You still don't have health care

ObamaCare doesn't solve problems. It just further distorts markets.

By Geoffrey Lawrence
  • Monday, July 2, 2012

President Obama calls his signature piece of legislation the "Affordable Care Act" (ACA). Ayn Rand would have given it the same name.

That's because, in typical Washington fashion, the law's name promises something entirely opposed to what it will produce. The law neither is affordable nor provides care.

What it does is change the rules for buying and selling health insurance. What's more, these changes will only make the costs of health care rise even faster.

The critical point is that possession of health insurance is not the same thing as access to care. Even before the law was passed, government programs like Medicaid promised insurance to poor families. As many Medicaid patients have discovered, however, finding a doctor who will treat them is much more difficult than just enrolling in the program.

The reason? Medicaid systematically under-reimburses health care providers for their services, which — since doctors cannot recoup their costs — leads many doctors to refuse Medicaid patients. Recent surveys of medical professionals reveal that only 40 percent of doctors accept all new Medicaid patients.

The converse is also true: Individuals can and do receive medical care even when they do not use insurance. Cash-only medical clinics, like Patient First Medical Center in Las Vegas, offer individuals the chance to purchase health care directly even if they do not pay monthly insurance premiums. In fact, clinics like Patient First offer high-quality care cheaper than it can be found elsewhere.


Because, in cash-only practices, the market incentivizes providers to hold down costs. Individuals who spend their own money directly for health care must spend that money judiciously, weighing the likely quality-of-life improvement from the proposed treatments. Such scrutiny leads providers, as well as producers of medical devices, to concentrate on treatments or technologies that offer consumers the greatest bang for their health-care buck.

In short, a price system organizes the entire supply chain, efficiently allocating resources to provide the greatest value to patients. To be competitive, cash-only medical providers must exercise discipline — no buying additional MRI machines when dialysis machines are what's needed. Waste cannot be tolerated.

In recent decades, however, most Americans have been lured out of the cash market and into the world of third-party payers. "Third-party payer" is, indeed, a better descriptor than "insurance," because very few insurance plans still perform that function.

At one time, Americans understood that the purpose of insurance — whether it's health insurance, life insurance or automotive insurance — is to hedge against the unforeseen. Now, however, it's become commonplace to use health "insurance" to pay for scheduled check-ups and other completely foreseeable medical procedures.

These costs are borne collectively. That means individuals have every incentive to seek as much care as possible, regardless of cost, because they won't have to foot the bill directly. Likewise, providers, no longer subject to the market discipline imposed by consumers who finance their treatment directly, have little incentive to control costs. As a result, insurance premiums begin to spiral out of control for everyone as each participant in the insurance pool seeks to maximize his own personal benefit.

How did we get this system?

When federal authorities established wage controls during World War II, employers began to offer free health benefits in order to entice the best workers. That system of employer-provided health benefits has grown and expanded ever since. Today, businesses even receive tax deductions for providing insurance that individual workers would be ineligible to receive by purchasing insurance on their own behalf.

Those Americans who have not been pushed by Congress into a private-sector third-party-payer plan are likely to participate in the government-sponsored third-party-payer plans — such as Medicare or Medicaid — that today finance half of all medical spending. The dynamics are essentially the same, but rather than increasing insurance premiums, these plans put upward pressure on tax rates.

It's precisely because of this government-engineered breakdown of the price system that medical care is becoming unaffordable.

ACA, however, does nothing to correct this fundamental problem within the health care industry. To the contrary, it amplifies the distortions and cost-shifting generated by the third-party-payer systems where everyone lacks the incentive to economize. That's why the law also calls for bureaucratic rationing of treatment — it's the only way to control the cost increases that ACA will produce.

So, while more individuals might receive nominal health insurance because of ACA, that's not the same thing as access to care — as any Medicaid patient can tell you. Without a functioning market, care will become more costly and difficult to obtain.

Alternative reforms are available that would restore order to the marketplace while giving patients and their doctors greater control over their own health care spending. Congress, however, opted instead for even more confusion.

Perhaps next time they'll get it right.

Geoffrey Lawrence is deputy policy director at the Nevada Policy Research Institute. For more visit

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