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Obamacare Is Repealing Itself, But Republicans Need To Do More


Congressional Republicans must be breathing a sigh of relief. Instead of bold talk about how they are going to repeal (and maybe replace) Obamacare, it looks like they won’t have to lift a finger.

This is similar to the anticipation over the Supreme Court decision on King v. Burwell. Republicans were in a near-panic that the law would be enforced as written (which is what the plaintiffs were requesting), because they would have to hurry up and actually do something to replace the law, and they had no idea what to do.

It’s not like congressional Republicans have been unable to repeal Obamacare, or at least defund it, all along. Nothing gets spent by this government unless Congress approves it. This is known as “the power of the purse,” and a fearsome power it is—if it gets used.

Never mind all the excuses about “mandatory spending.” There is no mandatory spending. Automatic, yes, but not mandatory. Even a program as sacrosanct as Social Security can be dropped at any time, according to the Supreme Court. There is no contractual right to these benefits, as Michael Tanner wrote in 1998: “[I]n the 1960 case of Fleming v. Nestor, the U.S. Supreme Court ruled that workers have no legally binding contractual rights to their Social Security benefits, and that those benefits can be cut or even eliminated at any time.”

The only reason Republicans have failed to eliminate Obamacare so far is that they are intimidated by the president’s threats to shut down the government if they do. They are afraid that The New York Times will say mean things about them.

But it has recently become clear they are off the hook. Obamacare is collapsing and no one can blame the Republicans. Well, almost no one. The Democrats and The New York Times will still say it is the GOP’s fault for being so stingy, or hating women, or something.

Meanwhile, Back at the Ranch

Meanwhile, here are some recent headlines.

Some Republicans are content to let the whole thing unravel, hoping that will put us back where we were before this whole misadventure began. I sympathize. Certainly conditions are far worse now than they were before.

Obamacare Wasn’t the Beginning of Health-Care Trouble

But “before” wasn’t so great, either. It may be hard to remember, but health care was a mess well before Obama ever got elected. In fact, we had a system that was hugely inefficient, inconvenient, unaccountable, and expensive.

We had a system that was hugely inefficient, inconvenient, unaccountable, and expensive.

Wages stagnated because so much compensation was going into health benefits. Physicians were miserable due to all the intrusions from health plans. Quality was dicey. Health-plan consolidation was reducing competition. Certificate of Need (CON) and other regulations made it hard for new providers to enter the market. Malpractice laws added to costs because providers were practicing “defensive medicine” and over-treating patients to avoid being sued. State-mandated benefits were out of control. And people who bought their own coverage did so with after-tax dollars, making coverage a lot more expensive than it should have been.

Unfortunately, Obamacare failed to address any of these problems. Instead, it focused on some topics that were never really problems in the first place, including:

The uninsured. For all of the talk, the uninsured never were much of a problem. For some 30 years, about 85 percent of the population has been insured and 15 percent uninsured. This has held constant through recessions and boom times, despite expansion of government programs, despite the advent then demise of managed care. It has been the steadiest “trend” imaginable.

The people who were uninsured changed from year to year as people switched jobs, moved to new locations, got sick, and then recovered. The few people who were chronically uninsured typically got services at neighborhood clinics or hospital emergency departments—just as they continue to do today.

For all of the talk, the uninsured never were much of a problem.

Underwriting. Insurance companies have always used underwriting to evaluate the risks they were taking on. They do this for every kind of insurance there is—homeowners insurance, life insurance, worker’s compensation, auto insurance, and so on. They do this so they can set premiums to accurately cover the claims that are likely to be filed. It is not mean. In fact, it protects people who are insured—they can know there will be enough money in the kitty to pay their claims.

Obamacare abolished this practice for health insurance, so insurance companies had no idea how to price their premiums. That is part of the reason we are seeing such large rate increases now.

Risk-based rating. Every kind of insurance sets premiums according to the amount of risk it covers. This makes covering high-risk cases more attractive. Physicians with a lot of claims pay more for malpractice, drivers with a lot of accidents pay more for auto coverage.

On the other side of the equation, people with high risks value having coverage more than people with low risks. They know they are more likely to need the insurance, so they are willing to pay more to get it. If insurers are not allowed to rate according to risk, they try very hard to avoid expensive cases, and low-risk people are not willing to pay inflated premiums for coverage they don’t think they will need. So-called “community rating” has failed whenever it has been tried.

People with high risks know they are more likely to need insurance, so they are willing to pay more to get it.

