Commentary

What to Do If and When Obamacare Collapses

It’s too soon to write an epitaph for Obamacare, but its crises are piling up so fast that one has to begin looking ahead.

Obamacare combines a government-run health care crisis, a financial crisis and a constitutional crisis.

By spending $650 million on a no-bid contract, awarded to a firm with political connections to the White House, for the problem-plagued Obamacare website — the administration made clear that it cannot handle money. The website has processed only a quarter of the meager sign-ups, with the rest handled by 14 state-run exchanges that also have problems and cost taxpayers an additional $4.4 billion.

The initial “glitches” turned out to be chronic, and the website repeatedly crashed when Secretary of Health and Human Services Kathleen Sebelius tried to demonstrate its alleged wonders. Revelations of deeper problems continue to be reported, like the fact that important website components aren’t even developed yet. More and more people recognize that it’s reckless to fill out Obamacare applications, since they require all the personal information hackers need to steal people’s identity, and meaningful security is lacking.

Meanwhile, there’s mounting chaos as Obamacare causes millions of people to lose their individual health insurance policies, their doctors, their hospitals and even their life-saving treatments.

In 2014, we can expect to see perhaps 100 million people panic as the Obamacare employer mandate triggers more layoffs and the dumping of group health insurance plans.

So many people are suffering from sticker shock at Obamacare’s inflated premiums that they’re holding onto their money and cutting back wherever they can. Consumer holiday spending is likely to take a hit. Anxious retailers reportedly are starting to offer discounts early.

Americans have become accustomed to more freedom, more choices in just about everything, but now Obamacare is restricting our freedom. It’s all about things we can’t keep and things we must do or pay penalties. Government bureaucracies gain unlimited power over our health care, controlling some of the most intimate aspects of our lives.

Financially, Obamacare is doomed as long as young, healthy people want nothing to do with it and as long as sign-ups are dominated by older people, many with pre-existing conditions, who want free Medicaid.

Here are some guiding principles for an alternative to Obamacare and single-payer.”

Obamacare costs could explode because of expanded mental illness coverage alone. The National Institute of Mental Illness estimated that about 57 million people “suffer from a diagnosable mental disorder.” Mental illnesses, noted the New York Times, are viewed as “chronic lifelong diseases,” suggesting that mentally ill people could collect benefits for life. Because mental illness doesn’t necessarily have physical symptoms, it’s difficult to diagnose and costly to treat, there could be quite a bit of fraud.

As more and more sick people sign up, premiums will skyrocket, and fewer and fewer healthy people will buy it. The only way to get healthy people to sign up for Obamacare would be to use coercion and compulsion — perhaps call out the army and have it force Obamacare down people’s throats at the point of a gun.

Not to be overlooked: if insurance companies incur huge losses because they ended up mainly covering sick people, the Obamacare law — specifically provisions referring to “cost offsets” or “risk corridors” — provide that the insurers will be bailed out. The bailout could blow a big hole in the federal budget. Nobody knows how many billions of dollars such a bailout might cost.

Obamacare’s biggest problem is adverse selection, and it can’t be fixed because that’s the way it’s built. Fixing Obamacare would be like trying to fix a building by removing all the steel and concrete. The only way to fix Obamacare would be to destroy it, but probably that won’t be necessary if it collapses. Big losses in 2014 would mean dramatic premium hikes in 2015, and that could be the year Obamacare comes crashing down.

Meanwhile, Obama has usurped legislative power delegated to Congress under our Constitution by repeatedly issuing decrees to change Obamacare deadlines, to disregard Obamacare provisions that are politically inconvenient, and to exempt his cronies, members of Congress and their staffs from Obamacare costs and restrictions imposed on everyone else. None of these actions are authorized anywhere in the Obamacare law. They’re the kinds of arbitrary actions more often associated with a dictatorship than with a constitutional democracy, and if Congress doesn’t stop him, then Americans have a problem.

More than a century ago, Alexis de Tocqueville, the most perceptive foreign observer of America, anticipated the situation we find ourselves in now. “Above this race of men,” he warned, “stands an immense power, which takes upon itself alone to watch over their fate. That power is absolute. It would be like the authority of a parent if its object was to prepare men for manhood, but it seeks to keep them in perpetual childhood. It seeks to be the sole agent and the only arbiter of their happiness.”

