But first, some context. Mitt Romney went on Meet the Press yesterday suggesting that he is in favor of keeping some aspects of Obamacare, particularly those aspects that require insurance companies to accept people with pre-existing conditions. This sounds like a change in position. A major change, in fact. It almost sounds like repealing and replacing Obamacare would result in something very much like Obamacare. And one thing Republicans have been clear on is that they hate Obamacare, because it represents an unwarranted government intrusion into the market.
Naturally, the Romney campaign had to issue a clarification, explaining that they still really do hate Obamacare, and when Romney was talking about covering pre-existing conditions, he was only talking about people who already have continuing coverage. And what will people without continuous coverage do? Here is what the statement from the campaign said:
“[I]n a competitive environment, the marketplace will make available plans that include coverage for what there is demand for. He [Romney] was not proposing a federal mandate to require insurance plans to offer those particular features.”This sounds reassuring, because it tells people that the market will take care of this problem, and we don't need big, bad government to step in and tell insurance companies to make insurance affordable (and mandatory) for everyone. But it's important to explain what the statement that the marketplace will provide plans "for what there is demand for" actually means, for those who might be a little hazy on their Economics 101. See, the wonderful thing about markets is that they satisfy demand. Whatever we want, the market will provide it. The way the market does this is by pricing every commodity at exactly the point where demand is satisfied. So if there are a lot of potential buyers, and scarce supplies, the way the market continues to satisfy demand is simply to raise the price and, like magic, demand is still always satisfied.
The way this works with your health insurance is as follows: Say you don't have a job that provides health insurance, and you just decide to chance it and go without. Then you get diagnosed with cancer. So you apply for health insurance, but you have to disclose that you've been diagnosed with cancer. And the insurance company then tells you that your premium will be, say, $100,000 a year. (I'm just making a number up out of thin air.) Too bad you didn't apply for coverage before you got diagnosed, the insurance rep might tell you, then it would only have cost, say, $10,000 per year. So now, if you can't afford the premiums, does that mean that the market has failed to provide insurance coverage to satisfy demand? Not at all. It means that you no longer have a demand for health insurance. That is how the insurance market provides coverage for what there is demand for.