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The seven fatal flaws of ObamaCare



In a series of posts in the past few years in which I discussed the growing list of fatal flaws in healthcare reform, I opined that "the defects of this legislation are so massive and pervasive that it will never see the light of day." Arguably, that's still true today, especially as we can now add one more fatal flaw to the list, thanks to an amicus brief recently filed by the Institute for Justice: 


The individual mandate violates a cardinal rule of contract law—to be enforceable, all agreements must be voluntary ... the principle of mutual assent, under which both parties must consent for a contract to be valid, is a fundamental principle of contract law that was well understood during the Founding era and is still a cornerstone of contract law today. Indeed, contracts entered under duress have long been held to be invalid. Yet the mandate forces individuals to enter into contracts of insurance that would never be valid under this longstanding principle.

To celebrate the increasing likelihood of ObamaCare's eventual demise, let me recap the fatal flaws as I see them:

Fatal flaw #1: The penalty imposed for not buying a policy is very likely to be less than the cost of insurance for a great many people. This, combined with the requirement that insurance companies may not deny coverage to anyone with a pre-existing condition, means that a large number of people will forgo signing up for a policy, knowing that they a) will save money and b) can always sign up for insurance if they turn out to develop a serious medical condition. Thus, the actual revenues will far way short of projections.


Fatal flaw #2: The government has no ability to enforce the penalty for noncompliance.

Fatal flaw #3: Mandating that people buy a health insurance policy simply because they are alive is arguably unconstitutional. The Supreme Court has already decided to take up this issue and will begin hearing oral arguments this month. I note that a recent USA/Gallup poll shows that an overwhelming 72% of Americans believe that the individual mandate is unconstitutional. The mandate is also a way of hiding the fact that young people will effectively be paying a huge new tax in order to subsidize older people.

Fatal flaw #4: Regulating the price which insurance companies must charge for policies, coupled with a requirement that companies must rebate to their customers the amount by which their loss ratios fall below 90%, effectively turns these companies into government-run enterprises and would likely result in the effective nationalization of the healthcare industry. That is a violation of the Fifth Amendment, and of a Supreme Court requirement "that any firm in a regulated market be allowed to recover a risk-adjusted competitive rate of return on its accumulated capital investment."

Fatal flaw #5: A government-imposed restructuring of the healthcare industry can't possibly improve our healthcare system, and is extremely likely to make it worse. As Don Boudreaux has noted, "Trying to restructure an industry that constitutes one-sixth of the U.S. economy is ... so complicated that it's impossible to accomplish without risking catastrophic failure." No collection of laws or government bureaucrats can achieve anything close to the efficiency that free markets can deliver; the demise of socialism is the most obvious proof of this. Government control of healthcare will inevitably result in higher prices and rationing, leaving everyone worse off. UPDATE: Acknowledging this reality, the CBO in March '12 calculated the cost of ObamaCare to be $1.76 trillion over a decade, almost double the $940 billion forecast when the bill was signed into law.

Fatal flaw #6: In cases wherein companies find that complying with the law would result in large increases in healthcare premiums that would threaten employees' access to a plan, the Dept. of Health and Human Services may grant a waiver to the company. As evidence of the first five fatal flaws accumulates, and as healthcare insurance companies continue to raise premiums to pay for the unintended consequences of government attempting to regulate an entire industry and hundreds of millions of people, more and more companies are likely to apply for waivers. To date, over 1200 companies have been granted waivers. At some point the whole edifice will come crashing down of its own weight. 

Fatal flaw #7: The individual mandate violates centuries of contract law, since in order to be valid, contracts to purchase health insurance must be entered into freely.

I have a more detailed discussion of the first five of these flaws herehereherehere, and here.

Lest I be accused of offering only non-constructive criticism, I refer readers to previous posts about the right way to reform healthcare, herehere, and here.

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