Medical loss ratios. Requiring insurers to pay out in claims a certain percentage of premiums collected has also failed whenever it has been tried. It encourages over-utilization and fraud, and discourages innovation and competition.

It does the former by curtailing the administrative expense needed for claims adjudication—making sure that only valid claims are paid. It does the latter by dis-allowing the extra expenses required to develop and market new products and systems. A new insurance company will collect a lot of premiums before it starts paying claims. That is the very nature of insurance—premiums are paid well before claims are filed. Consumers don’t really care what the medical loss ratio is as long as premiums are low and claims get paid on time.

Access for young adults. The requirement that young adults be allowed to stay on their parents’ policies until age 26 has a number of pernicious effects. For one thing, it infantilizes people who are legally adults. The way the law is written, such young adults may stay on their parents’ health plans long after they are financially independent, living on their own, and even married with children of their own.

Plus, it removes from the market the very healthiest of potential insurance buyers, raising costs for everybody else. Finally, it addresses something that was never much of a problem in the first place. Before Obamacare, insurers actively sought young people and charged them very low premiums—$50 a month was common in California. Access to coverage was never a problem for this population.

The requirement that young adults be allowed to stay on their parents’ policies until age 26 has a number of pernicious effects.

Fee-for-service payments. Many of the Washington elite blame fee-for-service (FFS) payments for excessive costs in health care. They reason that FFS provides the wrong incentives—the more services physicians perform, the more they get paid.

But this is backwards. Almost everything we do in the course of our lives, we do on a fee-for-service basis—buying groceries and clothing, going to the movies, paying accountants, getting our hair cut. None of it is particularly inflationary. What is different about health care is not FFS, but third-party payment (TPP)—someone else is paying the bill, so we feel no incentive to be thrifty.

Hence, by most estimates, about one-third of health-care services are unnecessary. But the same would be true if we used third-party payments in any other area of our lives. The Obamacare obsession with getting rid of FFS is misguided and a waste of time and effort.

Broker commissions. Insurance companies pay brokers a commission for bringing in new business. They would not do this if it were not a good way of getting customers. But social planners never see much value in marketing. They consider it a waste of resources. Obamacare’s failing CO-OP program disallowed spending any federal money on marketing, calling it “propaganda.” The law’s architects thought they could replace brokers with a Web site, along with a supplemental force of untrained community organizers to explain the alternatives to consumers.

What is different about health care is third-party payment—someone else is paying the bill, so we feel no incentive to be thrifty.

In fact, brokers and other sales people provide an invaluable service in connecting producers and consumers. It is part of what makes the American economy so much more efficient than any socialist economy ever invented. Someday, Web sites may become more effective, as they have with airline travel. When that day comes, brokers will go out of business without any push by the federal government.

Electronic medical records. Electronic medical records (EMRs) are a great idea. Growing numbers of providers have been adopting them without any push from the federal government. However, the notion that some federal agency would set the model for such systems and pay out over $20 billion to get people to use only that model is bizarre.

Centralized command and control over such systems has never worked. The technology is moving too fast, and bureaucracies move too slowly to keep any model current. The United Kingdom tried to do something similar with its National Health Service and ended up scrapping the whole thing, but only after wasting some 12 billion pounds on it.

Return Power to the People

All of these provisions made a mess of what was a fairly well-functioning system. Sure, some people who wanted to buy coverage were unable to, but that could have been easily fixed with a few targeted subsidies and better support for the high-risk pools that already existed in most states. We did not have to toss the entire system on its head.

When this law is finally declared dead, let us hope the Republicans don’t try to replicate all of the useless provisions Obamacare made law. Instead, they should focus on the real problems in the system that Obamacare never even tried to address.

Those problems all stem from too much bureaucracy, too many regulations, and too much management. Adding bureaucrats adds to costs without any improvement in actual patient care. The higher costs go, the greater the rationale for hiring ever-more MBAs and CPAs to manage the money, and more attorneys and “compliance managers” to cope with the regulations. It is a never-ending cycle the “Affordable Care Act” only made far worse.


If Congress responds to the failure of the current law by creating yet more regulations and complexity, the underlying problems will only grow.

There is only one way out of this mess: give the money back to the individuals who earned it and let us make our own decisions about our own health care. Every penny spent on health care in the United States comes from us, the citizens. There is no other source. We may pay it in the form of taxes, insurance premiums, or lost wages, but it is all our money. Give it back! We could hardly do a worse job of managing it than the bureaucrats have done.