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The Looming Failure of Obamacare, Part 2: Incentives

February 17, 2011, 5:01 pm

My new column, second in a series, is up at Forbes.  It is the second of a three-part series, and looks at incentives issues with Obamacare.  A few excerpts:

In the late 1960s, as part of the Great Society program, the US government constructed huge government housing complexes, with the goal of guaranteeing that everyone, no matter how poor, would have access to housing.  By the turn of the century, most of these complexes had succumbed to the wrecking ball  -- the era of large public housing complexes was over.

Why?  Well, there were a lot of reasons the program failed, but a big one was faulty incentives.  By getting free housing, recipients had no "skin in the game," no ownership, no financial participation in their housing.  As a result, many treated their taxpayer-funded abodes with contempt.  Why not?  They weren't paying for it.  And if the property was in good shape at the end of the lease, they didn't get any extra money.

I often compare Obamacare to the great failed public housing projects by warning folks that government health care is going to be much worse.    With the housing projects, we taxpayers paid large sums of money but only a few actually had to live in the horrible government apartments -- at least most of us were able to keep our own homes.  With Obamacare, it is going to cost us even more money, and we are all going to have to move, figuratively, into the projects.

If we are all forced to have the same, low deductible, first-dollar health plans, what incentive is one going to have to stay out of the health care system, even for something minor?

I also talk about the incentive for drug development

Look around the world today -- not one country with a government health care system pays drug reimbursement rates at a level that provides any incentive for new drug development.  In fact, almost all of the world's health care R&D is paid for by Americans.  What happens when politicians, trying to close an exploding health care spending hole in the Federal budget, do exactly what every other country in the world has done and use their power to drive drug prices down to marginal cost?

In fact, to be confident that there will continue to be health care innovation in the future at all, one has to believe that the US Government will act completely differenlty in running its government health care system than does every other government in the world, despite the fact it will have the incentives to behave identically to all of them.  Is this a bet you feel good about?

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Category: Health Care
  • me

    But it's for the children. You don't want children to suffer do you?

  • http://samsonblinded.org/news/ Irena@Israel

    The Obamacare hs got so much critics thta I can't stop wondering how it still survives. People don't need it, politicians do not support it but President persistently promotes it. How can that be?

  • marco73

    Your take on spending on drug and procedure research is dead on. The rest of the world should send each American a fruit basket to thank us for funding all the medical research. Just think of all the medical innovations that will not happen because Obamacare is going to freeze medical treatment in place. We might have to go back to newts and leeches.

  • Don

    Irena@Israel: Progressives have been pushing this for decades, and they know that if they can't do it this time around, they will never be able to get it done in their lifetimes.

    Put simply, this is a power play. Once they have control of "health care" they can pass literally any law about any human behavior under the guise of "reducing health care costs by reducing risk factors."

    No smoking, no guns, no small planes, no sky diving, no sea diving, no swimming pools deeper than 3 feet, no diving boards, no cars capable of going faster than 30MPH, no salt, no fat, no sugar, etc. Anything they can point to as being a _potential_ cause of health problems, even indirectly, can be regulated or simply outlawed "to reduce risk."

    It's an end-run around the Constitution, using the "general welfare" clause to let them completely ignore almost everything else. Between that, and the three-eyed monster that the "commerce" clause has become, there will literally be nothing that's out of bounds for the Federal government, and America will return to the feudal system from which it broke free 234 years ago. And the Progressives will be the Lords to which we all bow and scrape.

    If these people aren't utterly destroyed in the next election, I fear for my children.

  • John

    Warren is wrong on two important points.

    First, he writes that the Affordable Care Act "eliminates shopping." Wrong. The new exchanges are shopping malls for insurance.

    Then he says we'll all be "forced to have the same, low deductible, first-dollar health plans." Wrong again. There are four levels of plans, ranging from high-deductible to low-deductible.

    If you prefer a high-deductible plan, you can shop for one of the Bronze or Silver plans.

  • Sam L.

    And Obamacare is so wonderful that there are waivers to exempt favored groups from it.

  • Jerry

    Response to John:
    Ever see the movie "Repo Man" (Emilieo Estavas)? The joke of the store shelves with ALL generic products:Beer,Dog Food,Bread,etc. What good is an "insurance shopping mall" if you have either ONE choice (ie no choice) or TWO choices: Crap affordable and unaffordable Excellent?
    I believe what one will find when it actually gets to the four level plan is actually going to be two plans: Sand and Glass! Or the above of Sand and Gold, but you can't afford the Gold.

  • Rick

    John, leaves out the major restrictions on the Health Savings Accounts which make a high deductible/health savings account far less attractive. Stymied again, dear John.

    Second the exchanges basically place requirements as to what is in each plan, so essentially, they are the same. Try to figure out Medicare Supplemental plans and you will see what I mean.

  • http://none tommy651

    the same people who brought you the housing projects are the same people bring you obamacare, the leftists.