Robert J. Guenther / July 20, 2012

Obamacare’s Hidden Costs That the New CBO Score Won’t Count

This coming week, the Congressional Budget Office is set to announce the revised budget score for Obamacare based on the Supreme Court’s June 28 ruling. The court struck down the coercive Medicaid provision and changed the mandate from a “penalty” to a “tax.” The former cuts down on the number of insured through Medicaid, and the latter alters the behavioral economics model that initial estimates were based on. It is now up to the CBO to sift through the 2,700-page law and provide a new 10-year cost within these parameters. Partisans from both sides of the aisle will sling mud over the new numbers, but they’ll miss a key element of the debate.

What you won’t find in the revised estimate are the opportunity costs, the lost innovation and productivity due to a monopoly that imposes one of many alternatives. What will we lose in healthcare innovation and productivity due to the heavy-handed, depressing effect of Obamacare’s 2,700 pages of confusing rules and regulations? To illustrate the point, let’s use a real-world example where the market worked: The iPhone versus the Blackberry.

What is the iPhone of healthcare delivery? Democrats won’t let you find out. Obamacare goes all in on the Blackberry, which is going the way of the Commodore 64. Earlier this year, shortly after the CBO announced that Obamacare’s ten-year rolling cost window had doubled, CEO Thorsten Heins of Research in Motion Ltd., the makers of the Blackberry, indicated a major strategic redirect to pull away from direct consumer markets to focus its efforts in the niche market of ‘enterprise users.’

‘Enterprise users’ are corporate representatives buying a product for their employees, i.e. with their own money for someone else, incentivizing cost reduction but not quality. IPhones and Android devices, products consumers buy for themselves with their own money, elbowed Blackberries out of the personal consumer market. Without the incentive to innovate, Blackberries fell far behind in quality, and the newer technologies, competing in both cost and quality, lapped the once ubiquitous product. RBC Capital Markets analyst Mike Abramsky said Research in Motion Ltd. “may have lost too much momentum to recover.” In the three months since this comment, RIM’s stock has dropped fifty percent.

Have current forms of health insurance and healthcare delivery lost too much momentum to recover? If tax treatment were equalized and regulatory burden relieved, we would see government and employer-provided health insurance go the way of the Blackberry – as a niche option for a niche market. Employer-provided health insurance is closer to the Blackberry model, but government healthcare funding, put on steroids by Obamacare, is even more inefficient.

Government healthcare programs exist in a culture that is tenably linked to quality concerns by electoral means (a link that Obamacare has mangled with its labyrinth of unaccountable bureaucracies), but not at all to cost concerns, permitting the current structural cost escalators, which include Medicare’s fee-for-service and Medicaid’s federal cost-matching, to spiral out of control. Thus, quality deteriorates, costs explode, and the product is crippled.  On this scale, using someone else’s money to buy something for someone else will always lead to these results.

Despite these obstacles, innovations continue, such as eICUs for critical care shortages, cancer drugs like vemurafenib, and information-sharing through report cards for doctors and hospitals. However, are we settling for Blackberries when we could be surfing the net on iPhones and iPads? Blackberry was a wonder and revolution when it hit the markets. Yet in ten years, the space of a CBO cost estimate, something better replaced it.

In a world where FedEx, DHL, UPS, and email coexist with the Post Office, and wireless devices coexist with landline home telephones, why can’t innovative healthcare insurance and delivery models coexist with a federally funded healthcare safety net?

Ham-handed, one-size-fits-all regulation of the private market prevents this. Cadillac-level coverage, and thus Cadillac-level cost, is a ubiquitous mandate. Rather than adjusting the regulatory structure to allow for and encourage innovation in efficiency, Obamacare boxes the entire healthcare industry into another utility, demanding ever-exorbitant funding mechanisms to make it happen. The result is fiscal recklessness supplemented by the Fed’s printing presses, China’s indulgence, and stolen value from yet-to-be born Americans.

The United States of America can still innovate. We’re still penetrating the Frontier. This past spring, movie-producer James Cameron touched the deepest part of the ocean. Virgin Galactic is taking requests to shoot tourists into subspace. Google, Verizon, Facebook, and Apple have revolutionized the country’s social fabric and information technologies. All this happened while NASA retired the space shuttle, e-books shut down bookstores, and smartphones usurped the Blackberry.

Without heavy-handed government regulation or massive federal funding, private industry has conquered sea, space, and technology. Where could healthcare go if government got out of the way?

Robert J. Guenther is a political commentator and Editor-in-Chief of BiasBreakdown. He can be followed on Twitter @biasbreakdown.

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