Defense Contracting: The Pentagon's Obamacare

Defense Contracting: The Pentagon's Obamacare
Associated Press

President-elect Trump campaigned on the slogan of repealing and replacing Obamacare. This was part of his general theme of making government more efficient and responsive to the needs of the people. Since winning the November election, Mr. Trump has taken this same theme and applied it to other areas of government, notably defense. In several tweets, he questioned the costs of major defense programs. What he assumed, erroneously but understandably given his private sector background, was that the costs of these programs seemed high because the companies behind the programs were trying to earn excessive returns. In fact, this is not the case. The reasons for the high costs of some defense programs have to do with the structural defects of the defense contracting process and the inherent challenges of trying to build relatively small quantities of very specialized and high tech items that have no commercial counterparts.

But in some ways Obamacare and defense contracting are similar. It is these common features that are at the heart of the challenges to costs and effectiveness faced by both. Here are several examples.

The first thing that Obamacare and defense contracting have in common is a dysfunctional requirements process. One of the major complaints against Obamacare from the outset was the massive array of new requirements levied on all insurance policies. The list of circumstances, procedures and tests that insurance policies are now required to cover is enormous, as is the additional cost associated with these mandates. Younger people complain that they are required to buy more insurance than they need and older individuals have policies that cover extremely low-risk events such as birth control and pregnancy. All the interested parties saw the Affordable Care Act (ACA) as a once in a lifetime opportunity and they loaded it down with every requirement they could imagine. Apparently, no one in a position to influence the contents of the ACA bothered to ask what would be the impact on the costs of individual policies and on overall government expenditures on health care of runaway requirements.

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