Obamacare’s Catch 22

It appears that those central planners don’t trust what economists have been saying since Adam Smith — namely, that fewer market participants generally leads to higher prices, less competition and a worse product for consumers.
August 11, 2016 • Commentary
This article appeared in the U.S. News & World Report (Online) on August 11, 2016.

“Irony is wasted on the stupid.” This quote, attributed to Oscar Wilde, seems fitting in light of the Obama administration’s new campaign to block two blockbuster mergers between the health insurers Aetna and Humana and Anthem and Cigna. (It is also fighting hospital consolidation in many states.) The administration is rightly worried that this will lead to higher health care costs through reduced competition, yet it ignores the fact that its signature law, the Affordable Care Act, was specifically designed to foment such consolidation.

The central planners behind the Affordable Care Act — also known as Obamacare — were convinced that consolidation in health care would lead to decreased health care spending by eliminating duplication, standardizing treatment protocols and incentivizing better utilization. As three of Obamacare’s primary authors wrote in The Annals of Internal Medicine in 2010, the law was designed to “unleash forces that favor integration across the continuum of care.” No part of health care was supposed to be spared — doctors, hospitals, insurers, pharmaceutical companies and others were given regulatory and financial incentives to merge.

This prediction panned out. In the six years since Obamacare’s passage, there has been a surge in health care consolidation.

Pharmaceutical companies are participating in an orgy of mergers and acquisitions. Physicians have merged into mega‐​group practices in an effort to control costs and enhance leverage in health care contracting. Hospitals have acquired private medical practices, with only 1 in 3 doctors projected to remain independent by the end of this year. Meanwhile, hospitals are consolidating into major hospital systems, many of them connected with so‐​called accountable care organizations established under Obamacare. And then, of course, you have numerous mergers between insurers, including the two now being targeted by the White House.

But how is it all working out? It appears that those central planners don’t trust what economists have been saying since Adam Smith — namely, that fewer market participants generally leads to higher prices, less competition and a worse product for consumers.

This was already clear with Obamacare’s first year of implementation. Two October 2014 studies reported in the Journal of the American Medical Association, released via the health care public policy departments of Stanford University and the University of California, Berkeley, respectively, suggested that consolidation of medical practices in response to Obamacare actually “drives up costs.”

It is important to understand that not all mergers lead to negative outcomes. Organic consolidation — that is, consolidation driven by natural market forces — actually benefits consumers. The parties to these transactions see opportunities for economies of scale and increased efficiencies, ultimately rendering the combined organization more competitive in the consumer‐​driven marketplace. The result is lower prices, higher quality and increased innovation, as we have seen in recent mergers in technology, telecom and other industries.

But the wave of mergers unleashed in the wake of Obamacare isn’t natural. It’s driven not by market forces but by government regulation, red tape and mandates that make it harder for companies to survive on their own or for new entrants to challenge the status quo. In the face of this onslaught, the various components of the health care industry are consolidating, even though they have no consumer‐​focused reason to do so.

Which brings us back to the irony. We now have spectacle of the Obama administration defending Obamacare — and the command‐​and‐​control system devised by central planners that it represents — while opposing the very consolidation the law was designed to create. The law’s authors and advocates are seemingly repudiating their own views — and vindicating the litany of economists who have warned about the harm to consumers that comes from government intervention in the market.

It is increasingly obvious that the rapid consolidation in health care — and the resulting harm to consumers — will continue so long as Obamacare remains on the books. Then again, this Catch 22 may actually play into the political left’s hands.

The Obama administration’s refusal to sanction the two proposed health insurance mergers will only increase the likelihood that more insurers withdraw from the law in the years ahead. As this happens, the law will come ever closer to collapsing — a crisis that liberal activists and politicians will invariably lay at the feet of the private sector. The result will be renewed calls for a European‐​style single‐​payer system, a sort of “Medicaid for all” in which government control eliminates all competition and inevitably leads to higher costs and cuts in access and care.

That would be the ultimate consolidation. And it would also be the ultimate — and saddest — irony.

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