• Tag Archives Obamacare

  • Whatever You Call This Health Care Mess, It’s Not Insurance

    Posted on by Azrael Comment

    Whatever You Call This Health Care Mess, It’s Not Insurance

    The House of Representatives has just passed a statute it represents as “repealing and replacing Obamacare.” This legislation, now awaiting what promises to be major challenges in gaining the Senate’s approval, does amend certain aspects of the Obamacare setup, but all in all the changes are less than earth-shaking, and the previous system will continue in important regards even if the House version should gain approval in the Senate.

    Preexisting Conditions



    One critical aspect of the continuity is the requirement that, absent certain state-level options that might but need not be implemented, health-care insurers will still be forbidden to deny coverage to anyone because of a preexisting condition.

    Under Obamacare, insurers had to charge people the same amount, regardless of their health status. The AHCA [American Health Care Act] would change that, allowing states to apply for waivers to charge sicker people more if those people had a gap in their insurance coverage. Those states would then get $138 billion over 10 years to help defray costs for sick people by creating high-risk pools, among other things.

    The idea behind this provision is that it would make health insurance cheaper for people who are relatively healthy, while sick people would be in their own, subsidized risk pool. As they debated on the House floor Thursday, Republican members consistently assured their audience that their bill would still protect preexisting conditions. (source)

    As many knowledgeable commentators have noted over the years, forbidding insurers to discriminate among people according to their health condition (e.g., according to what types of illnesses, injuries, and risk factors they have had in the past or have currently) flies in the face of the insurance principle.

    The Insurance Principle

    Insurance is a means of pooling risks. Subscribers of an insurance policy all pay a regular premium for coverage. In the event that a subscriber happens to fall victim to a covered contingency – for example, someone develops lung cancer – that person will be eligible to make a benefit claim against the insurance to pay for care of the cancer.

    Such coverage can be actuarially sound because even though any one person’s coming down with lung cancer is unpredictable, the probability of someone’s coming down with this disease in a large population can be determined with a high degree of accuracy, and premiums can be set so that for the group as a whole, the premiums will suffice to cover the plan’s promised pay-outs and leave enough for the insurer to cover its costs and earn a normal return on its investment in the insurance business.

    If, however, people who had not been insured could, upon being diagnosed with a particular disease, then apply for insurance covering treatment of this condition, the insurance principle would be cast into the trash bin. This feature would be similar to letting people on their death bed purchase life insurance at the same rate as healthy people, or letting people whose houses had just caught fire purchase homeowner’s insurance at the same rate as people whose houses are in sound condition.

    In short, requiring insurers to cover preexisting conditions at the same premium paid by covered subscribers who do not have those conditions transforms insurance into an arrangement for making healthy people pay too much for coverage in order to subsidize people who pay too little – because the law forbids insurers to charge them according to the risk of the covered contingency they actually present.

    Likewise, requiring insurers to cover a wide range of conditions against which some subscribers do not wish to insure – indeed, against certain contingencies that cannot apply to them in any event (e.g., costs associated with pregnancy for male subscribers) – turns the insurance system into a complex system of overcharges and cross-subsidies, that is, turns the system into a legally prescribed welfare system rather than an insurance system.

    Stop Calling It ‘Insurance’

    The federal government and the state governments have intervened haphazardly in the health-care insurance business so pervasively and for so long that by now the whole setup is nothing but a gigantic mess that flies in the face of the insurance principle and dictates a host of requirements that make no sense except as answers to the prayers of special-interest groups and rent seekers.

    Once a net benefit has been created, however, each beneficiary group will scream to the heavens if reforms should threaten to remove its privilege, and legislators will be reluctant to buck such organized political insistence on continued subsidies and privileges no matter how irrational these interventionist distortions are as components of an insurance system.

    This sort of “transitional-gains trap,” which Gordon Tullock analyzed astutely in an article published almost fifty years ago, produces an inertia in the political process that makes it practically impossible to make substantial changes even as the overall system sinks into financial ruin and drags down much of the related economy with it.

    A helpful first step toward actually remedying the whole ungodly mess would be to change the language we use to talk about it and to propose reforms. People would be well advised to stop using the word “insurance” to talk about what amounts to prepaid care for one and all, and to stop regarding every special-interest subsidy and privilege as if, having once been blessed by legislators, it has become an eternal “right.”

    If people cannot forthrightly recognize gifts financed from the public trough as distinct from real insurance payouts, there is little chance that any reforms can ever make economic sense or bring about a viable system for financing health-care expenses.

    Reprinted from the Independent Institute.


    Robert Higgs

    Robert Higgs is Senior Fellow in Political Economy for the Independent Institute and Editor at Large of the Institute’s quarterly journal The Independent Review.

    He is a member of the FEE Faculty Network.

    This article was originally published on FEE.org. Read the original article.


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  • Why Is Trump Waging War on the Freedom Caucus?

    Posted on by Azrael 1 Comment

    Why Is Trump Waging War on the Freedom Caucus?

    Why is Trump attacking the House Freedom Caucus? He has tweeted that “we must fight them.”

    My first thought: this is inevitable. Destiny is unfolding before our eyes!