As Obamacare problems multiply, the administration seems likely to beat the drums for a single-payer government monopoly of health insurance. Obama, after all, has said “I happen to be a proponent of the single-payer universal health insurance.” [http://www.youtube.com/watch?v=fpAyan1fXCE]

Yet despite all the problems with the American health care system, our level of care is still among the highest in the world, and large numbers of people were happy with what they had. It made sense to fix the problems and make more people better off, rather than throw out everything, cause brand new problems and make millions of people worse off as Obamacare is doing.

Accordingly, here are some guiding principles for an alternative to Obamacare and single-payer, an alternative that could help us deal with new as well as old problems, while restoring our freedom to choose.

1. People should be free to decide what’s in their health insurance plan, considering their needs and their budget. Obamacare’s coverage mandates mean that policies have coverage many people don’t want and costs they cannot afford. If, for example, some men want maternity benefits, let them choose that option and pay for it, but let’s not force it on everybody — or force other people to subsidize it.

2. People should be free to choose among health insurance companies, and health insurance companies should be free to choose among applicants. For any particular individual, some companies are likely to be a better fit than others, and performance records vary from company to company.

3. People should be free to shop for health insurance across state lines. The Commerce Clause of the Constitution was intended to prevent states from erecting barriers to trade, but state insurance regulations do that. They limit the ability of out-of-state insurance companies to compete in the state, and they deny the freedom of state residents to choose insurance available from companies based in other states. These regulations should be struck down, so that free competition will give consumers more choices, help drive down premiums and encourage innovation.

4. People should be free to choose among doctors, and doctors should be free to choose among patients. The government should neither force patients to work with some doctors nor prevent patients from working with other doctors.

5. No government should have the power to force people to have some medical treatments or prevent people from having other medical treatments.

6. People should be free to choose among hospitals and other health care facilities, and these should be free to choose among patients.

7. The most effective plan for most people to cover health care costs probably would include the following elements:

(A) A major medical insurance policy for catastrophic expenses

(B) A high deductible to minimize insurance premiums

(C) A tax-advantaged health savings account built up with regular contributions to cover medical expenses below the deductible

(D) A guaranteed-renewable (sometimes referred to as non-cancellable) feature that means the insurer will continue covering a policyholder regardless of medical conditions, as long as premiums are paid on time

(E) A health-status feature to protect against the risk that future premiums might rise significantly if a policyholder develops medical conditions involving higher medical expenses

Health-status insurance is a relatively new idea, and the best explanation of it is by John H. Cochrane, a finance professor at the University of Chicago’s Booth School of Business, a research associate at the National Bureau of Economic Research and a senior fellow at the Hoover Institution, Stanford University.

(F) All insurance policies should be owned by the insured, not their employers or anyone else. This means wherever one might move, the insurance policies will follow. Similarly, divorce won’t result in the loss of health insurance.

(G) Each health insurance owner should receive a standard deduction for health insurance premiums on his or her federal income tax return.

8. Before doctors perform risky procedures, there should be a legally-enforceable contract specifying the maximum damages award a patient might seek if something goes seriously wrong. A doctor might offer to accept a greater potential award with a higher fee and accept a lower fee if a patient has confidence and agrees to a lesser potential award.

While serious medical mistakes are a problem for which patients deserve compensation, a doctor shortage is a problem, too. Unpredictable, high damages awards are factors that discourage doctors from practicing in jurisdictions where they fear possible financial ruin. In Texas, medical liability caps attracted a surge of doctors into the state, relieving the doctor shortage there.


What about pre-existing conditions?

For starters, there are only about 2 million uninsured people who cannot obtain insurance because of pre-existing conditions. That’s a lot of people, but it compares with 12 million people who have individual insurance policies and almost 160 million who have employer-provided insurance.

Point 7(F) above, providing that each health insurance policy should be owned by the person insured, will do much to minimize the number of people who might have difficulty obtaining insurance because of pre-existing conditions. If you own your policy, it will go wherever you go, and you would never lose coverage when you change jobs or are between jobs.

All you need to do is buy health insurance before you have anything that might be considered a pre-existing condition and then pay your premiums on time.

Point 1 above, your freedom to choose what’s in your plan, means that if you’re on a tight budget and can afford only the cheapest, most basic health insurance policy, that’s what you can get. You won’t be priced out of the market by mandates piling on costly coverage that’s a low priority for you.

Point 7(G) above, a standard deduction for health insurance premiums, will help you pay your premiums.

