How Government Failure Leads to More Government Failure: Another ObamaCare Example

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Should have bought health insurance

Government failure is an outcome of policies enacted to regulate trade which create systemic inefficiencies and economic costs that adversely affect a product's manufacture or sales. Unfortunately, the usual way to address a government failure is to pile more government failures on top of the original one until the whole industry has been regulated into a complete clusterf*ck. The current primary example: health insurance and health care. 

This comment in a segment on NPR's Morning Edition today provoked this meditation on government failure: 

"I could get struck by a bus tomorrow or have a heart attack today and show up in the emergency room," says former Solicitor General Neal Katyal, who argued the health care cases for the Obama administration in the lower courts. "If I don't have insurance, it's the other American taxpayers who do have insurance that are effectively footing the bill for that."

Indeed, Congress found families who do have insurance right now shell out on average $1,000 a year more than they would otherwise, in order to subsidize the health care costs of the uninsured. Put another way, when the uninsured show up at a hospital and are unable to pay, federal and state laws require those individuals to be treated, and the costs are passed on to those who are insured and to the taxpayers.

So just why do families have to "shell out on average $1,000 a year" to cover people who fail to buy insurance? Oh, that's right: because the government mandates that hospitals and physicians treat the uninsured. Hospitals and physicians then, in turn, jack up their prices in order to get compensated for the "free" care which then feeds into higher insurance premiums for people who buy health insurance. 

This particular government failure (systemic inefficiency caused by regulation) has many consequences, one of which is that some people who could otherwise purchase insurance don't do so because they know that they will receive "free" treatment if anything goes wrong.

I doubt that Americans would allow too many bodies to pile up at emergency room entrances (commendable charitable instincts would kick in), but if a few did, that would be a far more powerful inducement to buy insurance than the piddily tax penalties that will be imposed by ObamaCare. 

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  1. Are you allowed to say “Government failure”? I thought only markets could fail, and govt non-success was due to capitalist underfunding and distrust.

    1. Government fails every time it sticks its finger into somebody’s pie and lessens its own impartiality.

  2. Indeed, Congress found families who do have insurance right now shell out on average $1,000 a year more than they would otherwise, in order to subsidize the health care costs of the uninsured.

    And exactly how much on average will people be shelling out to pay for the new Obamacare subsidies to get people to buy insurance? Might well be less than $1000. (Though I realize that can become an argument for some in favor of more mandate tax/penalties, less subsidies. We’re subsidizing some, taxing others.)

    1. But it also might be more than $1000.

    2. Exactly. Katyal is carrying on as if ObamaCare will cause people’s premiums and/or healthcare tax subsidies to go down. We already know that ain’t gonna happen.

    3. The number I’ve heard is $5,000. One you fine people posted that the other day, although I forget the source.

  3. The SCOTUS arguments yesterday show that Obamacare isn’t going to solve this free-rider problem. Now that the government has said Obamacare does not require anyone to obtain insurance, but only to pay a “penalty” if they don’t, AND that millions of people are exempt from the penalty for income-based reasons, those folks are under no legal obligation whatsoever to obtain insurance. So why bother? They can continue to show up at ERs and get free care, free of the hassle to to apply for and obtain insurance. The hospital can’t force anyone to get insurance and neither does federal law, according to Obama’s solicitor general. This law is so stupid and poorly designed that it never ceases to amaze.

    1. People who show up without insurance are signed up for medicare. Not sure if true.

  4. Obamacare does not require anyone to obtain insurance, but only to pay a “penalty” if they don’t

    So, I guess speed limits don’t require anyone to drive a certain speed, but only to pay a penalty if they don’t?

    Seriously, since when have we said that a law that is enforced by fines isn’t really a law?

    1. Breaking the speed limit can land me in traffic school or court. And how I drive can theoretically hurt others on the shared road, so I have the incentive not to break the speed limit.

      If the penalty for not buying insurance is merely a fee that’s way less than the actual cost of insurance, then we have a loophole in the insurance mandate.

      But who am I kidding, many won’t even pay that fine. They won’t buy health insurance or resort to some fraud and pretend they have it. If people actually start landing in jail for not purchasing insurance, that’s when things will go awry.

      1. There’s a very easy way to avoid the penalty, even if you’re not exempt from it. Make sure your withhholding is low enough that you owe income tax at tax filing time. The IRS’ only enforcement mechanism is deducting from your refund.

        1. Depends. They might requires you to start filing estimated taxes quarterly.

    2. RC, how would you like to be a czar?

  5. Indeed, Congress found families who do have insurance right now shell out on average $1,000 a year more than they would otherwise, in order to subsidize the health care costs of the uninsured.

    1. They’re trying to make the uninsured look as if they’re most of the problem, but they aren’t.

      Insurance companies have contracts that limit the cost of treatment. Those limits disappear through the ER…

      But for procedures that aren’t emergencies, the uninsured are paying through the nose. So they get reamed on non-emergencies.

      The other thing that’s not being emphasized here is how much of a burden Medicare and Medicaid patients are to the insured and uninsured. Because Medicare and Medicaid only reimburse hospitals for a fraction of the cost of care, and shortfall is being paid for by uninsured patients paying out of pocket and the insured.

      They want to make a point about how the uninsured are the problembut I remember when ObamaCare was supposed to be the solution for the uninsured; now somehow they’re the cause of the problem?

      1. P.S. Screw the character limit.

  6. DEATH SPIRAL! W00T!

  7. Problem: A few people are imposing roughly $46B per year of healthcare costs on taxpayers/insureds.

    Solution 1: force everyone to buy insurance, so that they will have to pay for their own care! Brilliant! But it turns out most of these people can’t afford insurance (at least not highly regulated insurance).

    Solution 2: Subsidize those who can’t afford insurance using taxpayer dollars and cross-subsidies from other insureds. Naturally, these subsidies are not well-targeted.

    End state: A few people are imposing roughly $174B (at least) of healthcare costs on taxpayers/insureds.

    Awesome. We’ve solved a $46B problem by spending $174B.

  8. We require healthcare providers to treat people in need, whether they can pay or not, because of compassion, which is one of the main traist of the “progressives”. On the other hand, “progressives” like to think of themselves are extremely rational, and they use many seemingly sophisticated “analyses” to justify their proposals. But if you look at the effects of compassion on a society, you find that it must be limited, or else the society will go bankrupt dealing with all of the “suffering” that people can come up with. So, the “progressive” movement is inherently contradictory and meaningless.

  9. The FDA and the Medicare Prescription drug plan add huge costs to the price of prescriptions but congress does nothing about that. There’s so many small things that would bring down the cost of healthcare, but congress will do none of that because that reduces their power and makes them look “bad” and “uncaring.” Congress critters are loathsome creatures, which is probably a reflection of the voters that put them in office.

  10. I doubt that Americans would allow too many bodies to pile up at emergency room entrances (commendable charitable instincts would kick in), but if a few did, that would be a far more powerful inducement to buy insurance than the piddily tax penalties that will be imposed by ObamaCare.

    Ding Ding Ding.

    This is the right answer to this supposed “problem”.

  11. Are you thinking what we’re thinking?

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