Rice County Republicans

In the period around the second world war we somehow decided that medical insurance was best paid for by employers (Ref: World War II created health insurance perk).  This was not a good thing, but it was expedient in light of attempts to control wages (an example of the sorts of unintended consequences that arise anytime we try to legislate economic behavior) . This reference article goes on to state that the United States is the only industrialized country in the which most health care is paid for by employers. This is usually touted as a problem for two reasons:

• pro-business forces in the Democratic party (there are a couple) point to the imbalance in market power this gives foreign companies since they are often not in the medical insurance business. They then conclude that government paid plans are needed to “level the playing field“.
• pro-freedom forces in the Republican party point to the disconnect between the consumer of the goods and the costs (the “moral hazard” problem). They conclude that getting the consumer of the services to also be the payer will bring market forces to bear and will take those oh-so difficult rationing decisions away from the faceless bureaucrat and put them into the bright lights of personal choice. Doing so honestly also requires that we remove the tax exemptions that make gold-plated plans available to select groups (like our Congress).

Now we are confronted by a massive and apparently poorly thought out plan to change health care delivery in the United States (of North America). In the NYTimes (Health Care Vote Illustrates Partisan Divide) we see Sen. Dodd explaining the new health bill:

“If you don’t have health insurance, this bill is for you,” said Senator Christopher J. Dodd, Democrat of Connecticut, who presided over more than three weeks of grueling committee sessions. “It stops insurance companies from denying coverage based on pre-existing conditions. It guarantees that you’ll be able to find an insurance plan that works for you, including a public health insurance option if you want it.”

The bill would also help people who have insurance, Mr. Dodd said, because “it eliminates annual and lifetime caps on coverage and ensures that your out-of-pocket costs will never exceed your ability to pay.”

Without bothering to answer the nasty question of where in the Constitution do we see that the government should be in the insurance business, we are embarking on a massive change in our payment plan for health care. Let’s consider the so-called high points in light of two models of insurance:

Model 1: Insurance is a way to mitigate against risks. This is best thought of using the automotive model, where we buy collision and comprehensive auto insurance because we cannot afford to lose this high-value asset. We add liability if we cannot afford to be sued.  These are all risks of car ownership, and we pay to protect against those unlikely events. We do not add “oil changes”, “new upholstery” or “new tires” because the costs are manageable and we do not want to pay the insurance company their profit margin on top of the managable costs just so they will pay for those items.

Model 2: Insurance is a way to share costs. This is essentially a tax to even out access to health care by making everyone pay and letting everyone consume. It is often supported by arguments that state that “society” has built its medical system by incremental improvements (as represented by the long chain of discoveries that have built on centuries of scientific progress). The collectivist argument is then that all have some right to access that collective knowledge even if they have not directly contributed to that development and indeed may (as a society) have blocked some of that science.

Health insurance is a little of both, how much of each depends on many factors, not the least of which is the extent to which the insurer is kept from using all the available risk factors (weight, smoking, genetics) to set fair prices based on the information those factors provide about the expected costs.

Now, what is the question that is the real elephant in the room – the question that no one wants to hear? That question is: how much can we (collectively) afford to spend on health care? One estimate is that Medicare has an unfunded promise to spend $36T in the next 60 years or so. Paying that will take most of the income that the government gets each year in taxes. The question you should be asking is: who really thinks we can solve this problem by simply changing who pays? No, what is needed is a sea-change in what we think we need from our health care system.

Let’s start by parsing the Senator’s comments

Statement 1. It stops insurance companies from denying coverage based on pre-existing conditions.

This makes it a cost sharing plan, not an insurance plan. And as for risky behaviors, if the government is at risk of paying for your bad choices, how long till they want to control your behaviors? Of course, if we tie insurance companies hands (no fair accounting for differences in risk) and we tie hospital’s hands (no fair turning customers away just because they can’t pay) then have we just created a complete plan for failure?

Statement 2. It guarantees that you’ll be able to find an insurance plan that works for you, including a public health insurance option if you want it.

Public plans hide some of the costs by directly or indirectly subsidizing the plans with tax monies, giving them an unfair competitive advantage, driving private industries out of the market.

Statement 3. The bill would also help people who have insurance, Mr. Dodd said, because “it eliminates annual and lifetime caps on coverage …

Unlimited risk exposure like this means unlimitedly high premiums. We could spend hundreds of thousands of dollars per year on almost any patient if we do not cap coverage. And the payer does not matter in the end, since neither private nor public plans can afford this sort of open-ended promise. But you can sure buy votes (whether running for office or voting to unionize a shop) by making this promise.

Statement 4. … and ensures that your out-of-pocket costs will never exceed your ability to pay.”

More unlimited risk exposure. And you don’t really need to wonder if you can afford the care, because we’ll pick up the difference (and let your children and grandchildren pick up the tab for that largesse.

Unfortunately (or miraculously, if you prefer) we are finding expensive ways to treat diseases. And as a society we cannot afford for everyone to get those treatments.  And it does not matter who pays (employer, government, individuals), we will have to change our paradigm for thinking about health care spending or we will become little more than huddled masses simply waiting in the waiting rooms of our hospitals begging from crumbs. As long as the debate is presented as if that were the only important question, we are able to push away the harder questions, as we do not mind how expensive it is as long as we aren’t asked to pay for it ourselves.

References:

World War II created health insurance perk, by Ron French, where we read

The fact that GM pays anything for health care is an accident of history.  By the 1940s, health care costs in most industrialized nations were paid by the government.  That might have happened in the United States, too, if not for World War II. …  Today, the United States is the only industrialized country in which most health care is paid for by employers. [emphasis added]

Senator Barbara A. Mikulski, Democrat of Maryland, said the Republicans were sore losers. “We gave them hours of debate and opportunities to offer unlimited amendments,” she said. “At the end of the day, they did not want to support universal health coverage.” [emphasis added]

Governors Fear Medicaid Costs in Health Plan

BILOXI, Miss. — The nation’s governors, Democrats as well as Republicans, voiced deep concern Sunday about the shape of the health care plan emerging from Congress, fearing that Washington was about to hand them expensive new Medicaid obligations without money to pay for them.