Monday, July 14, 2014

ObamaCare’s Perverse Incentives

The road to hell is paved with perverse incentives.


In my book The Health Reform Maze (2010, Greenbranch Publishing), I led off with a Samuel Johnson quote, “The road to hell is paved with good intentions.” And so it is with ObamaCare.

The good intentions were: care for everyone at lower or subsidized premiums while keeping your doctor and your health plan.

Unfortunately, good intentions are not working out – premiums are higher, networks of doctors are shrinking, people are either losing their health plans or being switched to ones they often cannot afford, and jobs are being converted from full-time to part-time jobs on a massive scale. In the last federal jobs report, 523,000 lost full-time jobs while 799,000 gained part-time jobs.

What’s the problem? There are fundamentally two problems.

• People are people. The respond to incentives, positive as well as negative.

• “Work is the curse of the thinking class,” if I may paraphrase Oscar Wilde, who said, “Work is the curse of the drinking class.”

Think for a moment. What are the perverse, i.e, negative , ObamaCare incentives?

The incentives are, in no particular order,

• More dependency on government. This year, for the first time, more than 50% of Americans received a government benefit, including 50 million on food stamps, 12 million on disability, 48 million on Medicaid, and 50 million on Medicare.

• More part-time than full-jobs. This is understandable when you consider employers can save $3000 per employee by avoiding paying for ObamaCare’s one-size-fits-all coverage, whether you need that comprehensive coverage or not.

• Fewer doctors and hospitals to choose from. Health plans know some doctors and hospitals cost them less than others. The incentive , then, is to send patien s to lower cost providers. In some quarters, this is known as the “race to the bottom.”

• Higher premiums and higher deductibles for the young and healthy. Under Obama, the intent of reform is to “level the playing field,” meaning the young and healthy are assigned the task of supporting the older and less healthy, whether the younger and healthier can afford it or not.

• Higher costs to the States to cover Medicaid recipients. The main outcome of health exchanges has been to increase Medicaid recipients by 3 million. Half of states have elected not to expand Medicaid. Although the federal government now pays 58% of Medicaid costs and promises to pay 100% over 3 years for new Medicaid beneficiaries under the exchanges, the states are skeptical because they will still have to pay much of the administrative costs of new Medicaid folks. Costs of Medicaid has increased to 20% of state budgets, meaning more Medicaid recipients means less money for education, roads, and other social programs.

• Less incentives for young doctors to enter the profession and primary care or for older doctors to remain in practice to enter medicine as ObamaCare systematically ratchets down reimbursements and systematically increases regulations requiring more paperwork and more time away from patients. The incentives are to become specialists with les paperwork and more pay.

• Less incentives for people to work. Why work in low-paying part-time jobs when you can make more by simply not working and collecting government benefits.

So here we are, according to Mortimer Zuckerman, chairman and editor-in chief of U.S. News and World Report, "Five years after the Great Recession, more than 24 million working-age Americans remain jobless, working part-time involuntarily or having left the workforce. We are not in the middle of a recovery. We are in the middle of a muddle-through, and there's not point in pretending the sky is blue when so many millions can attest to dark clouds."

Add to the list of perverse incentives these realities.

• Less than ¼ of part-time jobs have health benefits.

• Part-time workers are less likely to be protected by labor and employment laws.

• Less than ¼ of part-time workers are paid sick leave.

• Huge numbers of recent college graduates work full-time.

• Part-time workers are more likely to be depressed.

• Millions of part-time workers work full-time jobs.

• Boost in part-time jobs widens payment gap between and high and low wage workers.

• The replacement of full-time work by part-time work and the loss of health benefits and increased in premiums is alienating the millenials (aged 18 to 29) who staunchly supported Obama in the last two elections.

Questions: Whatever happened to “hope and change” and other rosy ObamaCare promises? The young are the hope of the future, and they are losing hope. Is ObamaCare fair for the middle class as well as the lower class? Equal outcomes for all do not equate to equal opportunities for all.


1. Mortimer Zuckerman, “ The Full-Time Scandal of Part-Time America,: Fewer Than Half of U.S. Adults Are Working Full-Time. Why? Slow Growth and Perverse Incentives, “ Wall Street Journal, July 13. 2014

2. John Goodman Blog, “The ObamaCare Carnival of Perverse Incentives, “ January 23, 2014.