Home > Obamacare, The Affordable Care Act > Fixing the Healthcare System

Fixing the Healthcare System

President Obama now finds himself in the kind of mess that central planning creates. The web site fiasco is just the beginning of the problems that result when politicians try to micromanage a complex healthcare sector. The President is now playing “whack-a-mole” as he attempts to fix the problems caused by the Affordable Care Act but each “fix” creates another problem. For example, health insurance prices may need to be adjusted upward if people are permitted to keep their existing insurance policies resulting in riskier individuals buying insurance in the exchanges. As argued in a recent paper, true reform of the healthcare system requires changing laws at the federal, state, and possibly local levels to permit markets to function as they do elsewhere in the economy.

John Cochrane is an economist at the University of Chicago who has written an article (see After the Affordable Care Actdiscussing how difficult, but desirable, it would be to reform our healthcare system. Here is a summary of his main point (see page 2) regarding the absence of well-functioning healthcare markets.

Such markets do not emerge, not because of deep-seated market failures, but because our current web of health care regulation forbid them from doing so. But deregulation is not easy. The impediments to well-functioning health care and insurance markets go deep in to federal, state and local law, regulation, and practice. And the pieces are linked: Greater competition, innovation and entry by suppliers, greater control by consumers, and insurance innovations that cure the current mess each need the others in order to function.

Clearly he argues that government policy prevents the formation of markets. As an example, I pointed out in an earlier post that Medicare prevents advertising of prices which is a feature of any competitive market system. So one must conclude that true reform is difficult to carry out, no matter how desirable, because so many government policies need to be changed.

This paper is a highly-recommended read and is nontechnical in nature so it is appropriate to non-economists wanting an economist’s views on this subject.

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Economics One

A blog by John B. Taylor

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