Wednesday, March 24, 2010

Next Stop, Nationalization

I've been hearing advocates of the shiny new health-care legislation crow about the new America where (eventually) everyone will be covered. This is simply not true. Let's look at Obamacare's two central pillars for expanding coverage:
  1. Banning insurance companies from rejecting risky individuals. (Thus guaranteeing adverse selection.)
  2. Mandating that everyone buy insurance. (To combat adverse selection, and the dreaded death spiral.)
As Bryan Caplan notes here and here, intention and reality may not intersect:
If preliminary summaries of Obamacare are true, it looks like individual health insurance will soon be a better deal than employer-provided health insurance. In the individual market, you can now wait until you're really sick to buy insurance: "Heads I win, tails I break even." Firms won't have that gimme - and it seems more valuable than premiums' tax deductibility. Admittedly, Obamacare imposes a small penalty on individuals who don't buy insurance, and a moderate penalty on firms that don't provide it. But it still seems like it will be in the financial self-interest of many firms and their workers to get rid of insurance, and split the (cash savings minus penalties).
This means the result could be a full plunge into the death spiral. Rather than reducing health-care costs (something the law doesn't even attempt to do), they would skyrocket. For me, Obamacare is a boon. I could cancel my employer-provided policy, which I rarely use, and just opt-in when I need it. As Caplan says: "Heads I win, tails I break even." I would have to pay the penalty (which will be levied by the IRS), but that's still cheaper than my premiums and co-payments. In response, the government has three options:
  1. Repeal the legislation. (Unlikely: just look at the twin financial catastrophes known as Social Security and Medicare.)
  2. Dramatically increase the penalties for individuals and firms. (More likely, but politically unsavory.)
  3. Nationalize the health-care system. (Depending on the political makeup of the government in 10 years, a real possibility.)
Given these possibilities, the third option seems the most likely. The cynic in me thinks this was the Dems' plan all along. They pass a bill that get's the camel's nose into the tent, only to get what they really want in a few years (also known as the Fabian model). Again, given the nature of the political process, it may very well work. Bad news for those of us who still value freedom, but by now, we're already used to bad news.