A Warning From, of All People, Greg Mankiw

How serious of a problem could Obamacare become?

Greg Mankiw, who never says anything negative about anyone, or anything, other than Paul Krugman, had this to say about Obamacare on his blog:

Here are some basic principles of supply and demand: If a government policy increases the demand for a service, the price of that service tends to rise. If the government prevents prices from rising, shortages develop. The quantity provided is then determined by supply and not demand. In the presence of such excess demand, the result could be a two-tier market structure. Consumers who can somehow pay more than the government-mandated price will be able to purchase the service, while those paying the controlled price may be unable to find a willing supplier.

Well, I think he is talking about Obamacare, this is Mankiw afterall. But, it is a major warning that shortages are a very likely outcome of Obamacare in its current structure.

He then clips this from a WaPo story:

A plan to slash more than $500 billion from future Medicare spending -- one of the biggest sources of funding for President Obama's proposed overhaul of the nation's health-care system -- would sharply reduce benefits for some senior citizens and could jeopardize access to care for millions of others, according to a government evaluation released Saturday.

The report, requested by House Republicans, found that Medicare cuts contained in the health package approved by the House on Nov. 7 are likely to prove so costly to hospitals and nursing homes that they could stop taking Medicare altogether.

Congress could intervene to avoid such an outcome, but "so doing would likely result in significantly smaller actual savings" than is currently projected, according to the analysis by the chief actuary for the agency that administers Medicare and Medicaid. That would wipe out a big chunk of the financing for the health-care reform package, which is projected to cost $1.05 trillion over the next decade.

More generally, the report questions whether the country's network of doctors and hospitals would be able to cope with the effects of a reform package expected to add more than 30 million people to the ranks of the insured, many of them through Medicaid, the public health program for the poor.

In the face of greatly increased demand for services, providers are likely to charge higher fees or take patients with better-paying private insurance over Medicaid recipients, "exacerbating existing access problems" in that program, according to the report from Richard S. Foster of the Centers for Medicare and Medicaid Services.

Though the report does not attempt to quantify that impact, Foster writes: "It is reasonable to expect that a significant portion of the increased demand for Medicaid would not be realized."

The House report and Mankiw are missing one element, though. Under Obamacare it will be the government that will determine what can and can't be paid for under any given health insurance program, so what is likely to happen is that Obama's team will cutback significantly on what can be provided to those with the best insurance to provide more to the Medicaid crowd. Somehow they will get that money over to the Medicare crowd through some kind of enforced coverage by insurance companies of Medicaid recipients. Afterall, they are going to force the "insurance" payments of the young to be applied for the elderly. Likewise, they will do so with the "insurance" payments of the rich. In other words, there will be less care for everyone. The U.S. will become the Big Havana. Mankiw is correct in hinting that it is going to be a mess. I don't think, however, that he is any where near understanding how big a mess it will be.