Jun 06

People sometimes say that by electing a super-rich person to public office, that office-holder is less likely to be beholden to equally rich special interest groups.   In the case of New York City’s Michael Bloomberg, we may just be seeing how a super-rich, non-reelection seeking mayor might not need to care what any of his constituents think.    Bloomberg certainly deserves kudos for determination and sticking to principle.   Too bad for all of us that they are the principles of a statist.

English: New York Mayor, Michael R. Bloomberg.

I’m of course referring to Bloomberg’s latest governmental crusade: “educating” our increasingly obese society on proper portion sizes, via a proposed (and likely to be implemented) ban on “sugary drinks” of more than 16 ounces.  Thankfully, numerous commentaries are noting that determined consumers can just buy a second drink, or more importantly, that government has no role in intervening in people’s eating habits.

It’s not hard to see Bloomberg’s good intentions, however.  A look at some of the costs of obesity on society says that for all of his damn-the-torpedos/democracy behavior, perhaps it’s a good thing that we’re at least attempting to have a conversation about this:

  • Fully one-third of America’s population is considered obese, with 6 percent being considered “morbidly” so.
  • Nearly 21% of America’s annual health care expenditures, or about $190 billion a year, are related to obesity.
  • Besides an additional $4 billion in fuel costs to move this extra weight in our transportation system, there are these anecdotes about the infrastructure itself:

“The built environment generally is changing to accommodate larger Americans. New York’s commuter trains are considering new cars with seats able to hold 400 pounds. Blue Bird is widening the front doors on its school buses so wider kids can fit. And at both the new Yankee Stadium and Citi Field, home of the New York Mets, seats are wider than their predecessors by 1 to 2 inches.

The new performance testing proposed by transit officials for buses, assuming an average passenger weight of 175 instead of 150 pounds, arise from concerns that heavier passengers might pose a safety threat. If too much weight is behind the rear axle, a bus can lose steering. And every additional pound increases a moving vehicle’s momentum, requiring more force to stop and thereby putting greater demands on brakes. Manufacturers have told the FTA the proposal will require them to upgrade several components.”

– Sharon Begley, “As America’s Waistline Expands, Costs Soar”, Reuters  April 30 2012

Worth talking about, indeed.   But from what I’ve seen so far, I think we’re asking the wrong questions.

Continue reading at Forbes Opinions…

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May 23

I’ve had more than my share of exposure to the U.S. healthcare industry over the last several months.  That and other dramatics that people call life explain my disappearance from these pages since February.

About two years after being diagnosed with carcinoid tumors, in what we later learned was an already very advanced stage, my father passed away this past April 1.  Things began to more rapidly go downhill in mid-February, and with that, the family pulled out all the stops in support, including lengthy hospital visits.

This is a close relative of the cancer that Steve Jobs succumbed to.  In his case, what is still commonly reported as “pancreatic cancer” and/or “liver cancer” would be more accurately described as carcinoid tumors in his pancreas, and his liver, and probably elsewhere within his abdomen.   We all remember Jobs’ disturbingly gaunt look of extreme weight loss – I watched the same thing happen with my dad.  It is a cruel disease.

To further complicate matters, exactly one year ago, and one year into my dad’s situation, I found myself calling 9-1-1 at 1 a.m. with severe abdominal pain.  About 16 hours later, I awoke from a surgery to learn I had lost 14 inches of small intestine containing nine carcinoid tumors (I would later learn that I likely had these tumors for as long as ten years, and in my dad’s case, twenty), the biggest of which had caused a total obstruction.

Clinical Research Center at the National Institutes of Health

Continue reading at Forbes Opinions…
Feb 13

The Obama administration’s finger-to-the-wind political strategizing over birth control has touched off a furor amongst a variety of factions. Most of the controversy has rightly centered around the government’s ability to run roughshod over an individual’s, or religion’s, belief systems.

