up my mandated automatic purchases.
Comment by Frank James Davis on 31 December 2010:
Freedom is not merely by-product, benefit or goal–it is the solution!
Comment by Colin Campbell on 2 January 2011:
Excellent! Keep up the great work!
Comment by Hank Reardon on 10 January 2011:
The statists (on both sides of the isle) have decided that health care is “right” and that means it should be supplied for free.
Well, we have the “right” to bear arms. Does that mean we get free guns? If so, I have a list. Where should I send it?
I don’t understand how these government types think they can make a product a “right”. It boggles the mind when you try to retrace the thought process behind such a proposition.
How can one person be entitled to another person’s labor? Why is this not considered slavery as outlawed by The Constitution?
Great article by Mr. Stossel although I would like to see some of the great minds discuss the moral implications of the decrees by the ruling class and their unintended consequences.
Comment by Robert on 11 January 2011:
As a mid-level employee of a national health insurance carrier, I have yet to read anyone coherently explain the explicit misdirection on the part of the ruling elite and monied interests within the healthcare system. Insurers are a money conduit between those who purchase coverage and those who deliver healthcare services. In the commercial market, premiums represent a cost based pricing for access to healthcare services. The costs are driven from the delivery side of the equation and represent a fee-for-service model which rewards volume over outcome. More services delivered means more compensation paid.
Here then is the rub, as the government distracts the public’s attention from the true source of the morass…the medical cost inflation driven by a reimbursement system designed to enrich delivery side practitioners and greedy opportunists (not necessarily different actors). Furthermore, as the governing class continues its obsfucation regarding the true cost of healthcare, legislation and subsequent regulation do “bend the curve”, but in the wrong direction.
Mr. Stossel has done a service with this article. The direct consequences of Obamacare are certainly a net negative for many Americans; unfortunately he too is distracted by the misdirection of the handlers. Economics are in full view and the delivery side (doctors, hospitals and administrators) of the equation is a government sanctioned monopoly peddling a false flag of manufactured scarcity.
One must examine the levers of market power in the system…the federal government colludes directly with the delivery side players to ensure medical inflation continues. Insurers merely adjust premiums to account for this in their pricing models. Pretty simple, but not what you’ll get from the think tanks and and pundits (present company excluded, of course).
Nice job Mr. Stossel. Please look into the delivery side contributions as causing the consequences of which you write; I believe what Bastiat said, to wit:
“In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause – it is seen. The others unfold in succession – they are not seen: it is well for us, if they are foreseen.”
Comment by Tom Williams on 27 January 2011:
I appreciate your concern for our economy. Will the young society of addicted persons bent on “spending” their youth and health be supported by the rest of us that have the choice to live a drug or alcohol free life. I would like to see you develop a program showing the tax dollars spent on free treatment of these irresponsible “forever” jueniles.
Comment by Bill on 31 January 2011:
@ Robert; I thought I was the only person in the country able to discern the true cause of the health care “crisis”. It’s the providers. Robert says it succinctly and eloquently. I nominate Robert for Health Care Czar.
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