Monday, March 29, 2010

Obamacare -- Week 1 has a piece on the effect ObamaCare is having right out of the gate:O-Care - A Good Government Advocate's Nightmare

The essence of O-Care is quite simple: Health insurance is now an arm of the federal government by virtue of extensive federal regulation of the terms, conditions and comparative rates health insurers can offer. The law tells insurers how to run their business and then offers to pick up the cost where conditions prove uneconomic. Hmmmm. If this all sounds a little dodgy, your instincts are correct. We tried this kind of experiment in housing with Fannie Mae and Freddie Mac, which were pressed to buy non-economic sub-prime loans dressed up to look respectable via bundling and shaky insurance.

This secondary market "nudge" by the government was a major reason for the bubble and subsequent collapse of the financial system under the weight of $2T of bogus AAA securities. Expect similar results from health insurers who will look a lot like the housing Government Sponsored Entities (GSEs) going forward. Fannie Mae and Freddie Mac started with a modest mission of helping first time home buyers and morphed into near monopolies in the residential home market ... which then collapsed.

It gets even worse with O-Care. Housing is real property with an underlying intrinsic value. Medical expenses are consumer expenditures with no floors or ceilings. Extensive regulation will mean only a few "too big to fail" mega-insurers are likely to survive -- and for how long who knows. With fewer competitors, the prices go only one direction: UP. Americans will not put up with rationing, and they have come to expect the best care in the world, so any pretense of cost controls is just that: pretense. O-Care only expands the cancerous dynamics of the third party payer and creates more of a sense of entitlement to be paid for by the ever diminishing "other guy".

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