Is Obamacare socialist? Hayek seemingly warns so…

Posted on September 13, 2013 by


During President Obama’s two campaigns, Republican critics suggested his signature health care law, the Patient Protection and Affordable Care Act (aka Obamacare) was socialism, since the government was trying to centrally plan 1/7 of the economy.  Naturally Democrats reject that characterization, and accuse the Republicans of demonizing the president.  Rather than focus on the question of government control, and if mandated insurance exchanges and forced universal participation is socialism, I think its important to think about Obamacare in terms of why its critics call it socialism–what indeed they are afraid of.
In today’s WSJ, there is an informative article on the liberal attack on self insurance plans, known as ERISA.  As the Journal states,

Under this model, businesses and many unions bypass commercial health plans and instead pay directly for the medical claims of their workers. Self-insured plans enjoy lower costs and more flexibility because they are insulated from state regulations and mandates under a 1974 federal law known by the acronym Erisa.

But this ability to bypass Obamacare is naturally getting renewed focus by businesses eager to avoid the cost-prohibitive national mandate, and as more businesses seek this escape hatch, liberal politicians are seeking to close the door any way they can.

Today a record 61% of covered workers are in a self-insured plan, according to the Kaiser Family Foundation’s 2013 survey, up from 49% in 2000. Self-insurance used to be concentrated among national companies that could spread risk over large pools of employees.  But self-insurance is now filtering down to businesses with 199 workers or fewer, as a hedge against ObamaCare’s federal mandates and the danger that costs on its small-business exchanges will soar. Some insurers are now selling popular products that allow groups as small as 25 to self-insure…..So the White House, liberal pressure groups and state and federal regulators are trying to close what they call the self-insurance “loophole” before more escape. Their political and actuarial fear is that if enough businesses don’t join, the exchanges could fail because too few younger and healthier people will subsidize everybody else.

Hayek’s most compelling warning against socialism was perhaps found in his book The Road to Serfdom.  The essence of his book was that central planning cannot work with freedom.  If there is any margin of freedom, at the individual level there will be changes in behavior to avoid the implications of the central plan.  And as individual actions defeat the intent of the central plan, its bureaucrats will increasingly have to coerce more and more to restrict the range of freedoms that individuals have.  Thus a centrally directed plan could only actually be fully implemented under a totalitarian regime (not that it would work under totalitarian regimes, but rather that it could at least be tried).  Is that not exactly what we see happening with government attempts to limit participation in ERISA?  Notice that ERISA allows companies to insure citizens (ostensibly the goal of Obamacare), but its very freedoms will potentially result in the central plan not working.  Solution?  Eliminate the freedom.  As the WSJ opines,

Big business loves Erisa’s freedoms, so the left’s political target is so-called stop-loss insurance that is essential to the little guys. Unlike corporate America, small employers are more exposed to the risk of a single high-cost case of serious illness, so they buy this form of catastrophic coverage as a self-insurance backup.  Liberals are pushing state legislatures to outlaw stop-loss policies for small and mid-sized business. Another poison pill is fixing the dollar levels where stop-loss policies are allowed to start paying—aka “attachment levels” akin to deductibles—so high that they are too risky for small businesses to buy. The standard can be as low as expenses exceeding $10,000 per enrollee, but liberals want to triple or quadruple that, or more.  Democrats in California have been leading this effort as usual….

Whether Obamacare is socialist or not is a different question, but the reasons to fear socialism, as outlined by Hayek, are present in Obamacare.  When government control gets larger, individual freedom necessarily gets smaller.