Honk If You Understand that the Premise is Inherently Unworkable

by Don Boudreaux on November 23, 2013

in Health, Man of System, Reality Is Not Optional

This excerpt from a letter in today’s Wall Street Journal offers one of the best short summaries of the inherent illogic of Obamacare that I have read – although the final sentence reveals what is perhaps a deeper and more sinister logic:

But the die has already been cast for blank-check subsidies and bailouts because of the fatal financial-model flaws imbedded with “guaranteed issue” and “community rating” rules for health-care insurers.

Imagine if we created a similar rule for banks, requiring them to give loans to the entire population. Further, imagine if we not only required banks to stop using risk-based underwriting for determining who they would give loans to, but also forbade risk-based underwriting to be used for determining the amount of the default-risk interest-rate premium over the risk-free interest rate that they could charge to different borrowers. This is an untenable business model. The banks would quickly become insolvent, and banks wouldn’t be viable to stand alone as independent entities without subsidies and blank-check government bailouts.

The same core business principle applies to insurers of all types, not just health-care insurers. The model of having to give insurance to the entire population and not being able to do risk-based pricing is untenable. Health-care insurers can’t remain solvent and viable without subsidies and bailouts under these circumstances.

Much of the recent focus on ObamaCare has been on the administration’s failure to build and launch a website portal that requires massive systems integration between the government’s “marketplace” and multiple private-sector companies’ enormous and complex database systems. This is a massive undertaking, though not impossible.

But the fatal absurdity of ObamaCare is its underlying premise of command-and-control central planning of economic activity.

The die has been cast with ObamaCare, and the fatal blow to the entire enterprise’s financial viability can best be paraphrased with: “It’s the model, stupid.”

A byzantine web of price controls and mandates will necessitate rationing of care (an accepted given for anybody in the Medicare or Medicaid markets), lowering the quality of care and lowering the innovations that have been the hallmarks of our country’s health-care system, which despite its many flaws has produced the most successful medical advances in the history of the world.

With the passing of ObamaCare, insurance compensations are already regulated public utilities, and future subsidies and bailouts are guaranteed by ObamaCare to be the order of the day. Unless of course health insurers are allowed to fail and the federal government is required to step into the breach with a “single payer” system.

Jordy Spiegel

Dana Point, Calif.

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