The Unaffordable Care Act, part deux

The crowing that you hear this morning is not the proverbial rooster announcing the start of a new day.  It is instead the chorus of professional pundits and Washington insiders celebrating the failure of the Republican controlled house to bring a vote to the floor in their repeal and replace efforts on the ACA, or Obamacare.  It is a predictable reaction born of their propensity for Shadenfreude. For those who may be unfamiliar with this term it is a German word which roughly translates to joy at the misfortunes of others.  Any news that is bad news for the administration is good news to them. These are pundits with stripes identifying them as coming from both sides of the aisle.

There are those of Democrat sympathy who praise the fact that their golden piece of legislation has been preserved. There are also those favoring the Republican side who assure us this is just one more example of the false and feckless leadership within the party. After countless attempts, all of which were doomed to a veto while Obama remained in office, they have finally had both houses of congress and the White House and they still cant get it done. More excuses.

As with most things that come out of Washington one needs to wade into the weeds that reside somewhere between the two versions of the story to find something resembling the truth.  There is the narrative that speaker Paul Ryan needed to pull the vote at the last minute to save themselves the humiliation of a defeat. There is some measure of truth in this and it reflects a certain common sense.  If it is known in advance that there are not sufficient votes to pass the measure there would be little sense in going through the exercise. It is true that having done so, in what seems to be the favored term of the day, would have made for “bad optics”.  But as the stated objective from the beginning was to repeal and replace it would make little sense to try to pass a bill that was clearly not going to achieve this.

The opposition party hails this as an “see, I told you so!” moment, proving that Republicans are incapable of governing. And of course they can’t resist the opportunity to claim a victory in halting one the President’s key initiatives. It furthers their long held narrative that the President, who is not of their ranks, is nothing more than an unenlightened populist and a rank amateur. This comes from people who have been on the inside and understand how government works. Okay. Let us accept this premise for a moment. They know how to make it all work because they have been there, inside as part of the system. They consider themselves to be the professionals. Well if that’s true they need to be judged upon their record which quite frankly isn’t all that great. These are the members of congress, Republicans too, who have had control of the purse strings of our federal treasury. It is their constitutionally mandated job. They have presided over years of record high tax receipts and yet they still have managed to engage in deficit spending at a rate of one trillion dollars annually. This record of performance in the private sector could not be sustained nor would it be tolerated, but in Washington that is just business as usual.

Now here is the truth of the matter. The Democrats did not defeat this. The effort was defeated by Republican members of the “freedom caucus”, as they have come to be known. They refused to provide the speaker with their votes which were needed to attain passage of the measure. Further, this action is not a defeat. It is an action which prevented passage of a flawed piece of legislation. A wise woman once said to me “why stop doing one thing that makes you unhappy to do something else that still makes you unhappy?” We’re not talking about happiness in this instance, but the message still applies. The Affordable Care Act, for any measure of good it may have done, has been an unmitigated disaster. To repeal it and then replace it with a version that is only disastrous to a lesser degree is still a disaster nonetheless. It’s better to take the time to get it right.

Getting it right is not that hard. All that need be done is to learn from our mistakes. The matter in question is not health care: it is health insurance. Health insurance is generally regarded as something that one should purchase, a wise investment if you will. It is not something that, as the ACA dictates, one should be mandated to purchase by the federal government. Let us consider a line item present in most household budgets that is not as critical as health insurance.

How many of you out there have a monthly cable bill? Are you happy with your cable provider? Do you feel that you have enough choices in providers available to you and is there healthy competition among providers? The response to these questions will not be universal I am sure, but for the vast majority the answers will be in order yes, no, no and no. In the ideal of a free market if there are conditions which a majority of consumers find unsatisfactory the market will respond. In a free market this occurs when a competitor enters the market or an existing player in the market responds to the wants of the consumer. As consumers move to take advantage of the more attractive service or value of a competitor this drives the direction of the market. The other providers adapt or they fail. Now if you follow this you are probably led to the question “why doesn’t this happen with the cable companies?”

