The Absurdities of ACA

Catching up on Obamacare news. The absurdity and flackery are coming fast and furious. Indeed, the flackery is intensifying because the absurdities of ACA are becoming more evident by the day, so more obfuscation is needed.

The most notable instance relates to the CBO’s report that Obamacare will cause employment to fall by over 2 million.  My first reaction was: NOW they tell us. Because it’s not like the incentive effect that the CBO bases its analysis wasn’t known or understood at the time Obamacare was debated and passed. The phasing out of subsidies as income rises is effectively a large increase in the marginal tax rate on earned income. Combined with the related effects in other forms of government assistance, the marginal tax rate on work becomes very high, and many individuals will rationally respond to this by reducing labor supply, either by cutting hours (working part time) or withdrawing from the labor force altogether. Again, it’s not like this is some novel concept: why the hell didn’t CBO take this into account when evaluating ACA in 2010? (Aside: since when are liberals so enamored with regressive tax systems?)

But the administration says: “Employment falls?  No big deal.  This is a supply side effect, not a demand side effect.  So no problem!“:

That, proponents say, is a good thing. White House Press Secretary Jay Carney pushed back on the “job-killing” claim, saying that “CBO’s findings are not driven by an assumption that [the Affordable Care Act] will lead employers to eliminate jobs or reduce hours.”

“Americans would no longer be trapped in a job just to provide coverage for their families,” he added.

Various liberal publications and administration acolytes are saying this is a wonderful thing.  No more job lock!  Um, “job lock” was defined as people not moving to another job because of a fear of losing coverage from their current one: it was never-never-defined as people being locked into working instead of pursuing their dreams to become puppeteers.   (Well, maybe it was, but not by serious people.)

Indeed, to read some of the commentary, it seems that this is just great news.  Indeed, to hear them tell it, Obamacare is making it possible to realize Marx’s dream:

He is a hunter, a fisherman, a herdsman, or a critical critic, and must remain so if he does not want to lose his means of livelihood; while in communist society, where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner, just as I have a mind, without ever becoming hunter, fisherman, herdsman or critic. This fixation of social activity, this consolidation of what we ourselves produce into an objective power above us, growing out of our control, thwarting our expectations, bringing to naught our calculations, is one of the chief factors in historical development up till now.

Come to think of it, Nancy Pelosi said something similar when Obamacare was being debated.  But again, I specifically said I was referring to serious people:

Think of an economy where people could be an artist or a photographer or a writer without worrying about keeping their day job in order to have health insurance.

One of the biggest flacks for Obamacare, Pulitzer Prize winner Michael Hiltzik of the LA Times, went into overdrive saying how the job loss is actually great news.  But that’s not the most annoying of Hiltzik’s columns.  This one from the weekend really got me:

Insurance companies, bless their hearts, seem determined to remind us why we need the Affordable Care Act. The latest example comes from Anthem Blue Cross, which has just hit 306,000 customers in California with premium increases of up to 25%.

As reported by my colleague Chad Terhune, the increases average 16% and are scheduled to kick in April 1, unless the state Department of Insurance jawbones Anthem into backing down.

Here’s the kicker: No one can blame these increases on the mandates of the Affordable Care Act, a popular argument among critics of the act. That’s because the increases are for grandfathered policies exempt from the act.

There’s stupid, and there’s Pulitzer Prize winning stupid.  (And yeah, I’m looking at you, David Kocieniewski.)

Let’s walk through this, shall we, and use some actual economics.  Yes, ACA grandfathered policies.  But in so doing it effectively crushed competition in the market for individual policies.  Pre-ACA, there was competition in the market for individual policies.  Not perfect competition, but someone buying on the individual market could go to another provider if his/her current provider jacked up premiums too much.  This ability to switch provided an element of competition on prices and terms (e.g., deductible, coverage) that limited the ability of any individual insurer to charge supercompetitive premiums.

Post-ACA, everything changed.  If you have a grandfathered policy, you now have two choices: the grandfathered policy or Obamacare.  Due to the coverage mandates, community rating, cross-subsidies and other factors, for many of those currently purchasing on the individual care market find the Obamacare policies to be very expensive on a quality-adjusted basis (e.g., taking into account deductibles and other policy terms).  So consider the seller of a grandfathered policy.  The insurer knows that your only choices are (a) buy an outrageously expensive Obamacare policy, or (b) do without insurance altogether.  The insurer knows that you cannot get a policy equivalent to your current policy from another insurer.  So there is no competition to speak of.  The expensive Obamacare package provides a very high price ceiling.  As long as the insurer charges a premium that is not so high as to get you to go without insurance, it can get away with it with no fear of losing you as a customer.

That is to say, the rise in premiums on grandfathered policies is clearly the result of the ACA.  In particular, it is the result of the pricing structure of Obamacare and its effect on competition in the market for individual policies.  The pricing structure means that the only competition for a grandfathered policy is a very expensive ACA policy.

And we’re supposed to be shocked that insurers take advantage of the gift of reduced competition?

It is beyond bizarre to see those on the left who rail against the rapacity of insurance companies-people like Hiltzik-defend Obamacare even though it puts people at the complete mercy of said rapacious insurers.

There is so much else to choose from, but it’s late and I’m tired after teaching, so I’ll just mention one more absurdity.  No deep economics here.  (As if the effects of Obamacare on competition and the incentive to work are all that deep: Econ 101 really.)

No, just add this to the Sovok Hacker category:

U.S. intelligence agencies last week urged the Obama administration to check its new healthcare network for malicious software after learning that developers linked to the Belarus government helped produce the website, raising fresh concerns that private data posted by millions of Americans will be compromised.

The intelligence agencies notified the Department of Health and Human Services, the agency in charge of the network, about their concerns last week. Specifically, officials warned that programmers in Belarus, a former Soviet republic closely allied with Russia, were suspected of inserting malicious code that could be used for cyber attacks, according to U.S. officials familiar with the concerns.

The software links the millions of Americans who signed up for Obamacare to the federal government and more than 300 medical institutions and healthcare providers.

“The U.S. Affordable Care Act software was written in part in Belarus by software developers under state control, and that makes the software a potential target for cyber attacks,” one official said.

But yeah, I’d feel totally comfortable in giving all my most sensitive private information to a website that includes software written by Belarussian programmers linked to the Lukashenko government.  What could possibly go wrong?

But hey, if being hacked by Sovoks is not a problem for you, once you’ve signed up for Obamacare, get thyself to Sochi.  And make sure to bring your smartphone, laptop, iPad. Fire them all up at once:

“The State Department warned that travelers should have no expectation of privacy, even in their hotel rooms,” NBC’s Richard Engel said in a report on Brian Williams’s show last night. “And as we found out, you are especially exposed as soon as you try to communicate with anything.”

According to Mr. Engel, hackers are waiting stealthily on the sidelines to break into your devices as soon as you log on to the Internet (and let’s face it—what the hell else are you going to do after a 75-hour-long flight to southern Russia?)

To illustrate his point, Mr. Engel brought two new laptops to Sochi. With the help of an American security expert, he uploaded a fake identity and fake contact list onto the computers—both were hacked within the day. “It had taken hackers less than one minute to pounce,” he said, “Within 24 hours, they’d broken into both computers and started helping themselves to my data.”

So I’m totally cool with Belarussian programmers writing Obamacare website code.  You aren’t?  What is your problem, anyways?  You have to believe!

So sign up, get your identity stolen, and then fulfill your dream of being a puppeteer!

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About Craig Pirrong 238 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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