I commented yesterday on Paul Krugman’s praise for Obamacare. After posting that, I thought of a number of other things I would have liked to have said. A New York Times editorial today provides me the opportunity. The editors praise “The Good News on Insurance Premiums” under Obamacare, writing (emphasis added):
Individuals and families who buy health insurance on their own will pay significantly lower premiums next year in New York and many other states. It is the most impressive evidence yet that the Affordable Care Act, through its mandates and competition-promoting health insurance exchanges, can hold previously rising premiums in check.
The encouraging news underscores the vital importance of the health law’s “individual mandate,” which requires most people to buy health insurance next year or pay a penalty. The provision is designed to bring in a flood of young, healthy people into insurance pools, which helps reduce the cost of coverage for older and sicker enrollees.
How do we know insurance premiums will go down in New York? Because “officials in New York State said they had approved” rates for 2014 that are lower than existing rates. How are their “approved” rates supposed to work?
Premiums will be held down by several elements of the Affordable Care Act. Competition among insurers to sign up customers in the exchanges is expected to keep premiums as low as possible. The administration is counting on the mandate, the subsidies, vigorous marketing, the ease of comparing policies and demand for good coverage to bring in young people to make the system work.
In New York, the expected decreases in individual premiums are the result largely of two factors: lots of competition among a slew of insurance companies that decided to sell on the exchanges and current premiums that are abnormally high because of a blunder in regulating its insurance markets.
The state required insurers to accept virtually all applicants, even those with pre-existing conditions, yet did not require all residents to buy health insurance. As a result, sicker people flocked to buy coverage, while the younger and healthier people stayed away, causing rates to rise for the sick people to cover the very high cost of their care. Anyone tempted to repeal the federal individual mandate should take note.
Okay, a few things…
So Obamacare is supposed to reduce premiums by (a) promoting competition among insurance providers. As if the free market doesn’t promote competition? How does Obamacare promote more competition than would occur without it? The Times doesn’t bother to explain. It is just axiomatic to them that government bureaucrats know better how to promote competition in a marketplace than would occur without their interference.
It is also supposed to work also by (b) getting young, healthy people who don’t require a lot of health care buy an insurance policy in order to subsidize the costs of premiums for those who do require a lot of health care. Now, how do you get young, healthy people to spend money on something they would otherwise consider not in their best financial interests to purchase? Simple, just force them to buy under threat of punishment.
Now, why are so many young, healthy people in New York going without insurance? Because of a bureaucratic “blunder”. The state government passed regulations forcing insurance providers to insure everybody, even if they were already sick—which defeats the purpose of insurance (imagine bureaucrats forcing fire insurance companies to provide a policy to people after their homes had burned down)—and at the same rates whether they required a lot of health care or a little. And they were too stupid to foresee that this would create an incentive for people not to buy health insurance unless and until they got sick, which would obviously push up premiums for all the sick people requiring health care who did have insurance.
So what was the government’s solution to their “blunder”? Was it to repeal the idiotic law that created the problem in the first place? No. It was to just pass another law that interfered in the market even more and violated individuals’ liberties even further to try to force people to behave the way a bunch of admitted blundering government bureaucrats want them to behave.
And let me go ahead and preempt the objection that might go something like, “Ah, but what about this problem of people not being able to get insurance due to a ‘preexisting condition’ and therefore not being able to afford health care?” Well, once again, this is a problem that was not mitigated but exacerbated by government interference in the market to begin with. How?
Well, federal laws encourage health insurance that is not portable, meaning individuals can’t take it with them from job to job. Tax laws heavily subsidize employer-provided insurance, thus incentivizing people against purchasing individual policies. The problem is that while the latter are obviously portable, the former are not, and so when people change jobs, for whatever reason, they can’t take their insurance with them. But if they have in the meantime developed some health condition, now they have a “preexisting condition” and can’t get a new insurance policy.
So, to sum up, these blundering government bureaucrats:
1) Made laws that exacerbated the problem of individuals not being able to buy insurance due to having a preexisting condition. And then, to solve that problem that they created, they
2) Made more laws forcing insurance companies to provide anyone with a policy, regardless of whether or not they already had a health condition requiring extensive care, which exacerbated the problem of young, healthy people choosing not to buy insurance, leaving only those who required a lot of care with insurance, thus pushing up their premiums. And then, to solve that problem that they created, they
3) Made yet another law forcing young, healthy people to buy insurance in order for them to subsidize the costs of people requiring health care, which includes punishing those who choose to eat a healthful diet and exercise by making them pay the costs for health care of those who choose unhealthy lifestyles.
Last couple of points…
The “expected” lower rates in New York are dependent upon the assumption that young, healthy people are going to obediently do as they are told and involuntarily participate in a market against their wishes and own best interests. If, on the other hand, young, healthy people tell the blundering government bureaucrats to piss off, the “expected” lower premiums ain’t gonna happen.
Furthermore, even if young, healthy people do choose to be obedient to their government overlords, the predictable consequence will be that being forced to pay for insurance, they will want to try to get some of their own money back out of it and thus use it, and so they will go to a doctor for things they otherwise would not. That is to say, the law will just create an artificial increase in demand. Now, basic economics tells us something about what happens to prices when demand goes up…
My own prediction is that those “approved” rates that are “expected” for New York ain’t gonna happen. One way or another, the unintended but predictable consequences of government interference in the market, which just result in perverse incentives and misallocation of resources, will screw the whole system up even worse.
And then, of course, our overlords will just have to pass even more laws to fix all the problems they created with all the laws they already passed.