A Costly Failed ExperimentThe law's treatment of people is arbitrary and unfair. Its economic impact is only going to get worse.
By
John C. Goodman
Updated March 21, 2014 7:20 p.m. ET
With Sunday marking the fourth anniversary of the Affordable Care Act being signed into law, it's worth revisiting the initial purpose of the president's signature legislation: Universal coverage was the main goal. Four years later, not even the White House pretends that this goal will be realized. Most of those who were uninsured before the law was passed will remain uninsured, according to the Congressional Budget Office.
Democrats also fixated on another goal: protection for people with pre-existing conditions. One of the first things the new law did was create federal risk pools so that people who had been denied coverage for health reasons could purchase insurance for the same premium a healthy person would pay. Over the next three years, about 107,000 people took advantage of that opportunity.
Think about that. One of the main reasons given for interfering with the health care of 300 million people was to solve a problem that affected a tiny sliver of the population.
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While the president and his party struggle to find more convincing reasons why we need ObamaCare, three huge problems won't go away.
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An impossible mandate. For the past 40 years real, per capita health-care spending has been growing at twice the rate of growth of real, per capita income. That's not only true in this country; it is about the average for the whole developed world. Clearly, this trend cannot go on forever. So what does ObamaCare do about that? It limits the government's share of the costs while doing nothing to protect individuals or their employers.
The law restricts the growth of total Medicare spending, the growth of Medicaid hospital spending and (after 2018) the growth of federal tax subsidies in the health-insurance exchanges to no more than the rate of growth of real GDP per capita plus about one half of 1%. This means that as health-care costs become more and more of a burden for the average family, people will get less and less help from government—to pay for insurance the government requires them to buy!
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Unworkable subsidies. A family of four at 138% of poverty level is able to enroll in Medicaid in about half the states and obtain insurance worth about $8,000. Since the coverage is completely free, that's an $8,000 gift. If they earn $1 more, they will be entitled to join a health-insurance exchange and obtain a private plan that costs, say, 50% more in return for an out-of-pocket premium of about $900. That's a gift of more than $11,000.
At the same time, the employees of a hotel who earn pretty much the same wage as in the two previous cases will be forced to have an expensive family plan and they and their employer will get no new government help.
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A bigger problem is the impact these differential subsidies will have on our economy. * * * Higher-income workers will tend to congregate in firms that provide insurance. Lower-income workers will tend to work for firms that don't. But efficient production requires that firm size and composition be determined by economic factors, not health-insurance subsidies.
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Perverse incentives in the exchanges. Under ObamaCare, insurers are required to charge the same premium to everyone, regardless of health status, and they are required to accept anyone who applies. This means they must overcharge the healthy and undercharge the sick. It also means they have strong incentives to attract the healthy (on whom they make a profit) and avoid the sick (on whom they incur losses).
The result has been a race to the bottom in access and quality of care. To keep premiums as low as possible, the insurers are offering very narrow networks, often leaving out the best doctors and the best hospitals. By keeping deductibles high and fees so low that only a minority of providers will accept them, the insurers are able to lower their premiums, thus attracting still more healthy individuals at the expense of overall care.
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Mr. Goodman is president of the National Center for Policy Analysis and the author of "Priceless: Curing the Healthcare Crisis" (Independent Institute, 2012).
