Obamacare: Bad Economics, Bad "Insurance"

As we’ve just passed the 3rd anniversary of the passage of Obamacare, it’s worth it to reflect on merits of the bill.

Obamacare was sold to the public as universal health insurance. Insurance, in and of itself, is an exchange of a premium payment in return for a guarantee against specific loss criteria — such as damage or death. Prime examples of this are home and life insurance. And yet, health insurance in our country is not merely a guarantee against loss due to ill health; it encompasses much, much more. In this way, health insurance doesn’t follow the examples of other insurance industries, and therein lies a major reason for Obamacare’s growing economic difficulties ($1.85 trillion) and growing opposition.

Typical health insurance plans nowadays function by providing both insurance and coverage of certain medical costs. With ObamaCare comes the individual mandate, which most people understand the meaning to be that everyone is required to purchase for themselves a health insurance policy (hence the idea of “universal coverage”). The rationale in favor of the individual mandate is to safeguard against societal calamity — that if someone doesn’t have health insurance and they get into an accident or get sick, he doesn’t become a burden on society.

A mandate to buy health insurance might not sound so terrible on the surface to some, because it dictates the purchase of something that just about everyone wants to buy anyway since it is sensible to do so. But what makes Obamacare’s individual mandate so odious is that it it forces people to buy a product comprised of both insurance and a slew of pre-selected, prepaid medical care – which includes paying for stuff they don’t need. This intentionally misuses people’s ability to buy their own reasonably priced insurance. And because the mandate requires coverage to be universal, you have to include everything and everyone, such as preexisting conditions, high risk, etc. Therefore, the individual mandate requires an-insurance-that-is-not really-just-insurance, making reality very different than what it is thought to be.

From an economic standpoint, the individual mandate is a terrible idea because its sole purpose is to obfuscate the true cost of caring for those persons whose circumstances or risk, such as preexisting conditions or age, would result in paying more for health insurance. By controlling the prices through artificial means instead of private competition, the individual mandate creates a misallocation of resources, which is a failure of the fundamental principles of Economics 101.

A second major problem with the individual mandate as it is written is that you can forgo coverage in lieu of paying a penalty and then if you develop a condition, you can still get coverage without being denied due to a pre-existing condition. Unfortunately, this only serves to make prices more expensive for those who are healthy because there must be funds to cover those who are not.

I would argue that having health insurance coverage should not be a mandate in the strict sense of the word; i.e, one should not be required to purchase it. That being said, I also think that people should regard the ownership of a health insurance policy (a “true insurance”) as a basic necessity for proper living. The attitude toward health insurance coverage –- by citizens, legislators, and insurance companies alike —- truly needs a paradigm shift if health care is to be reformed for the better. The health insurance sector must be restructured to resemble other insurance industries such as life, fire, and home; in doing so, they will create a more competitive and dignified system as well as fulfill the purpose of safeguarding against an unforeseen disaster. Therefore, the actual components of what comprises “health insurance” (currently insurance and pre-paid medical care) must change.

The idea of helping everyone to carry health insurance sounds like a lofty goal. However, the individual mandate is the wrong way to attain this. From human point of view, the idea that all persons have coverage may be good, but imposing the mandate is bad for liberty. Turning basic economics on its head, it incentivizes the wrong things and creates most expensive health care possible.

The government has never been efficient with other people’s money. The economics of the current health care law will only serve to reduce the quality of health care for our citizens because it lacks free market competition. A health care reform solution could be focusing on providing a ” true insurance” product that everyone could have – one that protects against having an extraordinary event happen whose economics is more than can be afforded. Obamacare is not an insurance; it is pre-paid medical care system whose product provides for all at all costs. Imposing an individual mandate for such a program is ultimately economically unsustainable. The current health care law should be overturned for the sake of the economic health of this country.