GOP to Repeal ObamaCare in Letter, Not in Spirit

Rarely, if ever, in recent American economic history has uncertainty loomed so large or imposed such dire costs as it does today. Personally, I join a number of other economists in citing the Federal Reserve’s current policies (sterilizing QE, permazero interest rates, and paying interest on bank reserves) as the primary causes of our economic malaise, but a strong case can be made—as I have heard numerous excellent economists make recently—that uncertainty as to future government policies is the major driver. Americans do not know, and have little ability to guess with confidence, what tax rates will be one year from now, whether Dodd-Frank will truly be repealed, whether Sarbanes-Oxley might even be chipped-away-at if Dodd-Frank goes, who will be the next Fed chairman, whether ObamaCare will truly be repealed, etc. Add to this a president-elect who has advocated for contradictory policies on every major issues and who—by all appearances—believes in nothing at all except what is politically expedient at the moment, and you have the epitome of regime uncertainty.

Well it looks like at least one of these questions may be answered in the months to come. With the selection of Rep. Tom Price (R-GA 6th) as Secretary of Health and Human Services, Donald Trump has signaled a strategy for federal healthcare policy going forward. Price, a medical doctor in his own right and a very popular congressman in his North Atlanta district (full disclosure: I am a resident of his district), has long been valued by Republican leadership since being elected to office in 2005. He has served as chairman of the House Budget Committee and has been a crusader against ObamaCare since before it was law. By appointing him, Trump signals a true willingness to repeal the highly unpopular healthcare legislation that a majority of Americans now recognize to be ineffective at anything except pandering to special interests. For that, we can be grateful.

Unfortunately, however, it also signals that the sympathies for government involvement in healthcare that Trump expressed before running for president are already finding their expression in Republican plans to tinker with the healthcare market. Despite the critiques that leftists are probably already sharpening their pencils to write, Price’s plan for healthcare has never been a laissez-faire one. His 2009 alternative to ObamaCare, the “Empowering Patients First Act” (EPFA), is not primarily a cost-reduction plan focused on deregulation and eliminating the systemic problems that made American healthcare so expensive to begin with. It may have deregulatory elements, but that is not the touted coup de grace of the plan. Rather, that honor goes to the tax credits that Price favors to support Americans in buying healthcare. It is thus, fundamentally, a coverage-expansion program rather than a deregulation/cost-reduction plan. To be clear: eliminating ObamaCare, by itself, will undoubtedly reduce the cost of healthcare and health insurance, as would allowing for the purchase of health insurance across state lines, which Trump has endorsed. It is unclear, however, that the GOP’s healthcare policy will do much to solve the pre-existing condition of high prices caused by decades of Medicare, Medicaid, onerous regulations, and the third-party payer system (issues that Price’s EPFA either minorly alters or ignores, but does not challenge fundamentally). It is even less clear how much of the resulting plan will be truly free-market in nature.

Let us walk through this slowly. Medicare and Medicaid are introduced in the late 1960’s. Almost immediately, Americans’ spending on healthcare skyrockets. Between these programs and Social Security, the federal government cultivates over $200 trillion in unfunded liabilities. Decades of government controls and regulations continue to increase the cost of healthcare and health insurance. In 2010, ObamaCare is introduced on top of these already staggering debts, worsening the problem. Republicans vow for six years to repeal it. Now, as the hour grows near, their once-fevered calls for repeal are, more often than not, being followed by a meager, almost embarrassed, murmur of “… and replace.” Paul Ryan began, in comments yesterday, using the even softer term of “ObamaCare relief.” We are now getting a clearer picture of what that replacement and relief might be. Sadly, rather than replacement with a free market, they offer us relief with a tax credit to help compensate us for the high costs that they are doing little-to-nothing to eradicate in the first place. In case it still needs to be said, allowing immense costs and liabilities to persist while compensating us for them with tax credits to expand coverage is not dealing with the problem.

Make no mistake: tax credits are a form of government social engineering. In housing, auto purchases, education, the choice to have children, etc., tax credits are a tool used by politicians to steer citizens into certain kinds of behavior that they view as positive or pro-social by altering relative prices. If politicians simply wanted to leave more money in your pocket so that you could purchase healthcare for yourself or buy a bigger home, they would simply reduce overall tax rates and allow you to choose for yourself how to use your newly retained earnings. Instead, they give you back your money on the condition that you use it as they see fit. It is no less an act of paternalism or government control than levying a tax on a particular good in order to discourage you from purchasing it. If one is meddling, then so is the other.

Furthermore, the argument that expansion of health insurance coverage is an unmitigated good is tenuous at best. Over the decades, much of what we know today as health insurance has arguably ceased to be true insurance at all. Rather, it is merely pre-paying for services on the off-chance that you might need them. Whereas your homeowner’s insurance and auto insurance policies are designed to compensate you for significant damages that diminish the value of the asset in question, health insurance is used to pay for any and every regular checkup and routine procedure. This has the entirely foreseeable effect of bidding up the cost of health insurance. In a similar fashion, imagine if you tried to negotiate a policy with your home insurer that would pay out every time you paid someone to cut your lawn, apply a new coat of paint, change a light bulb; imagine negotiating a policy with your auto insurer that covered oil changes, emissions tests, and tire rotations. Would you expect your premium to go up? Certainly. So why should health insurance be any different, and why should we not consider moving toward a model of health insurance that covers major costs rather than day-to-day upkeep? Economically, it seems perfectly rational. Politically, the idea is treated as unspeakable in polite company. The result: rather than market liberalization, Republicans are gearing up to expand coverage and get more Americans participating in a malfunctioning market. Increasing the quantity of participants, however, is no solution to a clear case of a badly designed institution.

Yet again, it seems that there is no way around this quagmire without a cultural, intellectual change in favor of actual free markets. The temptation for politicians to involve themselves in every aspect of our lives—the goods we buy, the prices of our homes, what we spend on healthcare, how we fuel our cars, etc.—is too great to ignore unless politicians have a solid understanding of economics and possesses a true, moral belief in economic freedom that prohibits them from succumbing to the same electoral temptations that plagued their counterparts in the other party. Long-term cost-reduction and economic liberalization do not fit well into a two-year election cycle. The benefits are too far off and too dispersed.

I write this not to pick on Rep. Price in particular (who I think is quite good on other matters and whom I have voted for multiple times), nor even Donald Trump. Their use of such tools is too common in Washington to single out one or two politicians in particular. I write this to suggest that before we replace Democratic social engineering with a Republican version, we give audience to the argument that allowing Americans to keep their money, whatever they choose to do with it, should be the ideal; that we reject the government-knows-best mentality altogether; that we focus our energies on eliminating the regulations and controls that made healthcare so expensive in the first place; that we abolish the myth that American healthcare was ever unregulated and free before ObamaCare; and that we give freedom a chance. If you don’t like it, worry not: there will always be politicians waiting in the wings, ready to engineer your life however they see fit.

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