The ONE Good Thing About Obamacare

Despite its many drawbacks, Obamacare could also end up demonstrating the advantages of allowing individuals to make health coverage decisions for themselves.

The House of Representatives’ final passage of a sweeping health care overhaul represents a defeat for conservative, free market principles. The new health care law will increase overall regulation, raise taxes, and distort much economic decision making related to health care. Against the intentions of its designers, however, Obamacare could actually serve as a giant experiment that will demonstrate the advantages of having individuals make health coverage decisions for themselves. If this experiment actually takes place and comes out the way free marketers believe it will, America’s health care system a decade or so hence might actually be a pleasant surprise to the political Right.

A grand experiment could happen because more people will begin buying health insurance for themselves through new markets called “exchanges” that will begin operating in 2014. While a mix of subsidies and penalties will encourage employers to keep on providing health insurance, nobody thinks that every employer will get on the coverage bandwagon. Meanwhile, individuals without employer coverage will face a legal mandate to buy coverage for themselves on the exchanges. If things work as intended, everyone shopping on the exchanges will have a choice of health care plans with variable premiums, deductibles, and benefit structures. If individuals are actually capable of making good health care decisions on their own, then the plans offered on the exchanges will ultimately emerge as better than those provided through an employer or by the government. This could lead employees could turn against the idea of workplace coverage, government designed systems, and perhaps even Medicare in favor of higher wages and the ability to choose ones’ own coverage. If some decent low-cost plans became available on through the exchanges, it’s logical to think that some of the relatively higher income people who will end up on Medicaid under ObamaCare might opt for these instead of Medicaid’s waiting lists. This type system—most individuals buying insurance for themselves out of their own paychecks with subsidies reserved largely for the elderly and truly destitute—could actually allow a lot more room for consumer choice and free market creativity than today’s tightly controlled health insurance system.

Nice as it sounds, there’s serious reason to doubt this kind of scenario will come to pass. As written, the legislation gives state and federal regulators the power to squeeze almost all competition out of the exchanges by setting prices and mandating benefits. Regulators who spend a lot of time trying to keep prices down in pursuit of political popularity, furthermore, will almost always spend less time doing their main job and protecting consumers from fraud and bad practice. This could easily result in a worst-of-all-worlds situation for those shopping on the exchanges: poorly run, fraud-ridden last-resort insurance plans that differ in little more than brand name and leave unfortunates stuck on them pining for a “public option” and more price controls.

But the situation in property insurance markets (until now, more regulated overall than health insurance markets) shows that such overreach isn’t inevitable. States like Louisiana where statutes let regulators do almost whatever they want, have managed to take a hands-off attitude in practice while states like Texas that look “free” on paper actually have very burdensome regulation as a result of administrative decisions. Because regulators that crack down on fraud but let prices move with the market tend to get better results for everyone, pragmatism alone has led turned many self-described liberals into proponents of free markets for individual purchase of property insurance. The same thing could happen in health insurance markets.

All this said, the immense energy, populist appeal and consequence of health insurance is likely to move policymakers of both parties in a decidedly anti-market direction. (President Obama, after all, bashes insurance companies for a reason.) In the event that a critical mass of government regulators allow a reasonably free market to emerge on the new exchanges, the grand experiment in individual choice could end up creating a health insurance system far freer than anyone now expects.