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Monday, October 28, 2013

Epicycles and Obamacare

Ever heard of Ptolemy? He’s the guy whose model of the universe lasted for more than 1,000 years. The earth, thought Ptolemy, is at the center of the known universe and the planets dance around the earth. But this is where things got unnecessarily complicated.

To explain the apparently strange planetary motions, Ptolemy and astronomers after him used epicycles. It took centuries before Copernicus figured out that the need for epicycles could be reduced by putting the sun at the center of the known universe. Improvements by Tycho Brahe, Galileo, Kepler and Newton eliminated epicycles altogether.

Regulators are much like Ptolemaic astronomers—only they can meddle directly in the economy to try to get it to fit their model. The regulators perceive some “market failure,” then apply their linear logic to justify an intervention. When the intervention fails or causes some perverse effect, the regulator’s epicyclical thinking kicks in. He decides to fix the bad consequences of the earlier fixes. Intervention begets intervention.

Take Obamacare. Regulatory interventions in healthcare since World War II have created an unnecessarily expensive healthcare sector. These interventions have created a cozy provider-insurance cartel, but they have also caused medical inflation, which has made healthcare and health insurance increasingly less affordable over time. Less affordability limits people’s access.

To fix these problems, the geniuses behind Obamacare believed they could figure out how to co-opt all the special interests in the cartel while creating a new kind of healthcare “market.” They would borrow from a grab bag of policy compromises from both Rs and Ds (like the individual mandate and “the exchange”). In order to stop the so-called healthcare “death spiral”—in which young, healthy people opt out of insurance because premiums are too expensive—the planners had to force young, healthy people into the insurance risk pool. Hence the need to force people to buy insurance, to allow “children” to be covered on parents’ plans until age 27, and to force employers to “pay their fair share.”

The regulators would also have to move more people onto Medicaid, one of America’s three big, unfunded liabilities. And the regulators would have to find a way to force employers into covering more employees, a policy that has already had tremendous distorting effects on both the healthcare and labor markets. And where none of these epicyclical interventions work, there are always the “exchanges,” which planners can subsidize to hide the true premium costs and eventually drive private competitors out of business.

So when Obamacare starts to fail (or succeed, depending on your perspective), what will the planners do? Are there many more epicycles left to add? Eventually they can put the State at the center of the healthcare universe. Or they can put the consumer there.

They’ve always had their eye on single payer. I’d bet my copay that’s the next big fight.

  • Max Borders is author of The Social Singularity. He is also the founder and Executive Director of Social Evolution—a non-profit organization dedicated to liberating humanity through innovation. Max is also co-founder of the Voice & Exit event and former editor at the Foundation for Economic Education (FEE). Max is a futurist, a theorist, a published author and an entrepreneur.