    There is the obvious fact that the Freedom Caucus was the reason the GOP’s so-called replacement for Obamacare went down to defeat. They fought it for a solid reason: it would not have reduced premiums or deductibles, and it would not have increased access to a greater degree of choice in the health-insurance market.

    These people knew this. How? Because there was not one word of that bill that enabled the health care industry to become more competitive. Competition is the standard by which reform must be judged. The core problem of Obamacare (among many) was that it froze the market in an artificial form and insulated it from competitive forces.

    At minimum, any reform must unfreeze the market. The proposed reform did not do that.

    Bad Reform



    That means the reform would not have been good for the American people. It would not have been good for the Republican Party. And then the chance for real reform – long promised by many people in the party – would have been gone.

    Trump latched on to the proposal without understanding it. Or, other theories: he doesn’t care, he actually does favor universal coverage even if it is terrible, or he just wanted some pyrrhic victory even if it did nothing to improve the access.

    The Freedom Caucus killed it. And I’m trying to think back in political history here, is there another time since World War Two that a pro-freedom faction of the Republican Party killed a bill pushed by the majority that pertained to such a large sector and dealt with such a hugely important program?

    I can’t think of one.

    What this signifies is extremely important. We might be seeing the emergence of a classically liberal faction within the GOP, one that is self consciously driven by an agenda that is centered on a clear goal: getting us closer to an ideal of a free society. The Caucus isn’t fully formed yet in an ideological sense, but its agenda is becoming less blurry by the day. (And please don’t call them the “hard right wing.”) 

    The old GOP coalition included nationalists, militarists, free enterprisers, and social conservatives. The Trump takeover has strained it to the breaking point. Now the genuine believers in freedom are gaining a better understanding of themselves and what they must do.

    For the first times in our lives! Even in our parents’ and grandparents’ lives!

    The Larger Picture

    Trump is obviously not a student of history or political philosophy, but he does embody a strain of thinking with a history that traces back in time. I discussed this in some detail here, here, and here, among many other places. The tradition of thought he inhabits stands in radical opposition to the liberal tradition. It always has. We just remain rather ignorant of this fact because the fascist tradition of thought has been dormant for many decades, and so is strangely unfamiliar to this generation of political observers.

    So let us be clear: this manner of thinking that celebrates the nation-state, believes in great collectives on the move, panics about the demographic genocide of a race, rails against the “other” invading our shores, puts all hope in a powerful executive, and otherwise believes not in freedom but rather in compliance, loyalty, and hero worship – this manner of thinking has always and everywhere included liberals (or libertarians) as part of the enemy to be destroyed.

    And why is this? Liberalism to them represents “rootless cosmopolitanism,” in the old Nazi phrase. They are willing to do business with anyone, move anywhere, and imagine that the good life of peace and prosperity is more than enough to aspire to in order to achieve the best of all possible worlds. They don’t believe that war is ennobling and heroic, but rather bloody and destructive. They are in awe of the creation of wealth out of simple exchanges and small innovations. They are champions of the old bourgeois spirit.

    To the liberal mind, the goal of life is to live well in peace and experience social and financial gain, with ever more alleviation of life’s pains and sufferings. Here is magic. Here is beauty. Here is true heroism.

    The alt-right mind will have none of this. They want the clash, the war, the struggle against the enemy, big theaters of epic battles that pit great collectives against each other. If you want a hilarious caricature of this life outlook, no one does it better than Roderick Spode.

    Natural Enemies

    This is why these two groups can never get along politically. They desire different things. It has always and everywhere been true that when the strongmen of the right-Hegelian mindset gain control, they target the liberals for destruction. Liberals become the enemy that must be crushed.

    And so it is that a mere few months into the presidency of this odd figure that the Freedom Caucus has emerged as a leading opposition. They will back him where they can but will otherwise adhere to the great principle of freedom. When their interests diverge, the Freedom Caucus will go the other way. It is not loyalty but freedom that drives them. It is not party but principle that makes them do what they do.

    To any aspiring despot, such views are intolerable, as bad as the reliable left-wing opposition.

    Listen, I’m all for working with anyone to achieve freedom. When Trump is right (as he is on environmental regulation, capital gains taxes, and some other issues), he deserves to be backed. When he is wrong, he deserves to be opposed. This is not about partisanship. It is about obtaining freer lives.

    But let us not languish in naïvete. The mindset of the right-wing Hegelian is not at all the same as a descendant of the legacy of Adam Smith. They know it. We need to know it too.


    Jeffrey A. Tucker

    Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is also Chief Liberty Officer and founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books. He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press.

    This article was originally published on FEE.org. Read the original article.


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  • Ryancare Is Worse Than Obamacare

    Posted on by Azrael 1 Comment

    Ryancare Is Worse Than Obamacare

    After 7 years, Republicans finally have the chance to fulfill their promise of repealing Obamacare. With Republicans in control of the legislative and executive branches of the federal government, the only thing standing in their way is themselves, apparently a formidable foe.

    Titled The American Health Care Act, the Republican establishment unveiled their plan to repeal and replace the Affordable Care Act, and it was quickly met with controversy among members of their own party.

