Sunday, January 7, 2007

Do Democrats like big business? They do if it is health insurance big business ...

The link below describes Schwarzenegger’s struggle to deal with the mess caused by the long standing government intervention into health care, which has prevented free markets from providing to health care what they have provided in most or all commodities that are not ruined by government intervention - to wit, a variety of choices with plans to meet different needs and pricing that allows most of us to get what we need. To me this is the tell all – why is it that all but America’s most poor buy cars and car insurance, and houses and home insurance (69% of Americans own homes, and all but a fraction have housing), but we don’t have a market for affordable health insurance?

-What if you could choose from health care plans like you choose car models? What if companies were out there thinking of new ways everyday to market and sell individual health insurance plans for individual Americans? What if this market were as competitive as the life insurance market or the automobile insurance market, with companies hiring the best and the brightest to figure out how to profit by selling you a product you want for a price you are willing to pay? Why is health insurance the only product of this type that isn’t sold that way, responsive to individuals in the market place?

-The answer: Like many persistent problems we face, the government messed it up. Prior government interventions have “kaleidoscoped” natural incentives that would make this product as consumer oriented as it should be.
Interestingly, the Dems are not leveling their normal accusation, against Schwartzneggar & the GOP, that they are in bed with big business - because when it comes to health care, no one's warmed big businesses sheets better than the Dems, so they have nothing to say.

-It was WWII, and FDR had embraced the Keynesian idea that governments could tweak economic policy to make an economy run better. One of his GFIs (great ideas) was to set upper wage limits. Corporations convinced congress to allow them to offer generous health insurance policies as a tax free portion of an overall compensation package (I’m sure the health insurance companies were glad to see this law passed, as it immediately made their products more valuable by virtue of being tax free). In other words, an employer could give Joe Wartimeworker more compensation by giving him an extensive insurance package, even though it was illegal to offer Joe W. more cash dollars than the government limits. This idea doesn't make a lot of sense to me, 60 years removed, but I can see why insurance businesses liked the idea.

-That’s an ungracious way to say that after this strange, war time change in legislation, health insurance became an expected component of employee compensation, due the tax benefits. An employer could pay an extra $1200 in salary, of which the government could take “their share” in taxes, leaving you less than $1200 in take home pay, or, the employer could buy a $1200 health insurance policy, of which you would get the full $1200 in value. When I went to work after graduating from college, I never wondered why health insurance was part of my overall compensation package, I never considered whether I could find a better deal by taking the money paid for my insurance as pay and buying my own policy – but I didn’t take any other benefits that way, for example, housing or transportation. Do you have any doubt that if employers were better at providing housing or transportation than you could do on your own, they’d be offering that as compensation? Well, I don’t think companies do any better at providing health insurance either, but because of the tax incentives, companies provide it and few question the value of what they receive.

-A result of the “employer provided tax sheltered health insurance” approach is it has resulted in companies providing the most expensive possible insurance policy. That’s what we all think of now when we think of a health insurance plan – it is not really insurance, it is a pre-paid service contract, which is the most expensive way to provide insurance like coverage for a service. For example – how many people that you know purchase a plan that pays for every possible expense in car ownership; fuel, oil changes, tire changes, tire maintenance, minor paint repair, car washes, etc? Almost none of us do because this kind of coverage is VERY expensive. But that’s the kind of health care most of us have. If health care looked like car insurance, we’d only have coverage for very high, unexpected costs, the equivalent of car crash repair or injury from car wrecks. Instead, we pay for coverage that includes predictable, minor expenses - akin to fueling the car and changing the oil each quarter.

-Once you have a pre-paid service plan policy, then the incentives get screwy in a hurry. Doctors have no reason not to prescribe any and all tests that might, no matter how improbably, find something that might be wrong. In fact, if they don’t and you get really sick, you may sue the doctor; so the incentive to recommend tests and procedures, even ones that aren't likely to find anything, is monstrous. Because of that practice, we all pay higher premiums, pricing many folks out of the market. As Arnold Kling shows in his book, A Crisis of Abundance, we’re spending a fortune on health care because we’re buying Cadillac care while getting a Chevy ride, and pricing many Americans out of the market in the process.

-What are the solutions? Well, I’ll bet you dollars to handfuls of Iraqi sand that the present government efforts to ‘solve the healthcare crisis’ will lead to calls for additional government solutions to the problems that today’s solutions will cause tomorrow. The result will be a system that continues to suck up more and more money, while providing only marginally better care, leaving less money for Americans to spend on things that would provide genuine benefits, and resulting in: reduced world wide competitiveness, lower take home pay, and perpetual calls for additional government intervention, while each intervention will reduce the ability for free men/women to enter into mutually agreeable decisions about how to conduct their lives.

-If you want to better understand how we could all have a reasonable amount of coverage and pay a reasonable price, bringing even the “less fortunate” into buying their own health insurance (just as they buy their own cars and houses and insurance for both), read Arnold Kling’s excellent and short book, “A Crisis of Abundance.”

-After spending 10 or 20 hours looking it to the issue, it is no longer a wonder to me that we have a “health care crisis.” Interestingly, most Americans likely won’t spend 10 or 20 hours to understand this issue, but many will be seduced by the siren song of most government “help for the less fortunate,” never knowing that it is government help that’s priced health care out of the market for that population in the first place.

-Have you any doubts we’ll be seeing more government directed actions, less freedom and more government intervention leading to lower quality of life for us and our children? There are none from my end.

-A freedom lover's koan: “How much government intervention will it take until the politicians are no longer willing to spend other people’s money to intervene?”