Obamacare Insurance Exchanges Are Going to Fail

There is a lot of talk about using Obamacare exchanges to change the cost curves of health care.  The New York Times published a Drudge linked article on how they are pinning their hopes to insurance exchanges to defray costs.

Good luck.

The list becomes endless when one starts listing the reasons Obamacare won’t work.  Let’s just highlight the exchange model they are putting in place.

First, they are attacking “costs” not “price”.   The two words are not interchangeable in economics.  Cost is what it costs to produce the good or service.  Price is the rate it’s sold to customers at.  The difference between price and cost is margin.  Attacking costs never works.  When prices are transparent, and markets are free and openly competitive, things happen.

Obamacare exchanges do nothing to make prices more transparent.  There won’t be competition on price, so the amount people pay for health care will continue to rise.

Second, it’s an economic fact that the more highly competitive a market is, more output or production ensues at lower prices.  At perfect competition, everyone produces where marginal revenues equal marginal costs.  That drives prices down everything else being equal.

English: Three cost curves (average total cost...
English: Three cost curves (average total cost, marginal cost, and marginal revenue) overlaid. (Photo credit: Wikipedia)

Obamacare does nothing to make the insurance or any other market openly competitive or transparent.  As a matter of fact, it keeps the same restrictions in place and adds a bunch that will make the market less competitive.

Prices for everything will skyrocket under Obamacare; insurance, and services.  If you are relying on the free, socialized medicine that Obamacare promises, get in line or be prepared to pay a private provider for the same service.

I am all for the transparency a public market and exchange brings. However, the market needs to be set up in a way that is openly competitive, with one transparent price.  Auto insurance markets are closer to being that dream than health care because there aren’t many boundaries or regulations.

If the government wants insurance exchanges to work, they need to rescind all regs and rules from state to state, and have one basic policy that will cover most people.  Then let people pay independently for add ons that they might need.

For example, my wife and I are 50.  We don’t need pregnancy insurance anymore.  We wouldn’t pay for it.  But someone that has a chance of getting pregnant should pay a little extra and carry it.

This is one of the most poorly thought out federal programs I have ever seen. That’s saying something.

thanks for the link Doug Ross

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