Obamacare Has Met the Enemy, and It is Reality

There’s an old military adage: no plan survives first contact with the enemy.* Obamacare has met its enemy, and that enemy is reality.

The reality that the government is horrid at IT.  (Amazingly, Obama blamed government red tape-namely, contracting requirements-for the failure of his red tape machine to work.  Seriously.  I could not make up that sh*t.) The reality that the need to stock the insurance pool with healthy individuals who would be charged prices well above cost would lead to the cancellation of the private policies that many healthy individuals have (despite an Obama promise that if you like your plan you can keep it). The reality that any scheme built on cross-subsidies is inherently coercive.  The reality that any system that imposes what are effectively price controls on suppliers will result in reductions in quality (i.e., increasingly limited choices of physician, despite an Obama promise that if you like your doctor you can keep him/her.)

And more brutal counteroffensives from reality are to come. There are reports that the administration will attempt to mitigate the sticker shock that many are experiencing (or will inevitably experience) on the exchanges by increasing eligibility for subsidies.  This means that the reality will be that Obamacare will inflate the deficit (despite an Obama promise, duly endorsed by the CBO-arguably under a combination of duress and deceit-that ACA would reduce the deficit.)  And then there will be the reality that Obamacare will not reduce health care costs: how can a plan that extends coverage (both in terms of the comprehensiveness of the policies and the number of people covered) reduce costs?  More reality will bite later.  For instance, the effects on labor supply, due to the effect of Obamacare on effective marginal tax rates. Or effects on the structure of employment, as some companies substitute to part time employment for full time in order to avoid employer mandates.

All of this was predictable.  All of it.  And ironically, those who predicted it are being demonized as wreckers and saboteurs.  If only.  Wrecking this nightmare would prevent the wreckage of a substantial chunk of the US economy-and millions of lives.

* In the US this expression is often attributed to Eisenhower, but it probably traces its origin to a remark by von Moltke the Elder.

About Craig Pirrong 228 Articles

Affiliation: University of Houston

Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.

Professor Pirrong's research focuses on the organization of financial exchanges, derivatives clearing, competition between exchanges, commodity markets, derivatives market manipulation, the relation between market fundamentals and commodity price dynamics, and the implications of this relation for the pricing of commodity derivatives. He has published 30 articles in professional publications, is the author of three books, and has consulted widely, primarily on commodity and market manipulation-related issues.

He holds a Ph.D. in business economics from the University of Chicago.

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