Obamacare, Net Neutrality, and "Whac-a-Mole" Regulation

Nov 19, 2014

IPFW Associate Professor and medical ethicist Abraham Schwab.
Credit Courtesy / Abraham Schwab

Senator Ted Cruz made news last week when he responded to President Obama’s call for Net Neutrality with a tweet claiming that Net Neutrality is Obamacare for the Internet.

Cruz’s tweet has been criticized by Al Franken among others.

If you’re not aware, Net Neutrality is the view that all content servers (e.g., websites) have free and equal access to consumers. This issue was brought to public consciousness in February when Netflix ‘agreed’ to pay Comcast (rumored to be several million dollars) so that Comcast would stop throttling the speed at which Netflix’s content was available to its subscribers.

 

“Is Net Neutrality really like Obamacare?”

In a certain sense, the answer is, “Yes.” Obamacare came about because the marketplace for health insurance was not working in the way insurance is supposed to work. The basic idea of insurance: you buy insurance so that if something terrible happens you don’t end up bankrupt.

But a study released in 2007 showed that 62% of bankruptcies in the US were health related, and, even more important for my point, of these 78% had health insurance(!). For large numbers of people, having health insurance did not protect them from declaring bankruptcy as a result of their health.

Obamacare aimed to regulate this market such that we would avoid this perverse outcome. The insurers are still privately owned and operated, but their behavior is regulated in more detail in an attempt to eliminate the perversity of the system.

"Obamacare and Net Neutrality both introduce government regulation into a market when there is reason to believe that the market, absent these regulations, is not fulfilling its expected social utility."

In the same way, Net Neutrality, as a government enforced regulation of internet service providers, would attempt to ensure that the internet continues to fulfill its important social function. That is, Obamacare and Net Neutrality both introduce government regulation into a market when there is reason to believe that the market, absent these regulations, is not fulfilling/will not fulfill its expected social utility.

Despite this fundamental similarity, differences can be found in the details. Net Neutrality provides a general and sweeping requirement: all internet traffic should be treated the same. Obamacare provides a series of incentives to shepherd private businesses in a particular direction.

The carrots and sticks of Obamacare end up producing what I call ‘Whac-a-Mole’ regulation. Like the padded mallet of the ‘Whac-a-Mole’ game at children’s restaurants, incentives push businesses to behave in one way. Obamacare puts into place a number of mallets (fines, subsidies, and government programs), but, just like the game, as soon as the mallet solves the problem in one area, another problem pops up somewhere else.

Some examples

In order to encourage businesses to provide health insurance, any business with more than 50 full time employee equivalents either must provide insurance for all full time employees or pay a fine. Not surprisingly, some businesses cut hours to get employees below full time.

For the unemployed or those who couldn’t get insurance through work, insurance exchanges were created. And then some medical facilities resisted or refused to contract with the insurance policies offered on the exchanges.

To make health insurance affordable for the poor, subsidies for health insurance premiums were written in to the law and Medicaid was expanded. The Supreme Court already decided that States were not required to expand Medicaid, and now will decide, whether the subsidies for the poor are allowed.

In important ways, then, Obama’s call for Net Neutrality is not at all like Obamacare. While both aim to maintain or improve the social utility of an important system, the complicated levers of Obamacare’s incentives have left room for businesses and those opposed to Obama’s clearly stated agenda to avoid the thrust of the work. The sweeping nature of Net Neutrality would make such resistance much harder. And perhaps that’s what has Senator Cruz so frustrated.
 

Abraham Schwab is an associate professor of philosophy and a medical ethicist at IPFW.

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