Why ObamaCare Will Fail

Medicare, when proposed in 1965 was expected to cost $12 billion by 1990; it cost $90 billion in that year — seven and a half times more than expected (or more accurately, sold to the public). Medicaid was projected to cost $238 million per year. In its first year, the actual invoice came in at $1 billion — four times greater than advertised. The hospitalization program was supposed to cost $1 billion by 1987; instead the tab was $17 billion that year. The program has been expanded to the point of being 37 times more costly (inflation-adjusted) than originally sold.

Yet we are supposed to believe that we have an unfettered virgin market in health care ruled by the law of the jungle, that insufficient regulation is causing all of the problems and that the only rational solution is for the federal government to take command of a sixth or more of the entire US economy; a brand new, original idea.

Obamacare, being the most ambitious social entitlement program ever conceived, much less attempted in the US, will only magnify and multiply the failures of prior interventions.

The failures of Medicare, Medicaid and socialized health care systems around the world are not accidents, rounding errors or bad luck of unanticipated complications. Rather, they are the inevitable, predicable result of forceful interference in the voluntary cooperation of free citizens. Obamacare will fail for the same reason that the Soviet Union failed: command-and-control economies cannot function rationally.

When President Ronald Reagan famously declared “Mr. Gorbachev, tear down this wall” in 1987, few people believed that the concrete and razor-wire barrier separating the communist East from the free West Berlin, Germany, would in fact be demolished, liberating the citizen-inmates not only of the eastern sector of Berlin, but of most of Eastern Europe and Russia itself just 2 years later. But Reagan understood that a system conceived in the denial of individual liberty as both the fundamental moral principle of civilization and as the only rational basis for functioning economics, was doomed to collapse under its own weight.  He understood this in part because the downfall of the Soviet system had been predicted a few years earlier … in 1922.

Ludwig von Mises, the Austrian (later American) economist, demonstrated that socialism could never fulfill its promise no matter what variation was attempted nor how wise and virtuous the men running it.  In his book “Socialism” he demonstrated logically that every wage and price control, every tariff, tax, privilege, prejudice, manipulation and regulation that does not derive from government’s legitimate need to prevent and punish murder, robbery, assault, fraud, theft, rape, persecution and conspiracy distorts and destroys information necessary for rational economic planning and action. If some collective entity like the state owns or otherwise controls capital goods, land, natural resources, factories, machinery, services, licensing etc. then there is no market for these goods. There is no buying and selling, no bargaining and haggling, no competition to compel lower prices, higher quality, better service and the division of labor where each finds the role they are best suited to, and no supply and demand.

If there is no market then there are no prices in the real sense of the word.  Prices constitute the indispensable information system for signaling the needs and scarcities in an economy, and the cost of available alternatives. There are a hundred different ways to build a building, and dozens of alternative materials and techniques for each component. Which combination is the most economical? Who knows? Without prices, there is no way of knowing. There is no other metric that can adequately substitute for market prices. Economic planning cannot function without these numbers.

That is why socialism fails every time it is tried: Economic calculation is impossible under socialism.

And then there’s the bureaucracy, which von Mises also wrote about. With no markets there is no competition, neither incentive nor reward for better customer service or to provide a higher quality product at a lower price. The entire economy becomes like a giant Post Office or Department of Motor Vehicles, with self-serving, inner-directed bureaucracies with languages and cultures of their own, foreign to the rest of us, with iron-clad privileges, job security and pensions that do not vary with how well or poorly they serve willing customers.

As applied to the health care market, those same principles apply.  The more the government commands and controls services, insurance, physicians and other health professionals, drugs/pharmaceuticals, equipment like MRI machines, devices like defibrillators etc. then the less flexible and innovative is the market for these. There is: less buying and selling between parties commanding their own resources on their own account and for their own benefit, less bargaining and haggling (apart from government bullying from its position of monopoly power, as in price controls shrinking Medicare payment schedules etc.), less competition to compel lower prices, higher quality, better service and the division of labor and less operation of supply and demand.

Furthermore, this system leads to: the abolition of profit and loss, whether for providers, insurers or patients as legitimate regulators of behavior or scorecards of success or failure; a reduced scope of the operation of prices, therefore a breakdown of the indispensable economic information system of abundance, scarcity and alternatives; reduced possibility to recover research and development costs of breakthrough drugs (why bet billions when success makes you a target?). Shortages, waiting lists and government-imposed rationing of services, doctors, medicines etc. are the inevitable results.

With the market-based economic model suppressed, the only alternative is bureaucratic management based on politically-derived values. The opinions, concerns and desires of physicians, patients and families take a back seat to functionaries who are completely removed from personal economic or emotional involvement in the patient’s case. What matters to him is that he faithfully executes the rules dictated to him by the dominant political party and union bosses.

