The Assumptions Built Into Obamacare

A very interesting article by the estimable Jay Cost over at the Weekly Standard suggests that many of the assumptions built into Obamacare -- and, in fact, necessary for it to work -- are illogical and contrary to centuries of learning about economics:

The bill is built on far too many questionable assumptions. If any one of them fails to hold, the entire thing could fall apart.

For instance, the Congressional Budget Office gave the authors of the bill a pretty good score on the efficacy of the individual mandate, declaring that only a small portion of the public would choose to go without health insurance. This is very important: If the mandate is too weak, too many people will forgo coverage until they get sick, insurance premiums will rise, more people will forgo coverage, and so on. It’s known as a “death spiral.”

CBO says it will not happen. But that is an assumption – one that not everybody agrees with. The insurance industry, for one. Though Democrats brutally demagogued insurers during the 2009-2010 drama to pass the bill, behind the scenes they worked assiduously to win their endorsement. They failed, but only because the mandate the Senate endorsed was so weak the insurers feared a death spiral. (There is also a chance that the mandate will lose some of its psychological teeth if people come to view it as a mere tax, which could increase the likelihood of a death spiral. Economics mingled with the realities of social psychology can produce some strange effects.)

 

There are plenty of other questionable assumptions like this scattered all throughout the bill. Consider:

-Will employers drop their insurance coverage en masse, knowing that their employees can get insurance on the exchanges? Democrats assume not, but there are signs that may not be the case.

-Can Medicare be cut by $500 billion without undermining quality of care? Democrats assume so, but the Centers for Medicare and Medicaid Services is doubtful. 

-Can Medicaid handle about 15 million new recipients? Democrats assume so, but doctors are already loath to accept Medicaid because it pays so poorly.

-Can you increase the number of people demanding medical services, without a corresponding increase in the supply of services, without a huge spike in prices? Democrats assume so, but common sense casts doubt on this proposition.

With every contestable assumption built into the bill, the odds that the whole package will fail in some way increase substantially. Suppose an 80 percent chance of success on each of these five guesses; in that case, the likelihood that all of them will be correct is only 33 percent.

And because the components of the bill are so intertwined, a failure of one assumption could lead to a catastrophic collapse of the entire scheme, like a house of cards.