ObamaCare Meets ObamaNomics

Perhaps the one leftist/big-government idea that has been a more obvious failure than any other is the idea of government decreed price controls.

Price controls have been tried many times, all over the world, and are usually the last phase of failed experiments in government central planning and regulation.  The most recent experience in America was during the seventies, under President Nixon, who proved that no government is powerful enough to overrule the laws of mathematics.  No business, large or small, can survive if government holds its selling prices below its cost.

Regardless of the verdict of history, President Obama’s version of ObamaCare, published last week in the form of a marketing brochure, includes the possibility of government price controls on health insurance, if the other requirements of ObamaCare drive premiums too high.

Those other requirements begin with what the insurance industry calls “guaranteed issue,” or accepting people with pre-existing conditions for health insurance.

Both House and Senate versions of ObamaCare make guaranteed issue a universal entitlement.  Thus, anyone who is already sick would be permitted to plunk down one month’s premium for “insurance” and then immediately submit a claim and receive tens of thousands of dollars of medical services at the expense of the insurance company.  This is like buying fire insurance on a house that’s already on fire.

To a large extent guaranteed issue is already in effect.  A 1996 federal law, the Health Insurance Portability and Accountability Act (HIPAA), requires guaranteed issue for members of employee groups after one year on the job.  Some states also require guaranteed issue for individual policies.

The recent rapid rise in the cost of health insurance in recent years coincides with varying forms of guaranteed issue imposed by state and federal law.

We all feel compassion toward someone who couldn’t afford to become insured before getting sick.  Nobody wants to see such unfortunate people denied medical care.  Politicians want the credit for providing care for uninsured sick people but don’’t want the blame for higher taxes that would be required if government paid for it.

So the political solution of choice is guaranteed issue, making insurance companies the de facto tax collectors, by forcing them to raise premiums for everyone to cover the costs of caring for people who are already sick when they apply for insurance.

An unplanned consequence of government imposed guaranteed issue has been the incentive for healthy people to delay buying insurance until they get sick, adding even more upward pressure on the premiums that have to be collected from those who are buying insurance. Even politicians can understand that the insurance business won’t pencil out, and eventually will cease to exist, if enough people take advantage of this loophole.

Obama and the Democrats have sought to couple guaranteed issue with a mechanism that coerces everyone who is not sick to pay for insurance.  Both House and Senate versions of ObamaCare include fines imposed on those who don’t buy health insurance.  In the President’s own version of ObamaCare the fine $695 per year.

Obviously, this fine is only a small fraction of the price of a health insurance policy.  It would take a much larger fine to coerce people who have decided to defer buying insurance until such time as they may become sick and need treatment.  Also, it appears that these small fines will be kept by government and not paid to the insurance companies who must collect enough from their customers to cover the cost of guaranteed issue.

So the whole exercise misses the mark.  It will do nothing to slow down rising premiums brought on by guaranteed issue requirements.  The insurance companies will still bear 100% of the ever increasing risk and cost of guaranteed issue.  To remain solvent and able to pay all claims insurance companies will have no choice but to continuously raise premiums on everyone who does buy insurance before they get sick.

So How does the President plan to solve this problem, created by his guaranteed issue requirement and his toothless fine for non-compliance?  In defiance of the laws of mathematics he will impose price controls.  The following is from page 3 of the Summary of the President’s version, posted on the White House web site:

One essential policy is “rate review” meaning that health insurers must submit their proposed premium increases to the State authority or Secretary for review. The President’s Proposal strengthens this policy by ensuring that, if a rate increase is unreasonable and unjustified, health insurers must lower premiums, provide rebates, or take other actions to make premiums affordable.

What would make an increase “unreasonable and unjustified?”  Probably, one that sparks a public backlash against politicians!

A majority of Americans is too young to remember the fiasco that was the Nixon price controls of the Seventies. So what the heck?  Lets try it again!