Point 3 above, freedom to shop for health insurance across state lines, enables you to gain the benefits of competition. You could take advantage of policies that offer the most coverage for your money, regardless where the insurers might be located.

Point 7(B), a high deductible major medical policy, will minimize premiums, and Point 7(C), a tax-advantaged health savings account, will help you pay out-of-pocket medical expenses below the deductible amount.

Point 7(D), a guaranteed-renewable feature, gives you assurance that as long as you pay your premiums on time, your health insurance coverage is unaffected by any medical conditions that might develop.

Point 7(E), a health-status feature, protects you from premium increases that might otherwise result from a medical condition in the future.

Finally, there’s nothing in this alternative that forces some people to subsidize other people’s issues.

The most important thing government can do for people with little money for health insurance or much else is to pursue aggressive pro-growth policies that make it inexpensive and easy for entrepreneurs to start businesses, expand businesses and hire people. For example:

• Recognize that the federal and state governments as well as many municipalities face severe fiscal crises because of runaway entitlement spending and unfunded liabilities for government employee pension and health insurance plans.

• Cap spending and then begin gradual annual spending cuts by reducing the number of functions performed by government and reducing the number of government employees, so the cost of government — the biggest cost most people face — can be cut, and so that government can focus on providing core services well.

• Recognize that because governments generally spend all available revenue and then some, tax increases lead to higher spending, more deficits and debt.

• Recognize that endlessly hiking taxes provides strong incentives for employers and taxpayers to flee for lower-cost jurisdictions — which tends to mean fewer jobs in high-cost jurisdictions.

• Cut federal personal income taxes across-the-board.

• Phase out state and municipal income taxes

• Abolish the corporate income tax — corporations don’t really pay it, since it’s a cost of doing business that’s factored into the prices consumers pay for goods and services. Abolishing the corporate income tax could serve as a magnet for employers who want to become more competitive.

• Cut business taxes across-the-board

• Streamline land use regulations, making it possible to develop projects more quickly and at lower cost.

• Closed-shop states should aim to become right-to-work states, attracting more employers and increasing the demand for labor.

• Governments shouldn’t go into business and try to pick winners, since governments don’t have a crystal ball, and they tend to lose a lot of money.

• Don’t waste money paying big employers to remain in a state, since that’s a budget item that generates upward pressure on taxes. Focus on making a state an inexpensive, easy place to hire people, to grow and prosper.

As John F. Kennedy famously remarked, when there’s rapid growth — annual rates reached 7 percent during the Reagan years — it “lifts all boats.” More people have jobs, more of the jobs are full-time, there’s more upward mobility as employers grow, and it’s easier for people to get more for their money, including health insurance.


This alternative I’ve outlined would have 5 big advantages over Obamacare:

First, an incremental approach is much simpler, less costly and less hazardous than trying to remake one-sixth of the American economy which, as Obama admitted, is more complicated than he had imagined. With an incremental approach, there are likely to be fewer large, unintended consequences and more time to make adjustments before much harm is done.

Second, the alternative outlined here would avoid the perverse Obamacare incentives for employers to limit the hiring of full-time people who desperately need jobs.

Third, the overwhelming majority of Americans who find policies they like and can pay for won’t be disrupted. They’ll keep their policies as long as they want and change policies whenever they need to. Millions of precious doctor-patient relationships will be untouched, and access to hospitals of choice won’t be restricted. Suddenly, millions of Americans would calm down as the government stops messing around with their lives.

Fourth, this alternative avoids the skyrocketing losses that can result from adverse selection.

Fifth, this alternative avoids Obamacare’s gross unfairness to young, healthy people who will be forced to pay inflated premiums — often double or triple the health care costs that they’re paying for now. All this is in addition to the vast transfer of resources from young people who pay payroll taxes to help cover the unfunded liabilities of Social Security and Medicare — even though young people have the lowest average net worth of any adult age group, and older people have the highest average net worth of any age group.

If, amidst the collapse of Obamacare, the president launches a blitzkrieg for a single-payer monopoly, it will probably be impossible to resist without an alternative. We will need public awareness of and support for a simple, positive program that can help protect our vital freedom to choose. Maybe some of the points discussed here would be part of it.

<a href=”http://www.cato.org/people/jim-powell>Jim Powell is a Senior Fellow at the Cato Institute and has written for a wide range of newspapers, magazines and websites.