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lunes, 2 de abril de 2018

DANIEL VAUGHAN: Obamacare proved that the market is smarter than big government

“The mind cannot foresee its own advance,” observed twentieth-century Austrian economist and philosopher Friedrich Hayek. His point was that humanity is limited in its ability to predict the future with exacting detail.

It’s so limited, in fact, that we can’t see how our own minds will advance.

These limitations aren’t unique to any individual, race, or creed. He pointedly directed this observation toward people he called “central planners.”

A centrally planned economy is one where the state sets out to plan, execute, and control every aspect of economic growth.

When Professor Hayek was writing during the twentieth century, he was criticizing the centrally planned economies of Nazi Germany, Fascist Italy, and the Soviet Union. A modern example of a centrally planned economy would be China, particularly as President Xi Jinping consolidates power and eliminates opposition.

The flaw in central planning is that it’s impossible to plan for every single necessary outcome in an economy. It’s impossible to know, for sure, what each region, state, city, neighborhood, or family needs in a given setting.

You can see this easily in the United States: some areas are dealing with drought, others with multiple winter storms, and other regions are perfectly normal.

While you can try to plan for some of these events, it’s impossible to plan flawlessly. And it’s also impossible to make plans like this and remain innovative, bringing new products, technologies, and innovations to people and marketplaces.

In the end, central planning fails because of its own hubris. Part of what kept the USSR and modern China innovative for a time is because they stole U.S. designs.

I bring this up because we’re witnessing a moment in the health insurance market where the invisible hand, and the market forces at play, are pushing for a dramatic overhaul of the entire system.

2017 was the year of failed mergers between health insurance companies. 2018 is the year of health insurance companies looking to merge or be acquired by radically different companies.

The most significant story on this front was published by the Wall Street Journal, which reported that Walmart is in early talks to purchase Humana, one of the largest Medicare Advantage providers in the country. These rumors were dubbed true after everyone watched these insurance companies all fail at merging last year.

In other words, dramatic change is coming in the health insurance market as every company in the sector has assessed the playing field and sees no long-term future in it, absent massive change.

Call this the unintended consequences of all the regulations and changes forced on the industry from the Affordable Care Act, or Obamacare. The underlying premise behind Obamacare was that legislators and regulators could centrally plan parts of health insurance, down to the types of plans and requirements, and nothing would change in the industry.

Add to that regulatory burden the sizable looming transfer of Baby Boomers over to Medicare or Medicare Advantage plans, and you start seeing the pressures facing these companies.

Adapt or die.

For companies like Walmart and CVS, the move into health insurance allows them to bring in more of the pharmaceutical business, which increases overall foot traffic in their stores. For the Humana and Aetna’s of the world, they have to find suitable buyers to adapt to this new world — or die.

No one wants to be the last person looking for a partner on the dance floor.

Walmart and CVS don’t end the conversation either. Amazon, J.P. Morgan, and Warren Buffett announced they were teaming together find a way to solve corporate America’s issues with health insurance.

If CVS and Walmart are looking at buying a whole insurance company, you can bet the combined power of Amazon, J.P. Morgan, and Warren Buffett could accomplish the same.

Don’t forget other companies like Kroger, Publix, and Target having interests in this space too.

And while the market is rushing, trying to find a way to adapt and survive to this new market, everyone who worked on building the infrastructure of Obamacare is caught flat-footed, slack-jawed, and out-of-date. The Obamacare legislation isn’t even a decade old, and the mere sight of disruption in the health insurance industry makes it hopelessly out-of-date.

Which brings us back to our now prophetic Austrian professor, philosopher, and economist, Freidrich Hayek. That the mind cannot foresee its own advance is correct.

And that’s even more true for a government and the people charged with running the government. No one who was responsible for pushing Obamacare down America’s throats could have predicted the level of disruption being discussed in this industry right now; it was unfathomable.

And yet we’re contemplating the unfathomable. Just because a central planner doesn’t foresee something doesn’t make it nonexistent.

That doesn’t mean what’s happening with Walmart and CVS will for sure take place. I claim no specialized knowledge in that regard. But I do happily admit I don’t know — and we should let the market sort things out. We’ve already seen the disaster that central planners created through Obamacare.

I say let’s see what the innovators and disruptors can do.


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