    For his part, Trump has intervened to threaten any lawmaker who opposes the establishment. “He made it very clear he’s all-in on this legislation,” said Representative Kevin Brady after a rough meeting with the president. It was a central pillar of his election and, arguably, swung the election in his favor (he had one job). He is now using his power to do something very different.

    Senator Rand Paul has chosen to refer to the AHCA as Obamacare-lite. It’s an apt name, as the bill keeps in place the majority of the Obamacare, namely the supposedly popular provisions. These huge compromises have caused Senator Paul and members of the Freedom Caucus to openly oppose the AHCA and with good reason. By picking and choosing the parts of Obamacare they think are politically expedient instead of the full repeal they promised, the GOP’s proposed bill will exaggerate the ACA’s problems instead of fixing them

    How Obamacare Broke Heath Insurance



    To understand the problems with the AHCA, one has to understand some of Obamacare’s main provisions, the reasons they exist, and how they all fit together. The original purpose of the ACA was to provide insurance coverage to those who had preexisting conditions. The first step taken to achieve this goal was simply to prevent insurers from rejecting these people. However, if the ACA’s architects had stopped here, insurers would simply have offered plans to cancer patients, for instance, that had million dollar premiums, and their goal would have gone unaccomplished.

    This potential “loophole” lead to the provision that gave us the community rating system, which forced insurance companies to charge everyone essentially the same price for similar plans, with a small amount of leeway given factors like age. Community ratings brought about their own problems, however. With insurers forced to accept everyone and unable to charge more for preexisting conditions, people would have no reason to buy insurance until they became ill.

    Further spurred by the necessary rise in premiums, healthy people would begin to refrain from buying insurance, forcing premiums to rise more, and so on until the health insurance industry failed entirely. Referring to this sequence of events, free market economists coined the now famous “death spiral” term.

    The death spiral is obviously very bad, and it prompted the most infamous of Obamacare’s features, the individual mandate. The individual mandate created a tax penalty for those who didn’t hold an approved plan for the entire year. By forcing everyone into the health insurance pool, the ACA’s framers hoped to avoid the death spiral, with subsidies and other mechanisms added into the bill to further encourage the purchase of insurance.

    The Death Spiral Happens Anyway

    At this point, the ACA’s architects were pleased with their work. They had thought through the consequences of their legislation more thoroughly than most, after all. However, they failed to consider the same factor which is the ultimate failure of all central planners, their necessary ignorance of market conditions and how best to handle them.

    The individual mandate failed to coerce enough healthy people to purchase insurance in order to cover the newly added ill. As insurance pools have worsened, and increased demand for health care without a subsequent rise in doctors and hospitals has driven prices up, premiums have grown massively. The death spiral is occurring, despite Obamacare’s attempts to prevent it.

    Insurance companies are hemorrhaging money and going out of business. Some areas now have only one supplier, with 16 counties in my own state of Tennessee having no provider at all. The ACA, like all attempts at central planning, is a failure. At best, the individual mandate’s only effect has been a somewhat slower death spiral.

    The AHCA’s Major Blunder

    Obamacare is a clear example of Ludwig von Mises’ famous adage that government interventions necessitate more and more interventions to fix the problems they create. The fact that the ACA’s provisions are all intertwined is also clear. To avoid an even bigger disaster, all of them need to be repealed at once. But for reasons that are very likely political, the Republican establishment has chosen a weak and compromised bill which  keeps the requirements for preexisting conditions and community ratings, but does does away with the individual mandate. In other words, the ACHA removes Obamacare’s funding mechanism, but keeps the requirements that made it necessary in the first place.

    In the individual mandate’s place is a mandatory 30% surcharge, payable to insurance companies, for those who go without coverage for a prolonged period of time and then choose to purchase another plan. This surcharge is wholly insufficient to fulfill its purpose. Whereas the individual mandate punished people for not purchasing insurance, the surcharge punishes people who’ve decided they do want to buy it. It provides people with very little incentive to continue paying their huge premiums while they’re healthy. Insurance providers simply couldn’t survive in such a distorted environment.

    The GOP’s sacrifice of principles for votes will likely result in a loss of both. If the ACHA passes as is, the health insurance market would collapse in an even more rapid death spiral, and this time the Republican party will be on the receiving end of the political blowback.  Indeed, the ACHA’s inevitable failure would create the perfect political environment for a push towards a single payer system. The left will undoubtedly frame the ensuing chaos as to blame deregulation and the free market, when it truly lies in Obamacare and the Republican party’s spinelessness to propose a proper repeal.

    Free Markets are the Solution

    The Republicans should give the American people what they promised, a repeal of every word of Obamacare. A real repeal is only the first step to repairing health care, however. A repeal must be followed with true free market reforms, particularly those recently proposed by Senator Rand Paul. However, as Warren Gibson wrote for FEE in his 2015 article, the ideal solution is a complete separation of the state and the health care industry. Only free markets can provide the cheapest and highest quality health care to the largest amount of people.


    Nathan Keeble

    Nathan Keeble helped start the Campaign to End Civil Asset Forfeiture in Tennessee.

    This article was originally published on FEE.org. Read the original article.


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