Thursday, January 20, 2011

Bringing in the unseen effects to throw light on Obamacare

One of the classical concepts in economics is the concept put forth by Frédéric Bastiat, a 19th century French economist, drawing people's attention to what is seen and unseen. This is the story of broken windows where the townspeople are happy about the work that the glazier will have to fix the window, but ignore how the money would have been spent if the owner hadn't had to spend it on fixing a window. Kevin Williamson applies this theory to the Democrats' arguments that Obamacare will reduce the deficit.
Obamacare achieves some purported deficit reduction (in a perfect world, in which CBO rules operate like the laws of physics), but imposes many billions of dollars in new taxes to do so. If we are willing to pay higher taxes to reduce the deficit, and if this is good, then the Democrats should have passed a straight-up tax increase. Obamacare is not a deficit-reduction plan; it is a giant tax-and-spend plan in which the taxes theoretically outweigh the spending. Obamacare’s deficit-reduction qualities, such as they are, are camouflage, a talking point built into the legislation. Even the CBO expresses serious doubts about the assumptions that were used to generate that talking point.

Obamacare will enable some people to get insurance coverage who did not have it before. That is what is seen. What is unseen is that many people will lose their insurance coverage, or have it degraded, because of the law.
What is unseen is the medical research that will not be done.
Here is what is unseen: There is an important relationship between medical innovation and health outcomes. Innovation costs money. Real money. Innovation requires investment, which requires capital. As Obamacare shunts great streams of capital out of the productive health-care economy into the growing health-care bureaucracies, for instance by taxing medical devices, that money will not be available to fund research, development, or innovation. Yes, little Jimmy, the 26-year-old “child” still clinging to his mommy’s insurance coverage, may lose out if Obamacare is repealed. But how many thousands, or more than thousands, will lose out because of the diverted investment and lost innovation? There is no way to know, of course, and no way to quantify that.

Trade-offs are a reality, in health care as in all endeavors. Obamacare does not make wise trade-offs, and it does not restructure our health-care system in such a way that it will empower consumers, encourage the emergence of a more functional market for health-care services, align economic incentives, or encourage innovation and organic cost controls. It is, simply put, a very badly designed piece of legislation, one rushed through Congress in order to give President Obama the opportunity to affix his signature to something titled “health-care reform.” It is an act of Congress, not an act of God, and it should be repealed and replaced with a more intelligently designed alternative. All of the political considerations are secondary: Obamacare is a bad law, like Prohibition was a bad law, like Smoot-Hawley was a bad law, and we need not live with it.
As our medical care system deteriorates, many won't understand the connection with Obamacare. That is what sly politicians always hope - that the bad effects of their policy choices will occur farther on down the road and not be connected back to the votes they made.

Meanwhile the Democrats trumpet the idea that Obamacare now insures those with pre-existing conditions who couldn't get insurance previously. Megan McArdle takes on that claim by asking where those patients are.
Here is what is unseen: There is an important relationship between medical innovation and health outcomes. Innovation costs money. Real money. Innovation requires investment, which requires capital. As Obamacare shunts great streams of capital out of the productive health-care economy into the growing health-care bureaucracies, for instance by taxing medical devices, that money will not be available to fund research, development, or innovation. Yes, little Jimmy, the 26-year-old “child” still clinging to his mommy’s insurance coverage, may lose out if Obamacare is repealed. But how many thousands, or more than thousands, will lose out because of the diverted investment and lost innovation? There is no way to know, of course, and no way to quantify that.

Trade-offs are a reality, in health care as in all endeavors. Obamacare does not make wise trade-offs, and it does not restructure our health-care system in such a way that it will empower consumers, encourage the emergence of a more functional market for health-care services, align economic incentives, or encourage innovation and organic cost controls. It is, simply put, a very badly designed piece of legislation, one rushed through Congress in order to give President Obama the opportunity to affix his signature to something titled “health-care reform.” It is an act of Congress, not an act of God, and it should be repealed and replaced with a more intelligently designed alternative. All of the political considerations are secondary: Obamacare is a bad law, like Prohibition was a bad law, like Smoot-Hawley was a bad law, and we need not live with it.
Read her post as she explores several possibilities such as these people still not being able to afford the premiums in the high-risk pools. For some it would still be a choice be between insurance and rent. Yet many of those people could qualify for Medicaid. McArdle can't figure it out, but she does pose an important question: where are the 98% of the people predicted who would be taking advantage of this aspect of Obamacare?
eople with disabling chronic conditions are indeed often too poor to afford health insurance, but they're also disproportionately likely to end up on disability and thus Medicaid. Certainly, I wouldn't be surprised to hear that uptake had been depressed by the pricetag of insurance in the individual market. But I don't think this explains why 98% of the potentially insurable population is missing.

So where are the rest? Are they simply choosing to have a nicer lifestyle, rather than buying insurance--ranking nice cell phones, decent cars, and another bedroom in the apartment over paying hundreds a month for health insurance? Possibly, but this too has problems. There must be some people out there whose monthly out-of-pocket expenses exceed the premiums in the high risk pools. Why aren't they buying?