Obamacare Analysis: It’s Not Just a Botched Rollout – the Idea Itself is a Disaster

by Andrew Alexander The views represented in this article are solely those of the author and may not be construed as in any way representative of the views or policies of Oxford Royale Summer Schools.


There are few constants across the scope of human history – the fallibility of man is one of them. Political leaders would be wise to under-promise and hope that they over-deliver, if you’re going to promise a programme so brilliant, so visionary that it will defuse the “ticking budget time-bomb” caused by current healthcare expenditure on one hand, and culminate “a century of trying” for a more equitable healthcare on the other.

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Such were the promises made by Barack Obama for the Affordable Care Act. Arguably, he was not overselling. One way or another, the Act will have a transformative effect on the lives and finances of almost all Americans; it will also permanently change their relationship with the American state. That said, boy, has he under-delivered. The launch of Obamacare – the Democrats pushed personal nomenclature for the Affordable Care Act hard before it incepted and will have to live with it now – has been an unmitigated failure. The reason for this has been two-fold. On the one hand, the public have been spectacularly uninterested in signing up. On its first day, six people used the web-based platform to purchase programmes. On the second day, this number hit the dizzying 270 figure. While we don’t know how many have made purchases since, 700,000 have signed up, the first stage towards getting a policy quotation and then making a purchase. Even if every person who indicated an interest went ahead and purchased, the exchange would still be only at 10% of the government’s own target for March next year, and about 0.2% of the population.

Image shows a cartoon of a skeleton waiting for the Obamacare website to load.
The unreliable website has been much mocked.

Of course, there is a response open to Democrats wishing to defend the programme’s reception at this point. We do not know that the public uptake is not artificially low — how could we know when the website wasn’t working? For a web-based healthcare exchange, failing to build a website able to cope with traffic would appear to be a rather striking error. Splendidly, it suffered a total failure when Health and Human Services Secretary Kathleen Sebelius appeared in front of Congressmen in order to defend it. Indeed, not only is the website not working, it isn’t even finished – as a Congressional Committee recently heard, the website is still 30% – 40% from completion. In the meantime, tech insiders argue that the Department of Health and Human Services contracted the site build not to firms at the pioneering edge of the tech scene, but to a group of the ‘usual suspects’, established, slightly stodgy firms with a history of under-delivering on government contracts. Despite all this, it isn’t the execution of Obamacare that will render it unworkable in the long-run. Inattention to delivery, a preference for the clubbable over the capable and a degree of arrogance in refusing to listen to constituent concerns during the design phase all haunt, to a greater or lesser extent, most things most major governments do. Over the longer term, ideas are refined and slightly re-modelled in order to best fit the demands of the day – all institutions evolve, and usually into something better thanks to the benefit of experience. Those that don’t, that can’t, move into more effective form are those which are inherently badly or contradictorily constructed. The Affordable Care Act falls into this category.

Carry On Doctor, Redux

[pullquote]The economics of Obamacare do not support the view that it offers better value for the American state in the round.[/pullquote]What Obamacare sets out to do is complicated.In an age of limited attention spans on the public’s part, and an atrophied ability to communicate complex narratives on the part of politicians, securing public understanding and support was always liable to be difficult. The pre-Obamacare system worked like this: most Americans covered their health needs by either buying insurance policies from insurers (which varied in coverage and cost according to ability to pay and risk tolerance), or by securing coverage through a corporate plan, or by paying for treatment on an ad hoc basis (particularly the case for the healthy young on low wages). Within this system, large government-run programmes existed to pick up those left behind by the market. Ronald Regan passed a bill refusing hospitals the right to refuse treatment on the grounds of ability to pay, county hospitals provided healthcare for free to the poor, and the two 600lb gorillas of government healthcare spending – Medicare for those over-65 or younger with disabilities, and Medicaid for low-income families. In 2011 alone, the latter two programmes consumed 21% of the entire federal budget. To give context, the NHS, which is free at the point of access for everyone in Britain, came in at 19% of total government spending in 2012. It is commonly held that this system was a failure. This has some truth in an economic sense, as the figures above indicate. Spending one fifth of your budget on a system that does not cover most workers would strike Europeans as eccentric.
Image is a button that reads, "Browse all Politics articles."However, this is not entirely symptomatic of failure. As nations become richer, they tend to spend a greater proportion of their income on healthcare. It befits the world’s greatest economy to have the world’s greatest healthcare bill; indeed, it is symptomatic of a well-educated population for whom the vast majority of their income is discretionary that it is such a priority both in terms of federal and individual outlay. Spending a significant portion either of earnings or of government funds on healthcare per se is not outrageous. That said, in an economy mired in a debt burden which is continuing to grow, the U.S.A. could not afford to retain the previous system, and there did exist a cogent economic rationale for wishing to reduce the government’s economic participation in the healthcare market. However, part of the high cost of healthcare in America was due to the quality of healthcare in America. If you could afford insurance, it was outstanding. The World Health Organisation report which rated the American health system 37th best in the world did so on grounds of distribution (where 62.5% of the weighting lay) – it found that if you considered responsiveness, and most patients do, it was the best in the world. What the existing system lacked was fairness.

