Insuring Crony Capitalism
Obamacare leads trade groups to fight for a bigger place at the trough
by David Hogberg, Organization Trends, February 2016 (PDF to come)
Summary: Obamacare was originally passed into law with the help of payoffs to industries in health care. Now the law’s machinery encourages each part of the medical sector to advocate for policy twists that benefit their group at the expense of other groups—and of consumers above all. For instance, the insurance industry wants to use government to squeeze drug makers, and part of this campaign involves a “nonpartisan” nonprofit think tank that’s designed to persuade the public that price controls on drugs will be swell. Actually, the history of price controls proves the opposite. If Americans want both innovation and incentives for lower prices, they will have to substitute competition in the marketplace for government-run health care.
The year 2009 must seem like the halcyon days for the health care industry and crony capitalism. The process of passing a health care overhaul, eventually dubbed Obamacare, through Congress provided stakeholders in the health care industry ample opportunity to use the government to their advantage. Instead of trying to convince consumers to purchase their products and services—i.e., instead of competition via the marketplace—health care companies would support government policies that forced people to purchase their products and used subsidies from taxpayers to lessen the pain of the purchase.
It seemed there was something for almost every stakeholder. As the saying went during the debate over Obamacare, “Better to be at the table than on the table.” The insurance companies secured an individual mandate that requires most Americans to purchase their services. Other goodies for insurers included government subsidies to help people purchase health insurance and a bailout—called a “risk corridor”—for insurers who lose money in the Obamacare exchanges during their first three years of operation. In return, the insurance industry trade group, America’s Health Insurance Plans (AHIP), publicly backed the bill, and insurance companies spent millions of dollars lobbying for it.
The pharmaceutical industry made out pretty well too. Prescription drugs were one of the “essential benefits” that Obamacare mandates all “qualified” health insurance must cover. Through the benefit mandate, the pharmaceutical industry was getting an in-kind subsidy for its products. The pharmaceutical industry also received a promise from the Obama administration that the amount it would have to contribute to health care reform would not be more than $80 billion over 10 years, down from an initial $100 billion. The pharmaceutical industry’s quid pro quo was a $150 million advertising campaign in 2009 backing Obamacare.
Those days are over. As 2016 dawns, one section of the health industry is flirting with another type of crony capitalism: using government regulation to hamstring some market players for the benefit of others. Specifically, the insurance industry, with a big assist from the political Left, is supporting more government regulations on the pharmaceutical industry, new mandates that could ultimately lead to price controls.
Such price controls would no doubt boost insurance industry profits by artificially lowering the price of the prescription drugs that insurers must cover. Yet price controls invariably have nasty side effects, such as shortages and decreased investment. For patients, this could mean difficulty in getting much needed pharmaceuticals in a timely manner, and fewer new drugs that better treat disease. Expect this sort of crony capitalism in the health care industry to continue as long as Obamacare is the law of the land.