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In 1970, the eccentric but insightful economist Albert Hirschman published a book called “Exit, Voice and Loyalty.” It explored how people respond when a private firm’s or a government agency’s performance is deteriorating.
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Some people choose to leave, buying another product or service or leaving the government’s jurisdiction. Others use voice, complaining about defects or lobbying for change.
Hirschman tended to deplore exit and exalt voice, and urged firms and governments to nurture loyalty so consumers and citizens would stick around and improve things.
There’s obviously some relevance here to a current government program now performing far below even its detractors’ expectations: Obamacare.
Central to the goal of Obamacare’s architects, universal health insurance, was preventing the possibility of exit. Its individual mandate meant everyone had to sign up for insurance.
The Supreme Court created a big exit door when it ruled unconstitutional, by a 7-2 margin, Obamacare’s attempt to coerce states into expanding their Medicaid programs. Many states declined to make the change.
Obamacare’s proprietors have also punched big exit holes in its structure. The employer mandate was suspended for a year. Labor unions and other political cronies of the administration received waivers and exemptions.
And it’s not clear that even the supposedly fixed website will enable people to actually get health insurance. The website for insurers to receive applications and charge premiums hasn’t even been designed yet.
If Obamacare’s architects were keen on preventing exit, they blithely ignored voice. The legislation was unpopular when it was proposed, while it was passed and in the months and years afterwards.
Barack Obama seldom mentioned it in the 2012 campaign except for the provision allowing “children” under 26 to stay on mommy and daddy’s policies.
The architects of Obamacare also had to deal with loyalty.
Polls have consistently shown that about 80 percent of Americans are satisfied with their health insurance and doctors. They have chosen each at one point or another and were not eager to change absent some serious aggravation.
There was discontent in the late 1990s when health maintenance organizations limited options. But the move for restrictive legislation — voice — fizzled when aggravated consumers switched to different policies — exit — while those satisfied with HMOs stuck with them — loyalty.
Recognizing this, President Obama assured Americans dozens of times that if they like their insurance and their doctors they could keep them.
Unfortunately, that assurance was always intended to be false. A good short-term campaign tactic maybe, but bad long-term policy strategy.
Obamacare’s architects worked stealthily to prevent exit from the kind of insurance policies they think people should have. The president’s credibility has been shredded and serious liberals, such as the Brookings Institution’s William Galston, worry that big government policies generally will be discredited.
So far the Obamacare Democrats have succeeded in ignoring voice — the public’s demand for repeal or major revision of the legislation. But despite their claims that once legislation has been passed it must remain law forever, voice can overturn it. The Medicare prescription drug plan passed in 1988 was repealed in 1989.
If Republicans get the chance to repeal and/or replace Obamacare, they need to take into account exit, voice and loyalty.
Where Obamacare seeks to prevent exit except for the politically well-connected, a Republican plan should seek to maximize the opportunity for exit, an essential feature of any free market.
This probably can’t be done on the cheap. Current tax law provides an enormous preference for employer-provided health insurance, a preference whose benefit goes mostly to the affluent.
A freer market in health insurance means eliminating this tax preference, presumably through a tax credit for those purchasing health insurance on their own. That will cost real money.
Republicans also need to account for loyalty. People are not mechanical profit-maximizers; they may be reluctant to switch policies for only marginal possible gain. That means not including features that will phase out familiar employer-provided insurance rapidly.
And, of course, politicians should never plug their ears to voice, as the architects of Obamacare have done. That means avoiding things like the Obamacare regulation requiring contraception and abortifacient coverage. Let people decide these things on their own.
Obamacare seems to be teaching a new generation and new immigrants a lesson other Americans learned from the 1970s and 1980s: Free, decentralized markets generally work better than centralized command-and-control government. Republicans need an approach that pounds that lesson home.
© THE WASHINGTON EXAMINER
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