Image shows a protester outside the White House with a sign reading 'Obamacare is elderly genocide.'
Though Obamacare has not been defended on the basis of morality, it has certainly been criticised on it.

It may strike you that this would be the obvious time to make an obvious argument about such a system – the argument from social justice. It was missing too from Mr Obama’s extensive justifications of the Affordable Care Act. He told us about the cases at the margins, and about the numbers at the centre of his plan. He did not attempt to build a case based on a modern iteration of the Great Society, however. I find it odd that he did not do so. I can only suggest one reason for this, and it is a curious by-product of the financial crisis. Sensing that they are not generally believed when they address the public, politicians everywhere tend to wish to present issues not as ones of judgement but as ones of fact. As such, normative positions based on moral righteousness are squeezed out in the search for something quantifiable. Still, if the proposals were vouchsafed on technocratic grounds, they must be judged on technocratic grounds.
The American electorate were not promised a moral reformation, but an economic one. It would be false to analyse the proposal on moral grounds after the event. It is worth now giving a brief overview of what Obamacare actually does. It is formally a tax, not a mandate. It requires every American to be covered by 2014 or to pay a fixed penalty per month to the federal government. Insurance does not have to be provided from personal income – full-time employees will normally be covered by corporate schemes – and the penalty payment is almost certainly significantly less than the prospective programme cost at 1-2.5% of federal income. Those purchasing insurance as individuals now must do so through an exchange, unless they have an existing healthcare policy which conforms to the strict allowance and location rules in Obamacare. In effect this frequently means buying from an oligopoly of insurers operating within county lines.

Image shows Obama applauding as the bill is passed by the House of Representatives.
Obama applauds the news that the Affordable Care Act has been passed by the House of Representatives.

Given the magnitude of the federal spending on Obamacare ($4.4 billion on rollout advertising alone, $2.6 trillion budgeted for its first decade), not to mention the legislative effort and political capital (three and a half years, one shutdown, two elections), it would be fair to say that a success would only be constituted in the event that the programme improved the economics of American healthcare and maintained access to healthcare of an equal or improved standard. It is far from clear that this has happened. The economics of Obamacare do not support the view that it offers better value for the American state in the round. The idea that private policy provision for high-liability groups could be subsidised by the sale of policies to the young and healthy who were least likely to draw-down on the provision has proved a chimera. The young have avoided expensive policies like the plague. Advocates of Obamacare boast of a transformation in the economics of state support. In fact, all they can lay claim to is a slow-down in the rate of growth of spending, not anything so impressive as a drop. It is far too early to gauge care outcomes – but appeals such as those cases such as Edie Littlefield Sundby – the cancer sufferer who saw her policy cancelled and was offered no prospect of a replacement which would allow her to use the same surgical team – indicate that improvements are not across the board.

Blaming the enemies of promise(s)

So why doesn’t the new system work? Before delving into the murky detail, we should begin by acknowledging what isn’t wrong with Obamacare. This is important, given that acknowledging the failure of Obamacare creates a problem for the Democratic half of America, and throws up several narratives of differing levels of illegitimacy over where the blame should lie. There is significant support on the blogs of the American Left for the view which Todd Purdhem advocates – “Obamacare’s rocky rollout [was the result of] calculated sabotage by Republicans at every step.” This is an interesting example of extreme political entitlement. It is one thing to be angry with the governing party for not honouring its election pledges, but I would suggest it is curious to be angry with the opposition for not supporting the aims and ambitions of their political opponents. There is, in my view, absolutely no reason why the Republican party should seek to facilitate a law to which its members and voters are largely opposed.

Image shows Wendy Davis, a Democratic politician from Texas.
Wendy Davis spoke for more than 11 hours to stall a bill that would have dramatically restricted abortion rights in Texas. Her filibuster succeeded initially, but the bill was passed at a later date.

