Bugs aside, Obamacare’s basic concept can’t work

President Obama admits that the new health-insurance exchanges are going to be buggy. He could hardly say otherwise. Small businesses won’t be able to shop online for at least a month. Some online marketplaces will be unable to verify whether applicants qualify for federal subsidies, so they are defaulting to the honor system. Some exchanges will lack the ability to calculate the size of those subsidies or Medicaid eligibility or both. Others are displaying misinformation about private insurance plans. …

… But, hey, stuff happens. As Obama said reassuringly last week, “Like any law, like any product launch, there are gonna be some glitches as this unfolds.” So be cool, people. …

… [T]he exchanges pose a pretty gnarly IT challenge. The federal data hub will have to seamlessly link the Departments of the Treasury and Homeland Security with state databases and private insurers, while also conducting various eligibility and subsidy-level calculations and ensuring user privacy. What could possibly go wrong?

Obamacare supporters point to the Medicare Part D rollout as recent example of a massive government program that won over skeptics and confused users despite a buggy launch. A less cited comparison is the FBI’s decade-long attempt to modernize its computer system. The 9/11 terrorist attacks highlighted the agency’s information-sharing woes. The first attempted fix, a project called Virtual Case File, was abandoned in 2005 after wasting three years and $170 million. Its $450 million successor, Sentinel, finally went live in 2012 after going over budget and suffering three years of delays.

Look, Obama might be right, and before we know it exchanges will work as smoothly as Amazon or Expedia. But what about the malfunctioning economic theory at the heart of Obamacare, the one that relies on bureaucratic schemes rather than market forces to lower costs, create value, and generate innovation? A new analysis from the Clayton Christensen Institute outlines the way many aspects of Obamacare discourage the sort of disruptive innovation that makes previously pricey and complicated products more accessible to more people. For instance, the highly regulated exchanges “essentially put a floor on the low end of coverage, thus limiting opportunities for entrants to provide different types of coverage and methods of care delivery.”

Obamacare’s operating system might be fixable; its faulty economic logic surely isn’t.