Lessons of the Obamacare Mess: Public Is Better

The more complex a system is, the more it is at risk of failing in complex ways that were not anticipated by its architects. It would be hard to imagine a more complicated way of expanding health coverage than the Affordable Care Act.

I say that, appreciating that Obamacare will eventually bring health coverage to tens of millions of uninsured people, that it will end the cruelty of denials of coverage based on "pre-existing conditions" (we all have the pre-existing condition of mortality); that it will allow young adults to stay on their parents' insurance to age 26; and that it will require free preventive care under all insurance plans.

But there was a much simpler way of achieving this. We could have extended Medicare to everyone. Or if that was politically unthinkable, we could have extended Medicare a few years at a time -- first to 60 year olds, then to 55 year olds, then to the young, and so on until everyone was covered.

In the meantime, we could have extended coverage for the uninsured by expanding Medicaid. Or we might have followed through with the so called public option (which the Administration embraced, then dropped) -- allowing uninsured people to buy into Medicare or something like it, with subsidies for lower income households.

But the president, facing the legislative fight of his life, decided to build onto the existing commercial system rather than battling to supplant it with something more public and straightforward. He decided to cut a deal with the big insurance and drug companies, rather than defining them as the problem that they are.

Simpler, is also better politically, incidentally: Medicare for All fits on a bumper sticker and enjoys broad support, while the most succinct description of Obamacare requires pages and engenders skepticism and alarm.

More complex doesn't just mean more prone to complex failures; complexity breeds cost. You need regulations and supervisors to keep contractors from gaming the system.

In the current national mood of hostility to public institutions, government literally hires contractors to monitor other contractors, which then requires still more bureaucrats to keep tabs on the several layers of contractors. In my hometown of Boston, the "Big Dig" was plagued with cost overruns because the process of supervising contractors was delegated to other contractors.

I've been thinking a lot lately about why and how simpler is usually better. And when it comes to providing social goods, simpler usually means public -- not "public private partnerships" (where the private partner makes the profit and government eats the loss and the thing has too many moving parts) but true public systems.

Consider a few examples:

There have been extensive exposes of the abuses of privatized prisons, privatized halfway houses, privatized drug treatment programs, and privatized military functions. In New Jersey, 5,100 inmates walked out of profit-making halfway houses run by a political crony of Gov. Chris Christie.

Often, the reported "savings" to government come from one of two sources. In many cases, there is a gross deterioration in the quality of the service. The vendor cuts corners in order to maximize profits and shares some of its savings with government as its standards are degraded. Or the private vendor simply cuts wages and increases employee turnover, leaving a less professionalized workforce.

Or take privatized highways. The governor who does the privatization deal reaps a nice, one-time fiscal windfall. To pay for the profits anticipated by the private investor, motorists face sizeable toll increases while worker pay is cut. It's a double generational transfer to the investor, at the expense of past generations whose taxes paid for the road, and future ones getting soaked with higher tolls.

In both cases, a layer of complexity is added because of the need to supervise and monitor the private vendor. Corruption is invited, because it pays the vendor to offer disguised bribes to the public officials in charge of the contract.

Then we have the epic case of contracting out national security. Private armies like Blackwater Worldwide, which has now changed its name twice (to Xe, then to Academi) in order to cleanse its reputational damage, billed the government $1,222 per day per guard, "equivalent to $445,000 per year, or six times more than the cost of an equivalent U.S. soldier," according to a staff report prepared for the House Committee on Oversight and Government Reform.

The government even contracted out the process of granting security clearances.

One result was the carnage at the Washington Navy Yard. Another was Edward Snowden. We can be grateful for the debate about privacy that Snowden's leak of the NSA's crown jewels has stimulated, but surely government should have the capacity not to rely on outside contractors for the most sensitive security work.

For readers interested in a full exploration of these arguments, my essay, "When Public Is Better" just went live on the Demos website.

But back to the Affordable Care Act, an epic example of the sheer inefficiency of relying on private vendors to do the public's business. A true public system, like Medicare or Social Security, has far fewer moving parts to come off the rails.

By creating something of a Rube Goldberg system rather than battling to supplant commercialized health coverage, Obama courted avoidable political damage multiple ways.

First, consumers blamed the government when the sheer complexity created system failures. No fewer than 55 separate private technology contractors have been involved in the creation of the software that beckons consumers to sign up for Obamacare. No wonder the thing is falling of its own weight. By comparison, Medicare is simplicity itself.

Second, since the president was not willing to finance the Affordable Care Act with broad taxes on the wealthy, he proposed to find something like a trillion dollars in unspecified savings from Medicare, scaring seniors silly and losing the votes of older Americans in the disastrous mid-term elections of 2010.

And third, because the mandated insurance coverage establishes minimally decent standards for acceptable private coverage, the unintended consequence was that a lot of people with really lousy but inexpensive insurance are furious at having to give up what they have. Telling them that they will soon have something better doesn't fix the political damage.

Concerned about cost containment? Check out the cover story in Sunday's New York Times, which reports on how the entrepreneurs of the health industrial complex are fairly slavering over how Obamacare mandates tens of millions of new customers and new profit opportunities.

One other piece of really bad design: Because it was more expedient (and Republican-friendly) to pay for Obamacare with tax credits rather than a straight subsidy or an expansion of Medicaid, that decision got the IRS involved. Some genius made the decision to have the Obamacare software link directly to the IRS database in order to calculate the precise tax-credit and net cost to the consumer, rather than letting people window shop based on estimated incomes, as is done in the Massachusetts system. (You can window shop on the Kaiser Foundation's website) Because of the need for very high security in the linkage to the IRS database, that feature made the system even buggier.

There is no such problem with Medicare, of course. Everyone simply qualifies once they turn 65. You are enrolled automatically and your card comes in the mail.

Eventually, the government and its layers of contractors will get the bugs out of the Affordable Care Act and its byzantine software. As more people come to benefit from it, the political damage to Obama and the Democrats may even fade. But under the best case, we will wind up with a system far more convoluted and costly than it needed to be.

Robert Kuttner's new book is Debtors' Prison: The Politics of Austerity Versus Possibility. He is co-editor of The American Prospect and a senior Fellow at Demos.

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