By Michael Walters at Brownstone dot org.
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Fundamentally, it had a flawed design. Its architects meant to appeal to the public, promising what the old system could not fully deliver - guaranteed access to affordable health cover and coverage for pre-existing conditions (PECs). But they were wrong about being able to keep your doctor or your old policy if you wanted.
Previously individual policies had to exclude PEC coverage to be financially viable. Yet employer group policies often covered it after a waiting period, but the extra costs were spread over their fellow workers - a real burden on medium- and small-sized companies. Under ObamaCare, the very high PEC costs are still spread too narrowly - on each of the very few insurers who have agreed to stay as exchange insurers.
Need a Very Broad Base to Bear PEC Risk
In the most successful European healthcare systems, e.g., Germany and Switzerland, the federal government handles the PEC risk, via national pools and government subsidies, sparing the burden on individual insurers. Those costs are spread through the national tax base, not borne by an individual insurer who is prohibited from rejecting insureds with a high-cost PEC.
Not Designed to Last
Skeptics believe that ObamaCare designers knew of this potential death spiral of increasing costs among fewer and fewer insurers, ultimately causing it to fail. To appeal to the public, they made expensive PECs free for exchange insurers. Also, other costly sweeteners were made free: lifetime unlimited benefits and coverage for children until age 26.
This meant that the few insurers left in the exchange would continuously have to raise rates substantially, as lower-risk and younger people would opt out. Higher-risk insureds would stay and force still higher premiums to avoid insurer collapse. That spiral of continually more adverse selection would mean the demise of the system. The exchange insurers could simply pull out. The federal law establishing ObamaCare did not have the authority to impose mandatory insurer participation, like state laws can on assigned risk participation.
The likely strategy of ObamaCare's architects was for it to be a stopgap measure before converting it to "single-payer" socialized medicine. Major group insurers initially supported ObamaCare passage because, after conversion to single payer, those insurers would become third-party administrators (TPAs). When servicing the future single-payer market, TPAs would be paid a guaranteed fee (e.g., 3 or 4%), with no chance of a loss, to process premiums and pay claims on behalf of the federal government. This strategy ignores failed past experiments with TPAs, where no stake in the outcome, just tended to drive up overall claim costs.
Another clue that ObamaCare was not designed to last was that it never addressed the competitive disadvantage of individual policies having no tax deduction. In contrast, employer-based coverage enjoyed the longstanding tax exemption for group insurance. This was installed in World War II to get around wage and price controls, but was not rescinded, partially because the public liked the tax deduction.
In his landmark 2001 essay, "How to Cure Healthcare," Nobel Economics Laureate Milton Friedman decried this feature because it drives up overall costs due to defensive medicine, when the individual is insulated from the price/value decision. "Who cares about that extra unneeded procedure? You are not paying for it."
Doctors are incentivized to order extra, paid-for tests, as "defensive medicine," to mitigate a litigious US tort environment. Some estimates are that this drives up overall costs by 10% to 15%.
Also, because the public liked the tax deduction, to compete better, the individual policy option may have to give some tax relief.
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