The Humanitarian Shortcomings of the Affordable Care Act

Web problems can be fixed, Obamacare cannot.

Web problems can be fixed. The problems inherent in the so-called Patient Protection and Affordable Care Act (ACA) are another story.

Let's stipulate that most people who favor the ACA have honorable intentions: they want everyone, including people in ill health, to have access to good and affordable medical care. All decent people should want that. (How many favor it merely because it builds up government power and takes money from the well and well-heeled? I suspect it's the same number as those who oppose it out of a dislike of the poor and ill. Of course politicians who favor the ACA undoubtedly find that it lines up nicely with their political interests.)

The problem is that in making government policy, unmovable obstacles often stand between motives and desired results. The laws of economics and politics thwart the best intentions. Sheer will is not enough to overcome these obstacles, because they are implicit in the logical structure of human action.

One cannot merely decree that there be good and affordable medical care for all. Setting up a byzantine bureaucracy won't do the trick either. Reality is simply not subject to the human will in that way. The maxim "nature to be commanded must be obeyed" applies here.

If politicians, bureaucrats, and pundits do not understand this, it indicates that they are stuck in an outmoded mindset. Before the 18th century, Ludwig von Mises wrote, the "belief prevailed that in the field of human action no other criterion could be used than that of good and bad. If a policy did not attain its end, its failure was ascribed to the moral insufficiency of man or to the weakness of the government. With good men and strong governments everything was considered feasible." But, Mises continued,

Then in the eighteenth century came a radical change. The founders of Political Economy discovered regularity in the operation of the market. They discovered that to every state of the market a certain state of prices corresponded and that a tendency to restore this state made itself manifest whenever anything tried to alter it. This insight opened a new chapter in science. People came to realize with astonishment that human actions were open to investigation from other points of view than that of moral judgment. They were compelled to recognize a regularity which they compared to that with which they were already familiar in the field of the natural sciences.

News of this natural limit on the efficacy of power was not warmly received in all quarters. It did not sit well with those who found it inconvenient that, as Mises wrote elsewhere, "there is something operative which power and force are unable to alter and to which they must adjust themselves if they hope to achieve success, in precisely the same way as they must take into account the laws of nature." What did such people do? They denied that those natural market forces operated. The results were tragic.

The ACA is an excellent case in point. Barack Obama and his allies saw a problem: some people can't afford or qualify for medical insurance. But instead of investigating how market forces might currently be thwarted from addressing this problem, they used government (the blunt weapon of aggressive force) to decree that insurance companies — which are already largely creatures of the state — must accept all applicants regardless of their health (guaranteed issue) and must charge the unhealthy the same price as they charge the healthy (community rating); that is, premiums may not reflect actual risk, converting insurance into a covert transfer program.

Of course, in accord with the economic rule that you can never do just one thing, the matter could not be left there. If the young and healthy were going to subsidize the already sick, they would have to be forced to buy coverage at inflated prices; otherwise they would put off buying insurance until they got sick. (The current low penalty for not buying coverage can be expected to rise in the future.) And bureaucrats would have to set minimum standards, or else the mandate would be a mere formality. Thus, regardless of an applicant's preferences or situation, all coverage must include, among other things, maternity and "mental health" benefits and "free" preventative services (which means no one knows precisely who pays for them). Insurance policies may not have caps on the total dollar value of benefits, but this may not be reflected in the price.

Of course, bureaucratic rules thus take precedence over personal preferences. It doesn't matter what you want. Personnel at the Department of Health and Human Services and its myriad boards (advised by whom?) know better. Hence the cancellation of many individual policies that we're hearing so much about. Why should a man have to pay for maternity benefits he will never use? Questions like that are better left unasked.

Frédéric Bastiat taught us that thinking like an economist means looking for secondary unseen consequences. What will not happen because of the politicians' impositions? For example, insurance companies certainly have an interest in attracting young healthy people into the risk pool. Without the mandate, insurance companies competing for business in a freed market would discover ways to attract that group. Force would not be necessary. Competition is a "discovery procedure," F.A. Hayek explained. We don't know what we're missing.

What's also overlooked is that before passage of the ACA, we had no free market in insurance or medical care. Both industries had long been cartelized in the states through licensing and other regulatory barriers to free competition. When people say that the medical market failed, they really should say that a government-business partnership failed. In light of that failure, it makes no sense to expand the partnership further under the central authority of the federal government, as the ACA does. Single-payer would compound the error.

The public discussion of the ACA has mostly fixed on attractive mandated benefits, neglecting what matters more: the negative domino effects those mandates must set in motion. The insurance subsidies for people earning up to 400 percent of the poverty level are touted, but where is the discussion of how those subsidies, which are bound to grow in coming years, are to be paid for? (No doubt by raising the "debt limit.") The same question applies to the expansion of Medicaid. Remember that Medicare has trillions of dollars in unfunded liabilities. Little has been said about how insurance companies plan to restrict people's choices in doctors and hospitals to keep premiums low enough to meet government standards. (To its credit, the New York Times has reported on this.)

Also ignored is the cost explosion waiting to happen because of the mandated "mental health" benefit, which will add to the expense created by subsidizing demand for regular medical services. Contrary to popular impression, so-called mental disorders are not like physical ailments: the mind is not an organ subject to real disease, only to metaphorical disease. (If all that was meant was brain disease, the term "mental health" would not have been used and only neurological, as opposed to psychiatric, services would be covered.) Mandating insurance coverage for the "treatment" of this nonobjective category of complaints will create a cost burden that will inevitably be exploited to push for even more government control.

In sum, the laws of economics say that government cannot subsidize demand for services and respect freedom of choice and fulfill its promise to "bend the cost curve downward." Something will have to give. That something will be freedom of choice. As subsidized demand pushes up prices, government will impose service restrictions or price controls (it's already happening with doctor and hospital reimbursements). This in turn will create shortages and long queues, which the government will contend with through rationing, that is, limits on choice.

The laws of economics have not been repealed by the ACA. So how do we assure that all people will have access to good and affordable medical care? By permitting the evolution of a purely voluntary society. Conservatives claim that the pre-ACA medical system was the "best in the world." It was their blindness to the corrupt corporatism of that system, with a price inflation that harmed all but the wealthiest, that helped pave the ground for the ACA.

The radical libertarian position is not the status quo ante, but a radical freeing of society. Freeing the medical and insurance markets means abolishing all privileges provided by the regulatory cartel, which protects politically connected incumbent providers. It means no licensing. It means no FDA or patents. (Entrepreneurs can provide independent certification, like Underwriters Laboratories.) It means no restrictions on mutual-aid societies, which long ago figured out how to provide affordable basic medical care to their working-class members through "lodge practice," a voluntary institution that state-sponsored organized medicine denigrated and destroyed. It means a blossoming of philanthropy, which in the past provided medical care to the destitute. (Of course, a freed market would have few who are truly destitute. Government makes and keeps people poor.)

Good-faith advocates of the Affordable Care Act or of a single-payer system should see that they can only achieve their humanitarian objectives through freed markets.

This column originally appeared at the Future of Freedom Foundation.