Image via Wikipedia

But an equally important issue has been revealed by accident, and is perhaps getting less attention. New York‘s junior Senator, Kirsten Gillibrand, provides the setup, applauding the forced coverage of birth control by insurance companies:

“99 percent of American women take birth control, and this is basic health care for most women,” said Senator Kirsten Gillibrand.

Until this country stops confusing health insurance with health care, we’re on a road to certain national bankruptcy. Indeed, many would argue we’re already there.

Continue reading at Forbes Opinions…

Jun 19

Image via Wikipedia

When reading Paul Krugman’s latest New York Times column, “Medicare Saves Money“, it’s hard to fathom who the bigger fool is – Krugman, his employer, or the readers that keep supporting this junk.   It’s also hard to fathom a more complete demonstration of faulty reasoning.  All this from a Nobel Prize winner no less, and one calling out someone else’s supposedly bad idea, an idea according to Krugman “that’s so bad, so wrongheaded, that you’re almost grateful.”

Professor Krugman, I’m grateful to you.

Continue reading at Forbes Opinions…

Mar 26

As we pass the one year anniversary of the passage of the Patient Protection and Affordable Care Act, lovingly known to most as ObamaCare, and with a repeal movement trying to get into full swing, it’s worth revisiting what could have been, and what could still be.  Simply repealing ObamaCare might save the country from the certain financial and health care disasters it would bring, but repeal alone doesn’t address the noble goal of ensuring as many people as possible, and the necessary goal of curbing runaway health care inflation.  There is another way.

Continue reading at Forbes Opinions…

Feb 21

With this week’s “health care summit” between President Obama and the Republicans, one hopes that the GOP will do a better job than they have done thus far in promoting the benefits of Health Savings Accounts.   If they had done so in the past, ObamaCare would likely never have come into consideration.   While structured differently than traditional health insurance plans, it is precisely this structural difference that holds the key to reigning in runaway health care inflation.   Health Savings Accounts should also have a nearly universal appeal to a particularly vital population in this debate, namely, doctors.

Our present system of medical spending and reimbursement is an unholy “mashup” of two concepts that need to remain separate:  health care and health insurance.    Health care is a product that seeks to meet our want and need to remain healthy.  Health insurance is also a product, but is focused on risk management.  All but the most die-hard socialists generally agree that free markets, when allowed to work, will best deliver solutions to meet human wants and needs.  Yet for some reason our government has decided that the product called “health care” cannot be delivered via free markets.   Thus, we now have 50% of health care expenditures being spent by government.    And where insurance should kick in for unpredictable events whose low probability allows for the pooling of risk, we are instead using it as a general financing mechanism for events that take place with near certainty, such as annual physicals.  One wonders why we are not being clothed and fed by similar “insurance” schemes.   The more we finance routine expenditures with “insurance”, the more we fight the consequences.

It is this fundamental distortion of the proper role of insurance that lies at the root of our unsustainable medical cost inflation. If a majority of people instead used HSA’s, inflation of medical care costs would likely be no greater than the inflation seen in any other sector of our economy.   Indeed, looking at the sub-specialties of laser eye surgery and cosmetic surgery, where insurance has played a dramatically smaller roll, there is a demonstrable trend of consumers getting better care for less money.  Perhaps Obama can order a Presidential Commission to report back on that.

The Road to HSA’s

It is not uncommon for a company to pay $10,000 a year or more to provide family coverage for an employee.  The employee gets the “benefit” of the insurance coverage, as opposed to a higher salary or wage, and the company gets a tax deduction for the cost of the insurance.   Of course, if the employee loses their job, they and their family lose their insurance coverage, too.

Rather than spending $10,000 on a “traditional” family insurance plan, the company could instead do the following:  First, they spend $5,000 on a high-deductible insurance plan that would cover 100% of the above-deductible costs of any potentially financially devastating event that isn’t likely to happen, such as a heart attack.   Second, to cover this deductible, the employer deposits $4,000 (2010’s limit is actually $6,150) into an account for the insured to spend on any medical expense, such as annual physicals, or a random trip to the doctor to be told they have the flu.   The employee and family are free to choose any medical service providers they want, no questions asked.    There’s $1,000 left over, which can be returned to the employee in the form of a higher wage, re-invested by the company to grow the business, used to increase a corporate dividend, or any combination thereof.

