The Big Free-Market Impact of the Affordable Care Act

The messed-up launch of the federal health insurance marketplace website is getting lots of attention these days, and rightly so. But ObamaCare is going into effect one way or the other, and we’re already seeing some significant changes in the economy as a result.

The messed-up launch of the federal health insurance marketplace website is getting lots of attention these days, and rightly so. But ObamaCare is going into effect one way or the other, and we’re already seeing some significant changes in the economy as a result. The US health care system is a complex mix of public and private players with varying incentives and behaviors. Those who think the Affordable Care Act is a government takeover of health care may have difficulty accepting how it’s stimulating the free market.

And yet, the impact is significant. Here are a couple examples:

• The availability of subsidized health insurance and the ban on medical underwriting (i.e., charging more or denying coverage based on pre-existing conditions) are increasing labor market flexibility, which should hold down unemployment and increase growth. We correctly fault Europe for restrictive labor practices that make it hard to fire workers –thereby discouraging hiring. But we have not looked critically enough at our own policies, which create “job lock” as employees hang on to their jobs and forego entrepreneurial ventures for fear of losing their health benefits. The New York Times covered this topic yesterday.
• You would be forgiven for assuming that health insurers negotiate hard with doctors and hospitals in order to offer competitive premiums to their customers. As it turns out, they have really not competed on price in recent years. You have probably seen stories about how health plans are now competing hard for new members under ObamaCare. That means they are reacting to the reality (or even threat) of comparison shopping, which is enabled by the much-maligned federal exchange and the state exchanges. Health plans have sharpened their pencils and realized that to compete they need to negotiate harder with their providers. So now hospitals and doctors are complaining about being squeezed. But since we’ve been told that price of services –not utilization– is the main reason US health care costs are so much higher, shouldn’t we be pleased that the free market is finally acting? There are ways providers can maintain or even grow their incomes under ObamaCare –but they’ll have to move away from fee-for-service to do it. That doesn’t bother me.

photo credit: David Hilowitz via photopin cc