A review of The Truth About Obamacare, by Sally C. Pipes

The title of Sally Pipes's new book, The Truth About Obamacare: What They Don't Want You To Know About Our New Health Care Law, tells you everything you need to know about her views on President Obama's health care law. Pipes is one of the law's foremost—and most effective—critics, and she understands the importance of rhetoric in framing the continuing debate.

Beyond the title, her book shows that she also appreciates the values of simplicity and clarity. Far too often, health care debates are gnostic discussions of MLRs (medical loss ratios), "guaranteed issue," and "adverse selection ratios" that laymen cannot hope to understand. In fact, it is the issue's very complexity that for so long—too long as it turns out—kept Republicans from connecting with voters on the issue. Pipes recognizes this, and works hard to present the challenges of the new health care folly in a readable and digestible manner. Her book is everything the new health care law is not: short, clear, transparent, and filled with good policy ideas.

At the same time, Pipes, the president and CEO of the Pacific Research Institute, offers new nuggets for the experts among us, including a helpful history of how our health care system became the tangled, inefficient morass that precipitated the president's push for legislation. She shows the sequence of legislative and non-legislative steps that have made our health care system largely dependent on third-party payers, either the government or insurance companies. The problem with this continual movement of money, which the new law has exacerbated, is that the third-party payment system creates significantly skewed incentives for all participants in the system, from the patients who have no incentive to shop for the best deals, to the health care providers who pay insufficient attention to fraud. This leaves the insurers in the piñata position of being the only private player trying to control costs, and becoming the system's villain in the process.

Pipes recognizes that the only way that we will develop a modern, efficient, and workable system is to improve incentives and encourage consumers to become value-based purchasers. This consumer-driven approach has improved the quality and reduced the cost of nearly every good in our society except health care, and is the only rational way to improve our current system. Consumer goods—e.g., televisions, computers, smartphones—have experienced a revolution over the last generation in terms of improved quality and lower cost, largely because of the power of consumers who are armed with a host of information and interested in finding the best bargains available. In contrast, patients covered in the health care system, whose bills are generally paid by third parties, have neither perfect price information nor the incentives to exercise their purchasing power as consumers. This unfortunate situation is a large contributor to the inefficiency and expense of the status quo.

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The costs, unfortunately, won't be going down any time soon. As Pipes shows, many of the new laws' vaunted cost-savings measures will actually put more pricing pressure on our already strapped system. She points out that new taxes on insurers will hike the cost of family insurance plans by an estimated $476 a year; that a WellPoint analysis found that insurance premiums would increase in every one of the 14 states it looked at in its study; and that a 25-year-old male in Louisville, Kentucky, is likely to see the cost of his health care premiums triple.

She also engages in a good discussion of the costs of state-mandated benefits on health insurance and of the many failures of the Massachusetts state health care plan on which the Obama plan was modeled. According to Pipes, a wide variety of mandates imposed by New Jersey legislators drove up the cost of plans to as high as $89,000 a year. As for Massachusetts, she shows how prevalent gaming the system became after the imposition of an individual mandate combined with rules that force insurers to cover all applicants at the same price. Customers would jump into the system when they needed care, and jump out after their needs were taken care of. The scariest part of this is that the nation as a whole has now adopted a similar system. As she puts it, when President Obama's plan "goes into effect nationwide, we can expect people to start gaming the system on a massive scale. We can only guess what the cost of that will be."

Pipes does put her skill as a guesser to work in her final two chapters. First, she lays out a darkly funny vision of a future in which Obamacare is fully implemented, and all technologies have improved except for the health-related ones. In the final chapter, she describes her list of ten reforms that could vastly improve our system without the dislocations and distortions that the new law is going to bring. With such a future at stake, I hope that the new Republican majority in the House of Representatives is listening to Sally Pipes as they contemplate how to navigate away from our looming health care nightmare.