Thursday, July 19, 2012

Some Thoughts on Obamacare, Part II

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One likely result of mandating the purchase of health insurance is that insurance companies will start to raise rates. Simple economics tells us that if the demand rises, so will the price, even if that demand is enforced by the IRS. In addition, the rule that insurers cannot decline coverage to customers with preexisting conditions (and must charge the healthy and the sick the same price) will drive up insurance costs. Such customers represent definite expenditures that insurers will have to make, and the addition of such customers to the insurance pool will force insurers to raise rates to cover those expenditures. We have already seen this in advance of the provision becoming law.
A side prediction here is that what counts as a "preexisting condition" will slowly expand over time, since once the definition is in the government's hands, the incentive for patient/customers and the medical providers who will receive payment to lobby for the inclusion of particular conditions will be huge. The Americans with Disabilities Act's constant expansion is instructive here and will likely serve as the legal basis for expanding the definition of a "condition."

Such controversies will continue and get progressively uglier. The problem with mandates and the socialization of costs is that there is no "exit" option for peacefully settling disagreements by tolerating other people's choices. For example, if I am a religious conservative who doesn't like that JC Penney used same-sex couples in their advertisements, I am free to "exit" my relationship with it by shopping elsewhere. I can accept that some will buy from Penney, but I need not. Mandatory minimum coverage means that anyone who objects to the politically determined minimum has no option other than to use the political process to try to change it. Those battles will be ugly and will drive up costs.

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