Rates are going up for Obamacare. What a surprise. The Affordable Care Act has as its goals, increasing coverage, reducing costs, improving affordability, and increasing the quality of healthcare. This is an absurd mixture of conflicting goals; but you can’t say that because it’s health care. Even under the – somewhat – more efficient system of private insurance, these goals imply trade-offs. There is no way around this fact in the real world. No amount of intelligent organization – leaving aside the fact that the ACA is less of an improvement and more of an added layer of bureaucratic complexity – can erase this trade-off. How can you possibly increase the quality of healthcare for millions of Americans and not pay for it? How can you increase coverage for patients who either couldn’t afford or were seen as high risk by insurers and not have rate increases to cover at least some of the added cost?

Well you do it by a delicate balancing act that inevitably ends up landing on its backside. The two forces at work here, in economic terms, are pooling and moral hazard. At one end of the spectrum, with a free market solution, insurers are drawn to pooling as the more profitable strategy: lower-risk, healthier patients are accepted while higher risk patients are either not accepted or must pay much higher rates. Moral hazard in this case is very low; patients will not over consume health care services and clog the system. At the other end you have a single payer system that funtions with rationing; you need a hip replacement? We´ll wait a few years and see if you die first to save on costs. There is little pooling, everyone is in the same state-run boat and have to wait their turn to one day hopefully get the treatment they need. Except government officials of course, who seem to get prompt attention under any system. Moral hazard, the wasteful use of resources because there are no disincentives against wasteful or risky behavior, is very high in this case.

Most health care systems in the developed world are some mixture of these two. That means trade-offs, and managing those trade-offs to produce the result aimed for is no easy matter. In the case of Obamacare, patients are passive recipients. In free market solutions, like those proposed by Dr. Ben Carson, patients can take charge of their health the same way people have learned to do with their retirement savings. It still leaves the problem of catastrophe insurance – a bad accident, a fatal disease – and that is where state subsidies should really focus. But when you launch a boat as big as Obamacare, added decks inevitably get built. The result is titanic, but rather than an iceberg that will sink you in the blink of an eye, what you get is a slowly sinking ship that has to bailed out – both by taxpayers and Obamacare users themselves. Rates are going up? No kidding.

 

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