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Implementing Obamacare

News reports of the delay in imposing the fines on firms for not providing health insurance got me to thinking about how educational Obamacare should be regarding the folly of central planning. The Soviet Union collapsed in large measure because central planning destroys the incentives for innovation, efficiency, and wealth creation and yet there are many people in this country who continue to think that it is the government’s role to intervene in markets to dictate what gets sold and at what price. Consider just a few of the problems already revealed about the implementation of Obamacare.

What would make anyone think the the government has the expertise to carry out a sophisticated IT project which is what is involved in creating the exchanges for buying insurance? The government has a history of failed IT projects and a consultant to the government has commented in the press that creating such an infrastructure usually requires much more time than the government has to get the exchanges up and running. And so there is now a GAO report delicately suggesting that there is a considerable chance that the exchanges will not be available October 1. Why do we need these anyway? Life insurance gets sold without the need for government-run exchanges. Are there problems in the life insurance marketplace because there are no exchanges run by the government for the purchase of life insurance? I am not aware of any.

The insurance pricing is now becoming available (see this WSJ article) and, although the cheapest policy will now cover more than cheap policies currently available, the insurance could be two or three times more expensive than it is now for young people. Does anyone seriously think that a person of modest means, say earning a pre-tax income of $35,000, is going to spend a third of his/her income on health insurance? The only way they pick it up is if the cost is paid to a large extent by the taxpayers and it appears that the subsidies disappear at this income level.

There are reports that some health insurance systems and insurance companies will not participate in the exchanges. As for the insurance companies, I have written previously (see this post) about the risks of adverse selection which could bankrupt insurance companies so it is quite reasonable for insurance firms to wait to see what buyers do before entering the exchanges. With some health systems refusing to participate, there is the possibility of few physician choices for those buying insurance in the exchanges. Thus it appears possible that the billions of dollars spent to create the exchanges will result in exchanges with very little activity since they provide low quality products.

Finally, by delaying the fines, the Administration seems to think that this will prevent firms from cutting hours and/or employment (there are already reports of reduced employment and hours in the media) but this only postpones the inevitable. Further, as Calvin Coolidge so clearly stated, firms act in anticipation of tax increases (see my post on Coolidge here) so it is doubtful the the delay will make much difference. It is hard to see this delay as anything other than a political ploy aimed at the 2014 elections but, if so, it will have little effect.

The Affordable Care Act is an exercise in central planning and the Law of Unintended Consequences seems to be arising yet again. Will the supporters of central planning finally figure out that central planning is a failed idea that can ultimately destroy the economy in which it is used?

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Economics One

A blog by John B. Taylor

The Grumpy Economist

One economist's views on economic policy.

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