Let's Stop Playing Lawyer and get back to Economics and Policy

July 16, 2012

In a recent article appearing in Bloomberg and Cato, John H. Cochrane makes the case that it is time to get over the constitutional debate of the mandate, tax and/or penalty and get back to economics and policy.

The legal distinctions among a mandate, a tax, a penalty, or a credit, and between federal and state powers, are important legally and constitutionally. But they are irrelevant in economic terms for this law.

Opponents of the Affordable Care Act, need to return to “articulating the disastrous economic and health-care effects of this law.  And articulate better ways to solve the mess.”  He continues:

A message to opponents: If all you (OK, we) can marshal in response is that you don’t like the legalities of a $1,000 penalty/tax for not buying insurance (S5MANH), we’re going to lose. And we should.

The ACA is a bureaucratic nightmare of 2,700 pages of law, 13,000 pages of regulations and counting, 180 boards, commissions and bureaus.

The obvious question is:  Who is going to pay for all this?  Nothing is free and all the expanded benefits must be paid for by higher premiums, higher prices, or higher taxes.  Tapping the “rich,” reducing administrative costs or executive pay will not cover the costs associated with the increase in coverage.

Thus, health care will be rationed in some form whether government rations by price or directly.

Health care is complex.  The needs and wants of people are “blurry.”

Imagine if the government decreed that law firms, car-repair shops, or home contractors had to charge everyone the same price, and couldn’t turn anyone away. “House fix,” for example, would be $1,000 per year, no matter how large the house or what shape it’s in. Why do we think this will work for medical services?

The last section of the article describes three simple reforms to fix healthcare, not just health insurance.

1. Where are the health-care equivalents of Southwest Airlines Co., Wal-Mart, and Apple Inc.?  They have been kept out of the market by anti-competitive regulation.
2. Insurance should be insurance, reserved for unpredictable and catastrophic expenses.  Car insurance doesn’t pay for oil changes, and you shouldn’t pay for checkups through health-insurance premiums.
3. Cost control is achieved through competition not price controls.  Innovation comes from competition, too.  Innovation is not possible in a government cost-controlled system.

Trust in the market because the market makes millions of decisions that government bureaucrats can never make.

John H. Cochrane is a professor of finance at the University of Chicago Booth School of Business and an adjunct scholar at the Cato Institute.

Cochrane, John H. “Forget about the Mandate. Let’s Fix Health Care.” July 12, 2012. http://www.cato.org/publications/commentary/forget-about-mandate-lets-fix-health-care (accessed July 16, 2012).

• Share This:
• f post to facebook
• t send to twitter
• m email to a friend