December 26 2012
President Obama's Health Exchanges Are Mistakes, Not Markets
The lines are now drawn in the latest installment of our grand experiment in the “laboratories of democracy. ” The deadline for states’ decisions to establish their own health care exchanges passed: Eighteen states and the District of Columbia will do it, seven states will form a “federal-state partnership, and twenty-five states have refused. Time will tell which states have made the right decision.
Yet citizens evaluating the actions of their respective states need to understand that, despite the media’s coverage of this debate, these exchanges aren’t “markets.” Indeed, we’ve already seen ObamaCare change the definition of “tax” and “penalty.” Even before its passage, the debate over this law polluted the definition of the word “access” beyond recognition. Now, it seems “market” is next.
Describing the “exchanges” as markets may sound nice, but it’s deceiving.
When Americans hear the term “market,” they think of free people seeking to exchange goods or services. No actor or planner “creates” a free market. Markets are supposed to be organic: They develop and evolve under the influence of many variables as people seek to meet the needs of others by exchanging labor or goods.
Government has long elbowed its way into these free exchanges, setting rules and regulations for how buyers and sellers must act. Yet there comes a point when government’s prescriptions are so great, that they distort markets beyond recognition. The actors in the exchange are really just carrying out government’s dictates, not responding to the needs and desires of potential customers at all.
The health care exchanges are meant for exactly such a bureaucratic takeover. Consider that states that establish an exchange will have to monitor what types of plans are bought and sold via the exchanges. While markets should have free entry and exit, states will be telling certain insurance companies that certain plans cannot participate in the so-called “marketplace.” This will shut out (usually smaller and less politically connected) companies from competing, and will limit the choices available to exchange participants. That’s exactly the opposite of a true market.
Government isn’t just perverting the role of the sellers in the market—by having bureaucrats, rather than choosey costumers decide which businesses survive. Government, through the individual mandate, is forcing buyers to enter the market, and requires them to buy a certain product that meets government’s—not their own—standards.
The exchange defenders celebrate that they will give health insurance consumers the opportunity to compare insurance plans side-by-side or “apples-to-apples.” They are right that more information can help consumers make more rational decisions and make a market function more efficiently.
But there’s no need for government intervention in this arena. A private-sector Web site called eHealthInsurance has been doing this—making it easier for consumers to get straight facts about competing insurance providers and plans—for years.
Moreover, Americans should be concerned as government gets into the business of controlling this flow of information. After all, what’s to stop bureaucrats and politicians from more strongly highlighting the benefits of health plans offered by, say, an insurance company who happens to be a political donor? More information is good, but skewed information is not.
Americans should understand that what the “establishing” states (and DC) are actually creating is another layer of bureaucracy to be added to our already regulation-smothered health care system (yes, system, not market). The law really designed statewide exchanges to be two things: a distribution vehicle for tax credits and subsidies, and a collection mechanism for penalties from employers who fail to offer “adequate” and “affordable” health insurance.
The exchanges are a mistake precisely because they are not markets. Analysts have already noted that the law set up different rules for subsidies and different penalty systems for employers based on whether their host state set up an exchange. That’s not how a market works.
Rather than offering free entry and exit, voluntary exchange, perfect information, competition and choice, the exchanges will simply offer more bureaucratic jobs to monitor the redistribution of tax dollars in the health system. And as Americans instinctively know, bureaucracies tend to fail; markets succeed.
That’s why, although this experiment is just beginning, we can hypothesize that the exchanges will fail. The states that complied with the creation of such a mess will be sorry.