The Freeman Online – October 22, 2010
Obamacare Reality Bites
By Sheldon Richman

One might think that letting government officials exercise discretion in the enforcement of bad regulations would be a good thing. I’m not so sure.

The Obama-inspired overhaul of medical insurance has just started to kick in, and already reality, in the form of economic law, is biting back. Companies are canceling or threatening to cancel coverage because the new terms of doing business make business as usual uneconomical. For example, some insurance companies announced they would no long write child-only policies. The new rules say that beginning now, no insurer can refuse coverage to an already-ill child and that the premiums can’t be higher than those charged for well children. (In a few years the “antidiscrimination” rule will apply to adults.)

Anyone with a smidgen of economic knowledge – heck, how about just some common sense? – would know that this cannot work. How can you run an insurance company when parents can wait until their children are seriously ill to buy coverage — and then the insurer can’t set the premium according to the expected medical services. That’s not insurance. It’s welfare filtered through business.

Well, now, when the companies announced they would stop writing those policies, the Department of Health and Human Services relented and waived the rule (at least for a while).

A pattern emerges. Companies claim they can’t live with a particular Obamacare mandate, and HHS secretary Kathleen Sebelius issues a waiver. When McDonald’s and other companies said that their limited mini-med policies would become prohibitively expensive if the government enforced its no-benefit-cap rule, Sebelius granted a waiver. She is now considering a request for a waiver of the rule mandating no less than an 80-85 percent medical loss ratio on mini-med polices. That’s the percentage of revenues paid in benefits rather than administrative costs. Companies with a high workforce turnover say insurance administrative costs are naturally higher than with a stable workforce and thus the mandated medical loss ratio is impractical. (It’s been pointed out that the medical loss ratio was not intended as a measure of efficiency.)

At issue here is not the details of the more than two thousand pages of law. It’s the discretionary power the government has acquired because of it. A one-size-fits-all law was written by Congress. During the debate over the legislation many of us warned that such an approach would defy the laws of economics and would therefore have undesirable unintended consequences. We said, for example, that price caps which ignore real market conditions would cause producers to exit the market, leaving people without services they want.

Now these warnings have proved valid. But what does the government do? Repeal the law? Of course not. That would be a confession of error, something politicians and bureaucrats are loath to do. Rather they confess error implicitly by granting waivers in cases where the consequences not granting them would be embarrassing (especially right before an election).

So Secretary Sebelius is busy granting waivers. On one level this is good: The direct consequences of Obamacare will be less severe than they would have been. But at another level this is not good at all. Obamacare has increased the amount of discretionary power bureaucrats have over our lives. Whatever standard HHS uses in judging waiver requests will be arbitrary. How big does a hardship have to be before a request gets a favorable ruling? Will a company’s CEO have to be careful about criticizing the Obama administration – even on nonmedical issues – for fear that a future waiver request might be turned down? Bureaucrats are human too. (Sebelius has warned insurers not to publicly blame premium increases on Obamacare mandates.)

Read the rest here.