The reason is rather simple. The cable industry is not a free market. Cable companies, in order to operate legally, have to be licensed. Licensing is a function of government, at the federal level through the FCC, and also through a myriad of state and local regulatory authorities. These licenses insure two things. First they insure that the State is in for a piece of the pie. Second, as a reward for their fealty the cable companies are granted monopolies outright or benefit from regulations which foster conditions to create and preserve a monopoly. The rules of the game are rigged to favor the players who can pay the biggest tribute. This helps them, it feeds the regulators and it locks out those who would otherwise introduce competition in the form of better performance or better rates. This breaks down to this simple formula:

 

Winner = Cable Company & Regulators

Loser = The Consumer (you)

Want another example? Here is a good one.  In recent years there are lot of people who have finally succeeded in giving up the habit of smoking cigarettes.  Many of us (yes, I am among their ranks) have done so through the use of the e-cig, or “vaping”. Maybe it doesn’t work for everyone. Of course that may be because everyone is not ready to quit, but I digress…

Here is a classic example of the free market at work. The product gains in acceptance and popularity. The market responds to meet the growing demand with the start up of thousands of small vaping shops nationwide. Its a win-win, right? People are finding an effective way to give up a harmful habit (albeit still legal, mind you) and others are realizing a livelihood as a result. Winner, winner, chicken dinner….so who is the loser? Well that would be the tobacco companies. You see although their business may be thriving in other corners of the globe, here in the United States their market is dwindling and doing so rapidly. But don’t worry for them. They’ve got this covered.

There are several reasons for their declining market. Part of it can be attributed to more education and anti-smoking promotion. Another part of it are the obscenely punitive sin taxes placed upon the product. These are enacted ostensibly to reduce smoking, which to some degree has certainly worked. The revenues are supposedly directed to help cover health care costs associated with smoking related diseases. As these factors have moved more away from cigarettes the tobacco companies have recognized that many of their former customers have switched to vaping. To recapture a part of that market the tobacco companies have come to market with e-cig products of their own. In terms of the conventional tobacco product companies there are not a lot of players remaining and little chance of new ones starting up. The new frontier of vaping, however, is still an open field. And here is where the free market ends.

In the latter half of 2016 a piece of existing federal regulations were amended which provided the FDA with the authority over e-cig products. Never mind the fact that the regulations were written to apply to tobacco products and e-cigs contain 0% tobacco. What do you suppose is the net result of this? Thousands of these small, private vaping companies are compelled to cough up extortionate fees and perform costly upgrades in their businesses in order to remain licensed to sell. This achieves the unstated but clearly intended purpose of putting them out of business. Of course the tobacco companies can absorb these costs. It’s a small price to pay in order to recapture that market which has moved to vaping. The same government that continues to pass laws restricting tobacco consumption wherever possible and preach to us all about the evils of “big tobacco” continues to profit handsomely from revenues realized from the sale of the product. Acting through regulation which protects the tobacco companies they continue to salvage those revenues by placing the taxes upon a product that does not even contain tobacco. Here is another formula:

Winner = Tobacco Companies and Government Regulators

Loser = The Consumer

A significant part of the mantra chanted to get the ACA passed was demonizing those evil insurance companies. There is little doubt that the design of the ACA was to ultimately put the private insurers out of business. The economics of it assures this. Part of the method for obtaining passage of the act was to entice those same insurance companies to get on board with the plan. In the short term the industry did profit from this, but the Act was a beverage served up with a poison pill. We’ve seen the result of this as insurers continue to bail from the exchanges.

There is one aspect of that sales job that I am still surprised they were able to put over on the insurance companies.  With a limited number of providers in the marketplace and a law mandating the purchase of the product the insurers were no doubt enticed by being handed a captive market. They are in the business and had to understand that certain models have to be in operation in order for the insurer to remain solvent. This model was the younger healthier citizen being compelled to “buy in”, thus subsidizing the greater pay outs typically required by the older and less healthy. One of the more popular provisions of the ACA was that which allowed parents to leave adult children up to the age of 26 on their policies. With so many college grads working at Starbucks and still living in Mom and Dad’s basement its understandable why this part of the ACA has been embraced. Yet how did the insurance companies fail to see the impact of this upon the financial model of the plan? The key demographic group that was to sustain the program, the 18-30 year olds, were left with an easy out to keep from paying in but for four years of that twelve year span. How was that ever going to work? Well the ugly truth is that it was never meant to.

The health insurance market, like cable and tobacco, is not and has not been a free market for years. In every other instance that government has entered as a part of the equation in a market the loser is ultimately the consumer. You don’t even need to compare with those models outside of the field of health insurance. Just look at where government has already been an active participant in the market. Medicare. Medicaid. The VA. A survey of their consumers, I am confident, will yield very poor results in terms of performance and customer satisfaction.

So is refusing to bring a flawed bill to the floor of the house a failure? For the purposes of political advantage it is easy to present it as such, but on the contrary I see it as a victory. I would rather more time be spent getting this right and getting it right means taking government, especially the federal government, out of the equation altogether. Forced to accept the bill as offered would inspire a paraphrasing of the bard.

A shite sandwich; served as any other flavor

Doth taste and smell as foul

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