Of course, you could argue that it is the duty of all parliamentarians to seek not to obstruct those proposals put forward by parties with the backing of the majority. Judging by the adulation from the internet Left for “feminist superhero” Wendy Davis, the Texas senator whose filibuster on abortion rights defied the wishes of the Republican majority, this is not the case either. The opposition’s job is either to oppose or to facilitate, and in the absence of an established political culture of facilitation in the United States, it is wrong to blame Republicans for doing the former. President Obama’s version of ‘Blame the Republicans’ is a little more nuanced. Republicans, in this view, “invested in defeat” as a consequence of believing the President to be an ideologue and as a result failing to “break the stubborn cycle of crisis politics and start working together.” This position is differentiated from those outlined above by its apparent emphasis on consensus rather than capitulation, the bloggers’ prescription, from the Republicans. This would be a view with greater saliency had the President been ready to compromise on his signature bill. He repeatedly failed to do so. No doubt blinkered partisanship was partially responsible for producing sub-optimal legislation, but that partisanship was evenly spread. Finally, there is the view expressed by the editor of Time Magazine, who has explained that the defects of the bill were the fault of Mitt Romney. In this interpretation, the failure of Mr Obama’s presidential rival to campaign against the Affordable Care Act meant that it was poorly scrutinised by the media. This is poor journalism, but a reasonable point. Mr Romney’s ability to critique Obamacare effectively was fatally hamstrung by its basis in the Massachusetts health law which he enacted. The media’s ability to criticise Mr Obama on its own was fatally hamstrung by its progressive bias. Without a strong Romney critique, the media let the defects of the health law slide. This is hardly to its credit, and the editor of Time Magazine may, on reflection, wish to ascribe some blame elsewhere.

Mutating medicine

Image shows a team at a US military hospital.
Obamacare has combined two functional systems in a way that doesn’t work.

At a deeper level, though, there are three things very wrong with Obamacare. The first is that it manages to create the worst of both worlds out of two systems which would be perfectly workable on their own. The argument for a system where the government is the sole mandatory payer for healthcare (funding this through general taxation) works both conceptually and in practice in the UK. So too does a system where insurers compete to offer the best package for consumers who pay for their own care (with the government stepping in to fund for the poorest), like Singapore. What does not work is a system which forces consumers to purchase from an oligopolistic marketplace (losing a key benefit of the insurance solution), yet this is exactly what Obamacare does – of the 2,500 counties the exchanges cover, 58% have only one or two insurers now serving them. At the same time, the benefit of universal government provision – economies of scale meaning cheaper care – is also lost, as this oligopolistic system seeks to maximise profits. It’s a mess, and it’s a mess by design. Secondly, Obamacare profoundly alters the conditions of individual autonomy in the United States. As Ben Hunt points out, the federal government now appears to be of the view that individuals are no longer to be trusted to make assessments of their own risk-bearing capability. In the same way that QE and negative real interest rates are meant to send a signal to investors that they are wrong to prefer safety in savings to exotic securities, so too does the tax on the failure to insure oneself add up to a federal attempt to mandate a personal approach to risk. I believe this has worrying implications in terms of state coercion and personal autonomy, and I am amazed that America, a country which traditionally guards the latter privilege so jealously, has allowed it to pass through the court system unmolested.

Image shows Obama's signature on the Affordable Care Act.
Obama’s signature on the Affordable Care Act.

Finally, Obamacare is bad for medical progress. In a free marketplace, corporations compete for customers by competing in terms of research and development, constantly pushing for better products. It is this ferocious competition in the American market which has led the astonishing advances of the last century. With the removal of the market incentive and its replacement with an oligopolistic system where the new subscribers are not won over by innovation but compelled to purchase by law, instead of spending money on product development, medical majors will increase spending on lobbying for access to markets and attempts to restrict access for newcomers. I have a hunch that this same dynamic will also make insurance more expensive – left to their own devices, markets sell to the masses cheaply thanks to competition; a captive audience is an invitation to extort, however, and one unlikely to be missed in this instance. So, Obamacare is a failure, not for the surface reasons like the atrocious website, but for the much deeper reason that America, the home base of competitive capitalism, is being driven by politicians who have never experienced nor trusted that market dynamic. Unable to abandon the markets totally, they have instead created one of the most conceptually flawed pieces of legislation in any country and at any time. This is a turning point for America, and not a positive one.


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Image credits: banner; skeleton; protest; Obama; Davis; hospital; signature