The wonders of the HSA stem from the fact that of the $4,000 placed into the account, the employee rolls over whatever they don’t spend into the following year, at which point they get another $4,000.   Voila!  The employee now has a strong incentive to watch how the money is spent.  For the first time, as is typical with nearly any other purchase, the consumer will now likely ask “What does that cost?” It is precisely this “skin in the game” that is key to re-introducing market forces to health care delivery.

If President Obama is truly looking for new solutions to our health care and insurance issues, in a plan that won’t bankrupt the country, Health Savings Accounts are just what the doctor ordered:

Better medical care, through restoration of the primacy of the doctor-patient relationship. Under our current system, the bogeyman of “the insurance company” enters into countless aspects of the doctor’s decision-making.   Doctors very often have to worry about pleasing “the insurance company” as much as they do the patient.  Indeed, in many respects, their ability to freely exercise their accumulated knowledge is challenged at every step of the way by faceless staff workers having absolutely no knowledge of any particular patient’s medical needs.  With widespread HSA’s, doctors would largely be free from the prying eyes of an insurance company and would instead be able to focus on delivering value to their customer, knowing full well that other providers in the marketplace were competing to do the same.    Without insurance companies being involved for routine care, doctors would be free to innovate into modern-day delivery systems, such as direct patient communication via phone and e-mail (two procedures that currently don’t have CPT codes).

Perhaps some doctors wouldn’t like replacing the insurance company with a more competitive marketplace.   But then again, like any competent service provider who is attentive to their customers’ needs and fashions solutions to them, competition is not to be feared.   Consumers would instead rightfully fear service providers who fear competition.

Reduced utilization leading to lower costs. True story:  A couple of months ago, in a horrendously stupid gardening episode involving a suddenly motionless wheelbarrow, I managed to break my own rib (feel free to both wince and laugh).  After several weeks of ongoing pain, I went back to my doctor and succeeded without too much pleading to get authorization for a CT-scan, as much to put my mind at ease that I hadn’t done anything other than crack my rib.   My cost: Ten bucks. Had my cash outlay been significantly more than that, (say, full-freight?) would I have skipped the CT-scan and carried on with the pain, just as the doctor predicted I would have for some time?  Probably.   But similarly, if the doctor had strongly urged the CT-scan, even knowing I would pay for it in full, perhaps I would have done so after getting a second opinion. The point is, my involvement in the decision-making processes concerning my medical care and the financing of that care would have skyrocketed.

Why are we surprised that virtually unlimited demand, made possible by virtually free services like my CT-scan, produces unusually high price inflation?   To slow the rate of growth in health care costs, we simply have to keep utilization in check, and to do that, there is simply no match for the aforementioned “skin in the game”.   At ten dollars for a CT-scan, I have essentially none.  Yours truly, part of today’s problem?   Guilty as charged.

However, once consumers knew exactly what procedures like a CT-scan cost, because they’d be more directly paying for them, the only way service providers would maintain their sales would be to either lower the price, increase the quality, or both. The free market’s magic of “price discovery” would signal service providers to enter the market with higher-value alternatives under the hopes of capturing market share.   So, paying “full freight” for my CT-scan would cost me less under a system of full price transparency.    This is a critical point that many people miss:  they assume that if we suddenly had to pay “full freight” for non-emergency medical care, we’d be paying today’s artificially inflated prices.

Increased efficiency for doctors’ offices. Under the dynamics of traditional insurance, a doctor’s practice must often employ an army of office workers that handle all of the insurance-related issues, many of which are not stemming from low-probability, catastrophic events.   With HSA’s many of these costs can disappear, as the doctor is paid in full at the time of service from the patient’s HSA account.  The patient in turn receives regular statements detailing their expenditures and balances.   With reduced operational costs for their offices, the doctor would be in a better position to lower the costs of their services.   There’s even a “green” angle in all of this:  think of the reduction in paper usage!

