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A 42-year-old essay explains why it's so hard to repeal Obamacare

071017 Yandle Blog Post Photo
When proposals are made to sharply revise the ACA, who screams the loudest? Those who are funded by it. (AP Photo/Charles Rex Arbogast)

Why might the Affordable Care Act, despite its precarious status in Republican-controlled Washington, survive almost intact?

There is a simple explanation why Senate Republicans face such challenges in revising healthcare programs, or, for that matter, why any party would face the same challenges. Let me explain.

In 1975, the late George Mason University economist Gordon Tullock wrote a short paper that became a niche classic in public choice economics, a specialty field that applies economic logic to political decision-making. Titled "The Transitional Gains Trap," Tullock's piece, in simple language, explained why it seems impossible to revise major laws and regulations that initially give advantages or subsidies to well-identified individuals and groups.

To make his point, Tullock described the New York City system of taxicab medallions, licenses that must be purchased by each cabby who wishes to operate on the city's streets. First required in the 1930s, the medallion permits were issued for a fee of $10 to the then-13,437 cab operators. Meanwhile, the population grew, as did demand for transportation services, as did fares. Most recently, one of the limited number of medallions sold for $475,000. In 2014, prior to the full impact of Uber and Lyft, they were fetching more than $1 million.

Obviously, those individuals and families who obtained medallions for $10 earned a nice windfall. But later cab operators who purchased permits are lucky to have earned a normal return on their investments. Think about the ones who paid $1 million in 2014.

Now to Tullock's point. Suppose a new mayor were to call for regulatory reform, do away with medallions and allow the free market — Uber, Lyft and anyone else fit and ready — to serve the public. Medallion elimination would translate to lower fares. Cab riders of the world would rejoice.

Who would object the loudest? The medallion owners, of course, many of whom would go bankrupt. Medallion values are capitalized into the business. No one is getting rich because of them.

Now back to healthcare reform. The 2010 Affordable Care Act established a complex system of rules to be met by all who operate in the healthcare sector. Forms of insurance are regulated, as well as who can purchase what and what people pay. Services provided by hospitals are regulated, along with reimbursement rates. And of course, the services doctors provide the large number of Medicaid patients are regulated.

All of the players have adjusted to the rules, more or less. And after a hard adjustment process, the surviving players are earning at least a normal return. Even though premiums are rising, generally speaking, no one is getting rich off the ACA.

Now to the obvious. When proposals are made to sharply revise the ACA, who screams the loudest? Those who are funded by it: the American Medical Association, the Association of Medical Colleges, the American Hospital Association and AARP, which appeals for its currently-subsidized members.

Tullock's point is simple but profound. Once a government-sponsored institution is in place, the world adjusts to it, and even though something better may be designed, those invested in the existing institution will be harmed by the transition. They are trapped. The ordeal of change is painful.

Bruce Yandle is a contributor to the Washington Examiner's Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the "Bootleggers and Baptists" political model.

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