The Folly of ObamaCare

Is it a case of bad judgment?

By Robert Samuelson

We pay our presidents for judgment, and President Obama committed a colossal error of judgment in making health-care "reform" a centerpiece of his first term. Ahead of the Supreme Court's decision on the Affordable Care Act (ACA) -- and regardless of how the court decides -- it's clear that Obama overreached. His attempt to achieve universal health insurance coverage is a massive feat of social engineering that, by its sweeping nature, weakens the economic recovery and antagonizes millions of Americans.

Let's review why the ACA ("Obamacare") is dreadful public policy:

(1) It increases uncertainty and decreases confidence when recovery from the Great Recession requires more confidence and less uncertainty. The ACA isn't highly popular; the Kaiser Family Foundation finds that 44 percent of Americans now view it unfavorably and 37 percent favorably. Given the ACA's complexities, people can't know where they'll get insurance and what it will cost. In 2014, the ACA requires all employers with 50 or more full-time workers to provide insurance or pay fines ("the employer mandate"). On the one hand, formal economic studies conclude that most employers now offering insurance will continue to do so; on the other, in direct surveys of firms, 30 percent or more say they might drop insurance and pay fines. Uncovered people must buy insurance ("the individual mandate") or face penalties, though government will subsidize households with incomes up to four times the poverty level ($92,000 for a family of four in 2012).

(2) The ACA discourages job creation by raising the price of hiring. This is basic economics. If you increase the price of labor, companies will buy less of it. Requiring employers to buy health insurance for some workers makes them more expensive, at least in the short run. Particularly vulnerable are low-skilled workers, notes economist Diana Furchtgott-Roth of the Manhattan Institute. Because the employer mandate exempts firms with fewer than 50 workers, there's a huge incentive for firms to stop at 49, she says.

(3) Uncontrolled health spending is the U.S. system's main problem -- and the ACA makes it worse. Spiraling health costs crowd out other government programs and squeeze wage increases by diverting compensation dollars into employer-paid insurance. Because insured people use more health services than the uninsured, the ACA (covering an estimated 30 million more) raises spending. As for the ACA's cost-control provisions, even the government's own actuaries don't believe they will do much. By their latest projection, total health spending -- government and private -- rises from 17.9 percent of the economy (gross domestic product) in 2010 to 19.6 percent in 2021. In 1980, health care was 9 percent of GDP.

(4) Obama's program also worsens the federal budget problem. Driven by Medicare and Medicaid, health care already exceeds one-fourth of the budget and is headed toward a third. It's the crux of the problem. So Obama creates another huge health program. The administration's retort: the program lowers the budget deficit. This is rhetorical hocus-pocus. Here's what happens. From 2012 to 2022, the ACA raises federal spending by $1.762 trillion, estimates the Congressional Budget Office. However, all of this and a bit more is offset by tax increases and assumed cuts in Medicare. But these tax increases and cuts could have been used to shrink the huge budget deficits that pre-existed Obamacare. Now they can't; moreover, the Medicare cuts might be repealed or reduced.

(5) The ACA discriminates against the young in favor of the old. Government policy already does this through payroll taxes that have young workers subsidizing Social Security and Medicare benefits. The ACA compounds the effect by forcing some young Americans to buy insurance at artificially-high premiums that would pay for the care of a sicker, older population.

Cost control should have been Obama's priority. He could have combined this with some of the ACA's more modest and less controversial insurance expansions: providing additional federal coverage for poor children; keeping children on their parents' policies until age 26; and establishing insurance exchanges in states to lower premiums for small businesses. But this restrained approach would have disappointed many liberals and denied Obama the presumed historical glory of achieving near-universal coverage.

To all the ACA's substantive defects is now added a looming political and constitutional firestorm. Whether the Supreme Court upholds the whole law, strikes it all down or discards only parts, anger and outrage will ensue. The court may be accused of usurping legislative powers or of cowering before White House intimidation. The ACA has become an instrument of the political polarization that the president regularly deplores.

When historians examine Obama's first term, the irony will be plain. A president bent on burnishing his legacy acted in ways that did the opposite. It's a case of bad judgment.