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The Affordable Care Act, aka ObamaCare

by on November 10, 2013 7:10 AM

At the risk of upsetting some readers of statecollege.com, I will venture out into the minefield of the Affordable Care Act, also known as ACA or ObamaCare.

The opinions offered here are mine alone and do not represent the position of my employer Nestlerode & Loy, Inc., or statecollege.com, the website for which I write these articles.

Peter Drucker (probably one of the best known management gurus of the last century) long ago wrote that organizations are by their design good at some things and bad at other things.

Governments - whether they are democracies, representative republics (our form of government), monarchies, dictatorships, or whatever - are generally reactionary organizations. This means that they react to circumstances to make adjustments and are precluded from being proactive.

Contrariwise, organizations that are good at being proactive are: corporations (especially new entrepreneurial endeavors since old established corporations tend to drift towards reactionary status), teams, and families planning ahead to avoid problems and meet goals.

The capitalist system of success and failure is definitely proactive, when it is left to its own devices and not interfered with by government. Economist Joseph Schumpeter best described free market capitalism as a system of creative destruction, where the new and innovative displaces the old established modes of doing business. Of course, the old established organizations seek shelter from change (failure) by gaining political favors. General Motors, Chrysler, and the too-big-to-fail banks and brokerage firms come to mind.

All organizations have as their primary purpose their own survival. This includes all governments, corporations, families, charities and probably any other form of organization you can imagine. Governments tend to become larger and more indispensable to their voters by providing and defining more things as rights (healthcare and social security immediately come to mind), as opposed to responsibilities of the individual.

As organizations become larger and more rule-bound they become less adaptive, losing their ability to implement incremental changes as circumstances warrant. Organizations that lose the ability to make incremental changes can eventually slip into systematic failure, like the Soviet Union did in the late Eighties. That government collapsed as everything was run by a rules-centric reactive organization: a communist dictatorship.

If you accept or agree with the two preceding paragraphs and have studied organizational structures, then you cannot avoid the problems we are now having with the Affordable Care Act. As the implementation of the act was started, true to political reactive form, a number of special interest groups, government workers, unions and large corporations were given one year waivers while small businesses and individuals had to jump into the system starting October 1st.

Further, as the system failed on startup, Congress (government) took to having hearings to assign blame for the failure, a classic reactionary mechanism. The airwaves were filled with these efforts to assign blame rather than finding a solution to the problem. Finger-pointing seems to be the sport of the day in Washington.

Speaking of sports, can you imagine a football huddle where the quarterback assigns blame rather than calling the next play as the play clock winds down? Silly isn't it? Maybe this explains why we are so addicted to sports games that have outcomes settled in nine innings, four quarters or sixty minutes.

Good coaches and players are proactive goal-oriented folks seeking to win within the rules of the game. Governments are reactive organizations that seek to change the rules of the game to make themselves the winner at the expense of the people they are supposed to serve.

So here we are at the end of 2013 heading into the holiday season with a huge number of folks attempting to comply with the ACA only to be thwarted by a system that so far is frustrating the very people it's meant to serve. We will see how the ACA works out over the coming months as we head towards the off-year election in November 2014.

At least in this country voters can vent their frustration with government provided services at the polls. I wonder if anyone understands that given the point from where we started this article, it will be a miracle if the ACA ever works as advertised. The notion that you could add thirty million more consumers to the health care system without increasing the number of health care providers or organizations defies all logic.

Sadly, there is no penalty for false advertising at the political level. Hopefully everything will work out in the long run. At my age, you begin to depend on miracles a tad more. At least my wife and I have until late next year to have to deal with this issue and maybe by some miracle, we won't have to.

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Dan Nestlerode is the Director of Research and Portfolio Management at Nestlerode & Loy Investment Advisors in State College. A graduate of Penn State University, Nestlerode has been an investment advisor since 1965. He can be reached at danielj@nestlerode.com.
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