Tuesday, March 27, 2012

Obamacare and the "Healthcare Market"

As the Supreme Court arguments on Obamacare unfold, it is becoming clear that the government's principal justification for the law's constitutionality rests on its characterization of the nature of the healthcare market.

According to the government, the "market" is unique because, at some point in the life of nearly every person, he will need to participate in this "market" in order to procure healthcare services for himself. As such, the government contends, by requiring an individual to purchase health insurance, the government is effectively regulating the "market" in which, sooner or later, the individual will necessarily participate.

There are manifold flaws in this logic, but the core problem lies in the assumption the government makes about the ill-defined "market" it purports to regulate. Because most people pay for medical services via insurance, the government pre-supposes that the insurance-based model is an essential element of the "market"; that is, as a result of the very nature of this "market", one must pay for health services via a third-party insurance company or a fund of some kind.

This, of course, is not true. The present predominant means by which people pay for healthcare is the result, in the main, of longstanding government policies, including the favorable tax treatment accorded employer-provided coverage and the creation of quasi-insurance programs like Medicare and Medicaid.

Employer-based health insurance is an accident of War World II wage controls under which the government prohibited employers from openly competing for scare labor by offering higher pay, but allowed employers to attract labor with the unrestricted ability to provide health insurance and other "fringe benefits."

The government-caused market distortion persisted after the war, leading to the modern system whereby people expect the insurance companies basically to pay their medical bills. By and large, people began to assume that health insurance was inextricably tied to employment and that coverage could only be obtained through their employers. Always eager to help, state governments across the country made it harder for individuals to purchase policies on their own by requiring that all health insurance policies cover an ever-expanding array of services, driving costs sky-high.

But the present system is not the only possible system, and certainly not the most efficient. We could, for example, pay for medical services the same way we generally pay for food, shelter and clothing--out-of-pocket, from our own funds. People could shop around for a doctor's services, just as they tend to ask a lawyer his fees before retaining his representation. If the law permitted individuals and insurance companies to freely negotiate their insurance contracts, individuals could craft policies to suit their needs and economic circumstances.

In short, the "market" is unique only in so far as the government has regulated it into uniqueness. If we tended to pay for our medical services as we tend to pay for most other services, it would seem absurd to assume that an individual must have insurance in order to partake in the market. The Obamacare mandate would seem insane, just as it would appear insane to mandate that all person purchase "food insurance" because, at some point, we will all purchase food.

The fact that the government has already regulated the "market" into an inefficient one dominated by third-party payers does not provide a constitutional basis on which to force a person to enter into a private contract.

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