The great scholar, philosopher, and economist Friedrich Hayek, reflecting on the failure of central economic planning time and again to achieve it’s intended outcome, pronounced, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
Like many of the most ardent champions of freedom and free markets, Hayek began his career as a socialist, but soon realized the impossibility of central planners to assimilate all of the information dispersed throughout the economy necessary to appropriately allocate resources. Studying markets, he came to appreciate the “spontaneous order” that emerges when individuals have the freedom to make economic decisions based on their local knowledge and particualar desires. Free markets play no favorites but rather dispassionately and without prejudice efficiently coordinate all of the related information to generate a price that allows buyers and sellers to freely exchange value for value. Nothing less than awe-inspiring, the price system of free markets effortlessly assimilates the innumerable bits of data contributing to supply and demand of a particular product or service to maximize economic productivity and coordinate trade across the global economy.
Thinking that somehow it would go differently this time, the central planners designed and imposed the Affordability Care Act (ACA or ObamaCare) on us. Inarguably reform was desperately needed. Healthcare cost growth prior to the ACA was unsustainable, threatening the financial well-being of individuals and families, small and large business, and government at all levels. Yet rather than recognizing that ill-advised government promotion of 3rd party payment, mandated coverages, and restriction of trade were the cause of the system’s failing, the reform moved further away from the efficiency and inherent fairness of free markets by heaping on more regulation and government controls.
As part of the “reform”, the ACA established non-profit insurance co-operatives in 23 states to sell policies on the ObamaCare insurance exchanges. The co-ops were initially funded with $2.4 billion of federal, or more correctly, taxpayer loans. So how are these non-profit co-ops doing 2 years into the establishment of the exchanges? As of this writing, 12 of the 23 have failed resulting in 550,000 persons losing their coverage – adding to the many others who were shamelessly told, “if you like your healthcare policy, you can keep your healthcare policy” – and taxpayers being stuck with more than $1 billion of loans that will never be repaid. Of the remaining 12 co-ops, 11 lost money last year. It is only a matter of time until they go under as well.
These non-profit co-ops had no prior experience in establishing healthcare insurance premiums, no provider networks, no customers, and no capital. It was misguidedly thought that eliminating the profit motive would allow the co-ops to sell policies at lower premiums. Like too many others, the ObamaCare central planners mistakenly believe that profit is an unnecessary evil, rather than recognizing it as the measure that drives markets to provide desired goods and services at the lowest costs. Profits and companies come and go in the competition to provide goods and services to consumers; and the consumer is always the winner of this competition. And for those naïve enough to think non-profits don’t care about money, Google how much executives of healthcare and healthcare insurance non-profits earn. Mostly non-profit does not mean such organizations don’t care about money, but rather that they don’t pay taxes. As an example, according to 2013 IRS tax filings, 18 of the 23 co-ops paid their top executives salaries ranging from $263,000 to $587,000.
In other ObamaCare exchange news, because of mounting losses approaching $1 billion, the largest US healthcare insurer, UnitedHealth Group, has announced it is considering discontinuing offering policies in the exchanges. The losses are occurring not as a result of business incompetence but rather because ObamaCare regulations virtually guarantee insurance payouts will outpace premiums collected. ObamaCare requires insurers to take on all comers and further precludes them from charging higher premiums to those who are likely to have higher healthcare expenditures. Not unexpectedly, the resultant pool of individuals insured has had significantly higher medical costs than a typical insured pool. The insurers have further noted that many persons signed up and paid premiums for exchange healthcare insurance when they required healthcare and then later dropped out when they no longer need that care.
In the fantasy world of central planners, the increased costs of insurance for covering older and less healthy individuals would be paid for by younger and healthier individuals buying the same policy at the same price. In the real world, the younger and healthy won’t pay for insurance they can’t afford and are unlikely to need. As more of the young and healthy drop out of the insured pool, premiums increase to cover expenditure shortfalls, further driving out younger and healthier individuals; and so the premium spiral progresses.
Those shopping for insurance next year on the exchanges will not only find higher premiums, but also higher copays, higher deductibles, and limited provider networks. Despite significant taxpayer funded premium subsidies, the high deductibles and copays make healthcare unaffordable. The New York Times recently highlighted this problem in their article – “Many Say High Deductibles Make Their Health Law Insurance All but Useless”. A particularly shocking example is the situation of a temporary warehouse worker and her husband who drives an airport shuttle. Their only insurance option is an exchange plan. They get a subsidy for their $275/month “bronze” plan premium but have a $13,200 deductible.
Our country can and must do better to provide more individuals and families with affordable quality healthcare. Further intellectual and political elite economic imagining and designing can only result in more failed outcomes. Healthcare is no different than the rest of the economy. Productivity and value can only result from free markets driven by consumer choice competing to provide healthcare at the highest level of quality and lowest costs.
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