“Progressive” politicians love to feed on people’s resentment of “faceless” bureaucrats at private insurance companies as evidence of the failure of the free market. But when there is only one insurance company left, the government, with the right to tax you rather than face its own bankruptcy no matter how poorly it is run, people aren’t going to love that insurance company more than the few nominally private ones we have now. Even if private insurance companies survive ObamaCare, they will be taking their orders from the bureaucracy and the czars, not from patients, families and physicians.

Socialized medicine is not a new idea.  It has been tried again and again in many advance countries yet has never achieved results to compare with the relatively free United States. ObamaCare, the biggest such initiative of them all, will be the biggest failure. The most passionate sincere supporters of the Patient Protection and Affordable Care Act will be the most disappointed.

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  • pierce

    ObamaCare will fail because Obama failed as a President. He was not honest in his dealings with the American people, and he tried to shove down, or up (you figure it out). The other reason it will fail was it was not bipartisan, with Nancy Pelosi spearheading the effort, what else can you expect. We do need some form of health care reform, but it has to be a joint effort.
    Look back to George W, and his Prescription Drug Program, it was more bipartisan than ObamaCare, and even though there has been critics of it, it is still one heck of a good program.

  • Jim_C

    Obamacare is BARELY s_cialism–I wish it were, in a way, whole-hog s_cialism. As it is, it is a sop to all the interests involved. Everybody accomodated, nobody happy.

    Health care costs are out of control. They were out of control before Obamacare, they'd be out of control had Obamacare not made it through Congress. But it did make it through–a tremendous achievement–and should Mr. Romney be elected, he'll probably keep most of it as is. He is, after all, the father of Obamacare.

    Through the whole controversy, conservatives–when finally forced to act–made weak pudding (talk of tort reform, etc). This was ironic* considering the ACA resembles the Nixonian initiative and originated with the Heritage Foundation. The GOP congressman who offered a viable alternative solution's plan was so similar to Obama's, the party told him to can it.

    And then? the biggest objection, the biggest manufactured "outrage" was over the mandatory nature of this. Sorry–if you were born with a brain, you'd realize having coverage should be mandatory. Just like every other industrialized nation. That should be non-negotiable.

    What is negotiable: government's role. Like you, I do NOT want a government-run system (Obamacare is not a government run system, btw, but it, too, is weak pudding). I'd like mandatory coverage with a basic level, contribution based on income, at which no insurance company is allowed to profit. But after that, private companies compete to sell you a package appropriate for your needs. If you have money, you'll continue to get the best care money can buy. But if you have no money, you still receive a basic level of care. And priavte industry competition keeps prices down and allows for innovation. Switzerland and Singapore do this.

    *not really ironic, since finding any policy difference between an Eisenhower Republican and Barack Obama is impossible

  • geoplaten

    "The most passionate sincere supporters of the Patient Protection and Affordable Care Act will be the most disappointed."

    Sadly, they won't. That would require actual reflection and thought. Most likely they'll just continue to blame someone else – conservatives, doctors, hospitals, pharmaceutical companies, etc.

  • johnnywoods

    Obummercare will fail because we are already out of money. We have killed the goose which had been laying the golden eggs.

  • Greg H

    Last pre-election Rasmussen poll on ObamaCare… Americans disapprove 54 – 39%…. It's LESS popular than even when it was first passed. It HAS to GO!!!

  • Dave Kunz MD

    Twenty-five years ago "Managed Care" became the operational insurance industry model for health care reimbursement, the dark harvest of seeds planted with the HMO Act of 1973 (thanks, Ted Kennedy and President Nixon). The flaw was in thinking that centralized financial controls (fee schedules, CPT codes, ICD codes, etc) could rein in medical inflation. This system was birthed in full by the private insurance industry under Federal guidance. I watched and experienced this phenomenon first -hand as a Family Physician. This was a time when the definition of the word "referral" morphed from "a personal, individualized clinical connection to a specialist initiated by the Primary Care doctor" to "an insurance company approval number". So now some think that magnifying the dysfunction of the managed care system via an increasingly centralized government one will be the answer? As I have said repeatedly over the last twenty-five years to anyone who would sit still long enough: "If central control of a highly complex clinical, social, economic system could work, we would long ago have been calling each other "Comrade."

  • Mary Sue

    Obamacare has to go so that Canadians can get emergency timely health care when they can't get it at home!

  • GARY A HARRIS

    It is so sad to witness the failure of my country due our own ignorance… we let this guy win…. because we have incompetent competition is this country…. As Will Rodgers said "We have the best government and the best politicians that money can buy"…. Just look at this mess… a supposedly PhD from Harvard that no one has ever seen his academic records… unbelievable… When I applied for a job in the air force…. they checked by mother's pulse to see if I was really what I said I was… When I later became a major voice in international engineering, construction & management… I was checked and rechecked, double checked… just to get a job! How is it that a minority, unproven, inexperienced dumb ass, can assume control of this country? HOW DID THIS HAPPEN?

  • joe

    “We have to pass the bill (Affordable Care Act) so that you can find out what is in it”.(Nancy Pelosi on the Affordable Health Care Act. March 9, 2010 at the 2010 Legislative Conference for the

    National Association of Counties.)