The fatal flaws of Obamacare

I've written a series of posts on this subject, with this being the latest. With today's ACA ruling, the Supreme Court has now surprised nearly everyone, by 1) rejecting the argument that the mandate to purchase health insurance is constitutional under the Commerce clause (thank goodness, since that helps limit Congress' power) and 2) interpreting the penalty for not purchasing health insurance to be a tax (which is sure to make proponents of ACA flinch) and therefore constitutional. Conservatives got some limits on government, but are stuck with a massive new government program; liberals got to keep Obamacare, but are stuck with what could prove to be a hugely unpopular tax.

The Court's ruling has eliminated three of the fatal flaws of Obamacare that I wrote about, but not all of them. The law has survived its constitutional challenge, but it is very likely to fail when it comes to being put into practice, if it is not overturned by a new Congress first. Here's a recap of the remaining fatal flaws as I see them, in the light of today's decision:

Fatal flaw #1: The tax imposed for not buying a policy is virtually certain to be less than the cost of insurance, because the ruling stipulates that the tax cannot be coercive. This, combined with the requirement that insurance companies may not deny coverage to anyone with a pre-existing condition, and must charge everyone the same, means that a large number of people will forgo signing up for a policy, knowing that a) they will save money and b) they can always sign up later for insurance if they turn out to develop a serious medical condition. Insurance companies are thus at great risk of failure, since they will be obligated to provide insurance coverage to everyone, but not everyone will always be paying for it. Moreover, the tax collected for non-compliance will go into the government's coffers, not the insurance companies' coffers. Therefore, insurance companies will have to increase the premiums paid by a dwindling number of healthy individuals willing to pay for coverage, and/or coverage will have to be limited, and/or the government will have to subsidize the entire healthcare industry. However this works out, it will be a huge, unintended, and unpleasant consequence. The law will not work as intended; Robert's seemingly clever solution of calling the mandate a tax may prove to be a poison pill in the end.

Fatal flaw #2: Regulating the price which insurance companies must charge for policies, coupled with a requirement that companies must rebate to their customers the amount by which their loss ratios fall below 90%, effectively turns these companies into government-run enterprises and would likely result in the effective nationalization of the healthcare industry. That is a violation of the Fifth Amendment, and of a Supreme Court requirement "that any firm in a regulated market be allowed to recover a risk-adjusted competitive rate of return on its accumulated capital investment."

Fatal flaw #3: A government-imposed restructuring of the healthcare industry can't possibly improve our healthcare system, and is extremely likely to make it worse. As Don Boudreaux has noted, "Trying to restructure an industry that constitutes one-sixth of the U.S. economy is ... so complicated that it's impossible to accomplish without risking catastrophic failure." No collection of laws or government bureaucrats can achieve anything close to the efficiency that free markets can deliver; the demise of socialism being the most obvious proof of this. Government control of healthcare will inevitably result in higher prices and rationing, leaving everyone worse off.

Fatal flaw #4: The law is riddled with loopholes. It explicitly exempts many people from paying the tax: those with religious objections (including Muslims), those not lawfully present in the U.S., those who are incarcerated, those who can't afford it, those who don't earn enough to require filing a tax return, those who are members of an Indian tribe, and those for whom coverage would represent a hardship. In cases wherein companies find that complying with the law would result in large increases in healthcare premiums that would threaten employees' access to a plan, the Dept. of Health and Human Services may grant a waiver to the company, and the list of waivers granted is already huge. As more and more people and companies escape the tax, those left abiding by it will bear a burden that at some point will become unbearable.

I will reiterate what I've said before: "the defects of this legislation are so massive and pervasive that it will never see the light of day."

UPDATE: Obama Wins the Battle, Roberts Wins the War, by Tom Scocca writing for Slate. HT: mi cuñado

Roberts' genius was in pushing this health care decision through without attaching it to the coattails of an ugly, narrow partisan victory. Obama wins on policy, this time. And Roberts rewrites Congress' power to regulate, opening the door for countless future challenges. In the long term, supporters of curtailing the federal government should be glad to have made that trade.

Full disclosure: I have a pre-existing condition that prevents me from getting an ordinary health insurance policy, so if Obamacare survives I will benefit from its provision which will allow me to get a policy for the same cost as everyone else. Nevertheless, I still think it is a bad law because it will make healthcare worse for everyone in the end.