Why ObamaCare Will Fail
By Howard Hyde
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.