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Tom Firey: A good reason to oppose Obamacare

February 13, 2013|By TOM FIREY

Some supporters of the nation’s new health care law insist that its critics are motivated solely by politics and have no good reason for their opposition. In fact, serious critics have raised many legitimate concerns about the law, which is formally called the Patient Protection and Affordable Care Act (PPACA) and more commonly called Obamacare. I’ve wanted to write about those concerns for some time, but health care policy is complex and such a discussion can’t be condensed into a single column. So beginning last December, I’ve tried to do it in three.

The first column explained that though PPACA is often described as “comprehensive reform,” it really only pursues one goal — to increase the number of people covered by health insurance. Yet, insurance has a worrisome hitch: It gives third parties (insurers, employers and government) influence over the doctor-patient relationship. That can exacerbate several serious problems with U.S. health care, including high costs, poor quality and poor responsiveness to patients — problems PPACA largely ignores. By expanding coverage, the new law likely will make those problems worse.

The second column explained why PPACA’s architects were so focused on insurance. Coverage seems to promote better health (though, surprisingly, the empirical evidence for that is thin). Just as important, insurance appears to produce the same level of care as single-payer (government-financed) or socialized (government-operated) medicine, but at a much lower cost. The column then described how health insurance operates: It groups together people with roughly similar risk of health problems, charges them a premium reflecting that risk and prospective cost, and uses the money to cover customers who develop a costly illness. The premium also covers “routine” health care that most people ordinarily use, in essence having customers “pre-pay” for those services. Because employer-provided insurance is not taxable, this pre-payment gives customers a tax break.

But what if PPACA unintentionally creates incentive for people and employers to drop their insurance? That is, what if it undermines the only health care problem it tries to solve? As University of Missouri law professor Thom Lambert explained in a recent journal article, this might be the case.

One of PPACA’s most-praised features is its requirement that insurers cover all paying customers regardless of their health. The requirement limits insurers’ ability to raise premiums on new customers with expensive “pre-existing conditions.” Remember from above that insurance operates by grouping together people with roughly similar risk, and charging them a premium based on that risk and prospective cost. People with a pre-existing condition have a 100 percent risk of their condition, but PPACA requires that they be grouped with people who have only ordinary risk. That means that healthy group members will be charged a much higher premium to cover ill newcomers.

As Lambert explains, this creates a perverse incentive for healthy people to drop their coverage and repurchase it only if they contract a costly illness. This could produce a vicious circle: The higher premiums cause some healthy people to drop their insurance, which raises the combined risk of the remaining insurance pool, which results in still-higher premiums, which causes more healthy people to drop insurance, and so on. PPACA’s various subsidies and penalties will slightly dampen this effect, but they won’t stop the circle. If Lambert is right, PPACA could result in less coverage and higher cost — the opposite of what its architects intended.

Since the beginning of this century, American politicians have adopted a number of high-minded policies: the Patriot Act, invasion and nation-building in Iraq, and fiscal stimulus to return the U.S. economy to good health. Despite the lofty intentions, each of those policies has proved costly and ill-conceived — or worse. PPACA will add to this 21st-century string of failures.

Two decades from now, the need for health care reform will be every bit as great as it was before the new health care law. And that’s a good reason to oppose PPACA.

Thomas A. Firey is a senior fellow for the Maryland Public Policy Institute and a Washington County native.

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