Obamacare Is Not Going To Work As Intended Not enough young people joining the new system. This changes all economic calculations. This reform will end up costing a lot more than what the administration had stated

By Paolo von Schirach

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November 9, 2013

WASHINGTON – I wrote recently that, as a rule, ambitious public policies aimed at forcing large sectors of the private economy to move in a different directions fail. (See link to related piece). They fail because self-assured policy planners are unable to take into account the (unpredictable) behavior of thousands of affected players, large and small. They are unable to predict and properly assess the impact of one component of the policy on many others. They are ultimately unable to foresee the size and scope of unintended consequences.

Conceptual flaw

It may be too early to say, but this is what seems to be unfolding with the (so far semi-botched) roll out of the Affordable Care Act, universally known as Obamacare. Leaving aside the clogged and unworkable health care exchanges website debacle, (this mess will be fixed, at some point), what is emerging is that there was a conceptual flaw at the very foundation of this socially minded legislation aimed at covering millions of Americans who have no health insurance.

The idea was that by forcing millions of young and relatively healthy Americans to buy health insurance, their premiums would subsidize the high cost, sick and old people now getting insurance for the first time. Well, so far this is not happening. So far, the poor and the sick are getting in, because obviously they benefit from the new system, while very few young and healthy Americans are joining. Making a simple calculation, many prefer to pay the penalty mandated by the law rather than paying for expensive medical insurance that they do not need.

Universal care at no additional cost?

Well, it is too early to say how all this will unfold months or years from now, especially after the health insurance exchanges will start working as they should. Still, if this trend is not reversed, then the whole idea that Obamacare will pay for itself falls apart. If the young are not there to subsidize the additional number of sick people, then the insurance companies will start losing money. The only way out for them will be to jack up premiums. If that is the case, then the Government will have to step in with some additional subsidies for low-income, high cost patients.

We do not know this for sure, but this is highly likely.

More trouble ahead

On top of that, so far we have almost 5 million American who have lost their health insurance on account of the mandates of the new law. We know that the administration gave unequivocal assurances that this would never happen. Well, an unrepentant President Obama now tells those who lost their insurance not to worry. By going to the new exchanges, they are bound to find a new, better and cheaper health insurance policy. May be so. But it is not a given.

In the meantime, on top of everything else, the false statements coming from the White House have undermined public confidence in the administration, and this is reflected in all public opinion polls. Again, this is another unintended consequence of promises that could not be kept. 

And there is more bad news. Many employers who fear the additional burden of health insurance mandates for their workers keep the number of their employees below the level that would trigger the health insurance mandate. Likewise, many others keep their workers below the number of weekly hours that would make them eligible to get health insurance. All this is still anecdotal. Still, imagine this headline: “Health insurance mandate constrains economic growth, this way contributing to higher unemployment.” Yet another unintended consequence. Look, this is an unfolding story with many parts. But what we have seen so far does not look that good.

Millions will get health care; but it will cost more

Down the line, the best case scenario is that millions of Americans, especially the poor and those with pre-existing conditions, will get affordable health care. And this is good. However, the notion that this will happen without any additional costs because of the magic of the health care exchanges is pure fantasy. Unless millions of (mostly healthy) young people join the new system, the only way to allow high cost patients to stay insured will be through public subsidies. One way or the other, the tax payers will get the bill.

On top of that, if tens of thousands of small businesses cut their work force or do not hire new people in order to avoid paying for their health insurance, the cumulative effect will be less economic growth. Talk about the actual impact of a law aimed at improving social conditions: thanks to Obamacare some get costly insurance; but others get no jobs. How many real winners?  

Policy-makers still do not understand

Those who put together Obamacare are naive sorcerer apprentices who got into something that they did not fully understand. Given the official rhetoric full of hope about the eventual net benefits of the legislation, it seems that they still have not understood why they were wrong.



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