Until the 19th century, the Chinese practiced a method of torture called lingchi. Better known as “death by a thousand cuts” it involved slicing small pieces of flesh from a victim’s body, one by one, so that death was both protracted and utterly excruciating. This is what the realities of economics are doing to the Patient Protection and Affordable Care Act. The authors of health care “reform” believed they could ignore the dismal science. The laws of economics have rewarded this hubris by ruthlessly inflicting fact after agonizing fact on Obamacare. And, like all lingchi victims, it will eventually succumb.
Moreover, this is becoming obvious to all but the most obtuse of the law’s apologists. In fact, it has been conceded by strongholds of Obamacare supporters like the Washington Post, the New York Times, and even the Huffington Post. The latter publication, for example, carried a column late last week titled, “Why Obamacare Will Fail.” And, as surprising as it was to find such an article in this notorious purveyor of White House propaganda, it was even more so to discover that its author, Dan Karr, doesn’t blame some dark Republican plot: “The Affordable Care Act (ACA) will fail for business reasons.”
This reality was dramatically illustrated when UnitedHealth, one of the most important providers of coverage through Obamacare’s “marketplaces,” announced last Thursday that it “has pulled back on its marketing efforts for individual exchange products in 2016” and is mulling whether “it can continue to serve the public exchange markets in 2017.” The company expects a $425 million reduction in earnings for the Fourth Quarter of 2015 due to its participation in Obamacare. In other words, the law’s economic incentives are so perverse that even a behemoth like UnitedHealth can’t overcome them.
The problem is that “reform” distorts the market by burying both insurers and the insured beneath a mountain of mandates. Probably the worst is Obamacare’s benefit mandate. Most health plans must now include 10 “minimum essential” benefits—whether customers want them or not. This mandate has inevitably caused the cost of providing coverage to skyrocket. The only way a company like UnitedHealth can keep premiums under some modicum of control is to offer plans with very high deductibles. Meanwhile, the law’s individual mandate has utterly failed as an incentive for healthy individuals to purchase insurance.
This has led to a “lose-lose” situation for insurers and for patients. In an article titled, “Many Say High Deductibles Make Their Health Law Insurance All but Useless,” the New York Times reports, “In many states, more than half the plans offered for sale through HealthCare.gov, the federal online marketplace, have a deductible of $3,000 or more.” In 2016, the penalty for failing to buy insurance is $695 or 2.5 percent of one’s household income. This means that for most individuals, particularly the young and healthy, the penalty will be considerably less than the out-of-pocket cost required by most health insurance plans.
Thus, many healthy individuals are declining to buy insurance, which means that insurers are stuck with patients who are sicker, on average, than would be the case if the law did not also impose a mandate requiring them to accept all applicants. When an insurer reaches the point at which the patient portfolio foisted on it by Obamacare forces it to pay out more in claims than it collects in premiums, it will abandon that market. This is an economic fact of life ignored by the authors of the “reform” law and why other insurers will follow UnitedHealth’s example, leaving fewer choices and higher costs for more patients.
It should come as no surprise, then, that the latest Gallup survey shows the number of Americans who disapprove of Obamacare increasing. What is worse, it is even less popular with the uninsured than with any other group: “Individuals who say they have no insurance tilt heavily toward disapproval of the healthcare law.” In fact, only 30 percent of the uninsured approve of the law. And this is unlikely to improve during the current enrollment period. As the Wall Street Journal reports, “Many people signing up for 2016 under the Affordable Care Act face higher premiums, fewer doctors and skimpier coverage.”
The tragic irony associated with “higher premiums” and “fewer doctors” is that this is precisely the opposite of what most Americans wanted from health care reform to begin with. A Gallup survey done in the summer of 2009, as the reform debate was heating up, revealed that control of rapidly increasing health care costs and better access to care were the public’s highest priorities. And it isn’t hard to guess which a majority considered the most crucial: “When asked which of the two is the more important goal, the public says, by 52% to 42%, that controlling costs is more crucial than expanding coverage.”
At that time, conservatives and libertarians said this goal could only be achieved with an unfettered market in which Americans could purchase any sort of coverage they wished from insurance companies that were free to sell a wide range of coverage across state lines. But this kind of freedom was anathema to the Democrats who controlled the White House and both houses of Congress. They believed they were smarter than the market and created a grotesque morass of mandates intensely disliked by insurers, patients, and care providers. And, dumbest of all, they ignored the laws of economics.
But the penalties for ignoring those laws are draconian indeed. If you increase the cost of doing business for insurers, they’ll raise premiums and deductibles. If you make it impossible for them to make a profit selling coverage through exchanges, they’ll pull out. If you make coverage too expensive, people won’t buy it. If that coverage pays doctors less than it costs to treat a patient, doctors won’t treat them. If you pass a law that ignores such realities, it will be subjected to fact after brutal fact until it finally dies.