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Epicycles and Obamacare

Posted on November 4, 2013

by Max Borders

Ever heard of Ptolemy? He’s the guy whose model of the universe lasted for more than 1,000 years. The earth, thought Ptolemy, is at the center of the known universe and the planets dance around the earth. But this is where things got unnecessarily complicated.

To explain the apparently strange planetary motions, Ptolemy and astronomers after him used epicycles. It took centuries before Copernicus figured out that the need for epicycles could be reduced by putting the sun at the center of the known universe. Improvements by Tycho Brahe, Galileo, Kepler and Newton eliminated epicycles altogether.

Regulators are much like Ptolemaic astronomers—only they can meddle directly in the economy to try to get it to fit their model. The regulators perceive some “market failure,” then apply their linear logic to justify an intervention. When the intervention fails or causes some perverse effect, the regulator’s epicyclical thinking kicks in. He decides to fix the bad consequences of the earlier fixes. Intervention begets intervention.

Take Obamacare. Regulatory interventions in healthcare since World War II have created an unnecessarily expensive healthcare sector. These interventions have created a cozy provider-insurance cartel, but they have also caused medical inflation, which has made healthcare and health insurance increasingly less affordable over time. Less affordability limits people’s access.

To fix these problems, the geniuses behind Obamacare believed they could figure out how to co-opt all the special interests in the cartel while creating a new kind of healthcare “market.” They would borrow from a grab bag of policy compromises from both Rs and Ds (like the individual mandate and “the exchange”). In order to stop the so-called healthcare “death spiral”—in which young, healthy people opt out of insurance because premiums are too expensive—the planners had to force young, healthy people into the insurance risk pool. Hence the need to force people to buy insurance, to allow “children” to be covered on parents’ plans until age 27, and to force employers to “pay their fair share.”

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2 thoughts on “Epicycles and Obamacare

  1. Desi Erasmus says:

    The Health Sherpa can show the curious what plans were supposed to be available on the "official" site: http://www.theatlanticwire.com/technology/2013/11http://www.thehealthsherpa.com/
    Meanwhile, a parallel analysis on the fragility of the system BO has been trying to build: http://pjmedia.com/richardfernandez/2013/11/03/wh
    My favorite "reader feedback" comment by the blogmaster Wretchard (Richard Fernandez):
    The Chicago Tribune has a special article on the city's long term debt which integrates the themes of debt for healthcare. The tagline is "like a cancer".

    "Chicago officials abused a powerful financial tool intended to build for the future — issuance of bonds backed by property taxes — as they spent nearly $10 billion in 13 years with few restrictions and virtually no oversight.

    The Tribune's unprecedented examination of city finances reveals that Chicago built mountains of long-term debt from thousands of problematic short-term purchases including software that was soon obsolete, spare parts for vehicles and items you might find on a weekend shopping list: trash bins, flowers, even bags for dog waste.

    It's equivalent to taking out a 30-year mortgage to buy a car and making your children — or grandchildren — pay it off, with interest.

    Hundreds of millions more went to push off upcoming bond payments by refinancing old debts. The delay tactic, nicknamed "scoop and toss," often wound up costing taxpayers more money."

    Obamacare is not insurance. It's a system of transfer payments from insurable people to uninsurable people. Providing healthcare for uninsurables may be a worthy policy goal in itself, but it's consumption, not risk sharing.

    It's a process of soaking the healthy young employed to pay for people who are sick today, but when those same young people become old and sick themselves they'll find their insurance as vanished as the Detroit pensions or the Chicago bonds.

    The young are paying into "insurance" the way people in the past "paid into" social security. There's no there, there. Nothing in the lockbox. The danger facing Obamacare is that the design margin's been so used up that they can't kick the can down the road enough. The "benefits" of the system may fade so fast, that like the Chicago bonds, the jig will be up before the politicians can make a clean getaway.

  2. Sounds like a repeat of the "exchanges" in California for the electricity market. How did that "deregulation" work out? Rolling blackouts. Looks like we can expect the same in healthcare.