Home > Fiscal Policy, Health Care Policy, Obamacare, Uncategorized > The Exchange Fiasco Is Only the Beginning

The Exchange Fiasco Is Only the Beginning

The Affordable Care Act (AFA) is a stunning example of just how destructive a government can be when it chooses to play central planner of markets. Here is a partial list of the wreckage caused by Obamacare.

1. Layoffs of workers in the medical device industry due to the tax on medical devices in the AFA.

2. Hours reductions have been imposed on part-time workers so that employers can avoid the requirement to provide health insurance.

3. Staggering price increases in the price of health insurance.

4. Millions of individuals losing their health insurance policies cancelled as a result of the AFA.

5. Individuals are often being forced to buy coverage that makes no sense. Do people in their fifty’s really need maternity coverage?

It is hard to think of any other legislation that has wreaked havoc on this scale. Unfortunately, the worst damage is yet to come. Obamacare may destroy the private health insurance market altogether.

The press has spent much of its time in adoration of Barack Obama but even the adoring press has been forced to report on the loss of coverage and huge insurance price increases that are occurring. But look closely at those reports and you will see that it is dawning on the public that there is now no reason to have health insurance until they get sick. It makes far more sense to pay the fines since they are far less than the cost of insurance and then buy insurance when a hospital stay is needed. This is the result of guaranteed issue, one of the features of Obamacare that the President has frequently claimed to be one of the great achievements of the AFA. In effect, the health insurance market no longer exists.

But as the public increasingly drops insurance, a process known to economists as adverse selection, insurance companies will be driven towards bankruptcy unless they withdraw from the exchanges. Thus it seems quite likely that Obamacare will result in fewer and fewer insurance firms participating in the exchanges.

Some have claimed that Obamacare was simply an attempt by the President and Harry Reid to create a Medicare-for-all system, a system which both men have claimed that they favor. Driving insurance companies into bankruptcy certainly would achieve that goal. But the managers of insurance companies have a fiduciary responsibility to maintain the profitability of their firms so it seems more likely that, rather than driving their firms into bankruptcy, firms will withdraw from the exchanges (recall that some firms have chosen not to participate in them).

Mitch McConnell once claimed that Obamacare would fall to pieces because of its design features. He may turn out to be right.


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Economics One

A blog by John B. Taylor

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One economist's views on economic policy.

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