Mises Wire

Obamacare: Is It Worse Than What Came Before It?

One of the most debated issues right now is Obamacare, and specifically whether and how the new republican-dominated Washington DC apparatus will repeal it — and when. Democrats are expectedly up in arms and fear any change to the policy, the suggested legacy of President Obama. Republicans are considering their options: whether to repeal parts of it or the whole thing, how to best do it, if it should be replaced by something else (perhaps Romneycare?), and how to deal with a repeal’s “millions of people losing insurance” (to paraphrase Paul Krugman).

Many things enter the political calculus of policy change. It’s not easy to find a good solution within the State’s zero-sum (rather, negative-sum) game of economic planning.

From a more nuanced and better-informed, sound-economics perspective, the question of whether Obamacare “should” be repealed also isn’t obvious. Some of course call for immediate repeal, and it is easy to see the benefits of this approach: it would potentially undo the many problems it has caused, including skyrocketing insurance premiums (and the eventual limited access to care). But — given that the health-care system was anything but free-market before Obamacare — repealing Obamacare is in no way the same thing as going back to a market order.

Picking Winners and Losers 

The major problem with meddling with government policy is that the political zero-sum game always creates losers: there are losers who experience real (both financial and not) harm in the status quo (that is, no change), and there will be losers if there is change — any change. It is not as easy as “more” or “less” policy, but a matter of who and how many are adversely affected by a change (or no change).

As every policy is imposed by redistributing and reallocating resources, the overall make-up of benefits and costs is changed. Or, to put it differently, there are some winners and some losers of every policy, and each policy is different. (The political class is the only one always — magically — ending up on the winning side.) In other words, considering all the policies introduced and enforced by federal, state, and local governments, you are very likely on the winning side of some and the losing side of others.

This is the case with anything from taxes to trade quotas to subsidies to regulations. A consumption (or sales) tax creates relative winners in those who consume little and relative losers in those who consume a lot, whereas an income tax creates relative winners in those who have no income (or make unreported money) and relative losers in those who earn income. Trade quotas create winners in those who get to trade within those quotas, and losers in those who do not. Subsidies create winners in those who get the subsidies, and losers in those who do not — and especially those paying taxes to finance it. Regulations create winners in incumbents and losers in would-be entrants and consumers.

The minimum wage, for instance, creates winners in those who are able to keep their jobs at the higher wage, those producing higher order goods (since production shifts toward automation), and producers in non-minimum wage markets. Losers are those who don’t get to keep their jobs, who can’t get jobs, and who lack sufficient productivity to warrant the required wage level (because they lack proficiency in the language, have insufficient education, are disabled/challenged, etc.).

But the minimum wage is not the only regulation that affects people who have or are (or will be) looking for jobs. There are plenty of regulations, taxes, subsidies, and so on that affect whether the labor market and if companies hire or not. The minimum wage in some cases actually lowers wages for the simple reason that the higher cost makes it harder to run profitable companies and therefore increase competition for jobs among workers. (This means some of those with above-minimum wage productivity levels may have to settle for minimum-wage pay.)

Sometimes, It’s Hard to Guess How Repealing a Certain Law or Regulation Will Change the Status Quo

Due to all these other regulations, lowering the minimum wage wouldn’t necessarily reestablish a natural balance or market order. It would shift the economy to a differently regulated state, where some of those other regulations would have a relatively greater effect on the outcome. That is, we would have a new regulated state with different winners and losers. This makes it difficult to see through the weeds with respect to which state is overall “better.”

The fact is that the effect of any regulation added to an already regulated situation will solve some problems while causing others (but, as Mises noted, won’t lead to the intended outcome). So meddling with the minimum wage level — up or down — changes who wins and who doesn’t. Raising it will cause plenty of problems, but may at the same time reduce the effect of problems caused by other regulations. So rolling back regulation isn’t necessarily the same thing as repealing a specific policy — all laws are not equal.

In the case of the minimum wage, since its effect is so profound and its application universal, repealing it would likely lead to less intervention. But the point nevertheless stands: We cannot tell what exactly will be the outcome of meddling with policy.

This is the case with Obamacare as well. The winners are:

  • Those who didn’t have insurance before, but with the policy were able to get health care insurance coverage, including poor, unemployed, people with preexisting conditions. 
  • Health care providers (who with insurance can continue to jack up prices).
  • Already wealthy pharmaceutical companies (especially those with expensive, patented drugs).
  • Suppliers to hospitals (of both fancy new equipment and disposable items used in treatment). 
  • Construction companies (for building hospitals and facilities).
  • Emergency vehicle and helicopter manufacturers. 
  • Interior design consultants and others who get to sell their services to new and expanding hospitals with increased purchasing power.

The losers are:

  • The comparatively healthy who get to pay more dearly for health care insurance. 
  • Those who chose not to have insurance but need now choose between the penalty for not having coverage and expensive insurance.
  • The insurance companies bound by regulations.
  • Small-scale health care providers who cannot afford the bureaucracy necessary to deal with insurance.
  • Providers who do not accept insurance.
  • Providers of inexpensive, unsophisticated, or routine care.
  • Providers in rural areas where there may not be a large enough market to support investment in sophisticated (expensive) equipment.
  • Suppliers of non-pharmaceutical therapeutic substances (such as vitamins, minerals, essential oils).

I have surely forgotten many winners and losers who could be listed here, but the list should be sufficient to illustrate the argument.

Repealing Obamacare will undo the aforementioned winners and losers, and produce a return to the situation as it was before Obamacare. To fully see the effect, then, we need to put together a list of winners and losers for the situation prior to Obamacare — which was only a different type of interventionism — as well. Only then can we make an informed decision of who should be winners and who should be losers. Of course, doing so would subject the whole issue of whether to keep, meddle with, or repeal Obamacare to one’s subjective preference of who should “win” and who should “lose.” And this leads us to the question: who has the right to decide winners and losers?

The state claims it has the right, whether controlled by Republicans or Democrats. 

Substituting Personal Policy Preferences in Place of the Market 

In other words, in the interventionist economy, policy discussions come down to one group or another substituting their personal preferences for the work of the marketplace, and we’re left with a market that is so distorted through interventionism that any change in policy simply tinkers with who the winners are and who the losers are.  

In the present debate on Obamacare, all possible alternatives are simply a move from one interventionist economy to another, and this only distracts us from the real alternative: a radical rolling back of the state.  

Once we consider this, we have to ask ourselves if it is really the case that Obamacare should be our focus, or do other regulations (patent law, licensing of the medical profession, the existence of the FDA) constitute greater intervention in the production of health care? Shouldn’t our efforts to rid America of intervention focus on what causes the most harm? Unfortunately, in our health-care economy, where markets have not been allowed to function for decades, it is often difficult to guess what reforms might really do us the most good. 

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