The Patient Protection and Affordable Care Act (a.k.a. Obamacare) was ruled constitutional by the US Supreme Court yesterday, based on the ability of the Congress to levy taxes.
Prior to its passage, the president repeatedly claimed this legislation did not contain a tax on the American people. However, in arguing before the US Supreme Court, the administration claimed the opposite. That is, the statute is constitutional because it is a tax.
Notwithstanding this divergent rationale, the legislative policy is severely flawed in its methodology, despite the merits of the individual mandate.
The mandate has merit, since everyone is highly susceptible to requiring medical care. Uncertainties in life can befall all, leaving individuals to demand healthcare – involuntarily – as a result of accidents and/or genetic anomalies. Hence, individual responsibility is in order. That is, contribute while you can, so it’s available when you can’t.
However, the policy is deficient in terms of the lack of funding, competition and choice. As a result, healthcare expenditures and federal deficits will likely grow at a more rapid pace.
Based on the funding mechanism, many individuals will chose not to participate in the system, since the cost of care is 10-30 times more expensive than incurring the penalty. As people require care, less money will be in the system to cover the needed services.
More importantly, this legislation reduces competition among healthcare insurance companies and limits consumer choice. Optimal economies of scale are realized when firms are permitted access to the entire market and individuals can select the products that best suit their needs at the time. This law does not permit healthcare insurance firms to compete nationally, and consumers are precluded from selecting a high deductible, catastrophic plan with low annual premiums in lieu of a low deductible, comprehensive plan with high annual premiums. The latter also violates the president’s oft repeated pledge that you will be able to retain your current healthcare plan if you so choose.
In addition, the current legislation lacks meaningful tort reform that would reduce frivolous law suits. Placing greater responsibility on the plaintiff to file a bona fide law suit could reduce healthcare expenditures that result from defensive medicine and over-utilizing scarce resources.
This legislation is likely to create more problems than it solves. Barring substantial changes, repeal may be warranted.