A Costly Failed Experiment

March 25, 2014

Sunday marked the four-year anniversary of the Affordable Care Act (ACA), but the administration has little to show for it. We are far from the main goal of the law -- universal coverage -- and the Congressional Budget Office has confirmed that many of the uninsured targeted by the law will remain uninsured, says John Goodman, president and CEO of the National Center for Policy Analysis.

Try as he might to convince the public that ObamaCare is working, there are three problems that are not going to go away:

  • An impossible mandate: Per capita health care spending has been growing at twice the rate of income for the last four decades and yet ObamaCare restricts the growth of Medicare spending, Medicaid hospital spending and tax subsidies in the exchanges. Basically, as health care costs rise -- becoming more of a burden for the average family -- people will get less and less help from the government to pay for the insurance that the government insists they purchase.
  • Unworkable subsidies: Not only does ObamaCare treat similarly-situated people differently in arbitrary ways, but these disparities in treatment will have a negative impact on the economy. Businesses will realize that nearly everyone who earns less than the average wage will get a better deal from the federal exchange or Medicaid, while those earning above the average wage will get a better deal if insurance is provided at work. Higher-income workers will congregate in the firms that provide insurance, while low-income workers will do the opposite. This is not efficient. Firm size and compositions should be determined by economic factors, not by health insurance subsidies.
  • Perverse exchange incentives: Because insurers are required to charge the same premiums to everyone and accept all comers, they must overcharge the healthy and undercharge the sick. Because insurers only make a profit on healthy enrollees, the law gives them strong incentives to attract the healthy and avoid the sick -- creating a race to the bottom. In order to keep premiums as low as possible, insurers are offering very narrow networks because only some providers are willing to accept such low fees. These narrow networks often leave out the best doctors and hospitals.

What's the solution to this mess? Goodman says that getting rid of mandates, allowing people to choose their own insurance benefits and offering universal tax credits to everyone is a start, as well as making health savings accounts more accessible. All of the provisions in ObamaCare that encourage employers not to hire people or to reduce their workers' hours should go, as should the provisions that prevent employers from providing their employees with insurance that would travel with them from job to job.

Source: John C. Goodman, "A Costly Failed Experiment," Wall Street Journal, March 21, 2014.

 

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