True portability.   As stated earlier, typically health insurance for an employee and perhaps their family disappears with the loss of the job.   It is common to hear of people staying with jobs they don’t like, “just to have the health insurance”.   What does the employer gain from that?   What do the employer’s customers gain from that?   Note that the savings account of the HSA is owned by the employee, not the company.   So over time, this pool of money can grow and provide financing for medical expenditures regardless of employment. Furthermore, since the accompanying catastrophic policy would be dramatically cheaper than a “traditional” plan, it would be inherently more affordable during an period of unemployment.

Ideally though, the catastrophic policy would be owned by the employee as well.   This could be achieved by migrating our compensation practices towards taking the money that is earmarked towards an employee’s insurance benefit and paying it directly to the employee instead, with the expectation that the employee would shop on their own for insurance, just the way they shop for any other product.    Remember that employer-provided health insurance came about only as a response to wage controls during World War II, specifically the 1942 Stabilization Act. (Can we talk sometime about unintended consequences?)

Now consumers would be truly liberated to seek the best policies for themselves.   No longer would they be forced to pick from a limited menu of choices provided by their employer’s human resources department.   Combining this aspect with the ability of consumers to seamlessly purchase any insurance product from any insurance provider in the world, and the proven value-creation capabilities of free markets would restored to 16% of our economy.

Pre-existing conditions. Under a long-standing existence of a system of privately owned HSA’s, the current problem of “pre-existing conditions” would be greatly diminished.   From “womb to tomb”, a person should be covered by a catastrophic policy that would provide coverage for high-expense, low-probability events.    These events would be priced into the insurance product, as this is precisely the role of insurance. So to be clear, if suddenly a person receives a diagnosis that results in large ongoing medical bills, but the person already has insurance, the insurance company should fully honor their contract and pay all claims.

By strong contrast, to force a service provider to provide new coverage for a condition that will guarantee that the service provider pay more than they receive in return violates every aspect of free trade ever recorded.  It should be no surprise that the “free market” hesitates in providing such a product!    This is not a “failure” of the market.  It is a consequence of a lack of financial planning and responsibility on the part of the consumer.   Harsh words perhaps, but this is not a foreign concept to responsible market participants.   Who seeks collision insurance for their car only upon wrecking it, or fire insurance only upon watching their house burn down?    With such insurance in place before the catastrophic event, the concept of “pre-existing condition” disappears entirely and is rightfully replaced with peace of mind.

Would the increased “threat” of suffering the financial consequences of expensive medical conditions resulting from largely voluntary behavior, like smoking, eating and drinking too much, or not exercising be an incentive to taking better care of ourselves?    Should it be?

To whatever extent we’re asking an insurance provider to suddenly provide financing for a medical calamity that was not previously insured against, we’re entering the realm of charity.    The only way the math works, the only way the insurance company does not go bankrupt, thus jeopardizing everyone’s coverage, is to charge all customers more, all the time, to be able to suddenly provide the coverage to the large new claimant.  There is clearly room for emotional and passionate debate here, and for that reason, it is exactly the realm in which the government should not be involved.

Innovation in insurance products. With insurance returned to its proper role, there would be incentives for insurance companies to lower the costs of their catastrophic coverage if the policy holder could prove on a regular basis that they are doing their part to reduce risk.    This would be a natural response to the Darwinian-sounding dynamic described above and would properly reward risk-reducing behavior.   It is exactly the kind of thing that issuers of auto and fire insurance do already.

Tax benefits. Current legislation allows for tax-free growth of the funds in the HSA account, which adds additional appeal to consumers, but probably adds to legislators’ lack of enthusiasm.  It makes for a great excuse to dismiss HSA’s as a tax-avoidance scheme, gift to the rich, or some other anti-big-government slur.   We shouldn’t confuse the two issues.   With reduced government spending in general, taxes can come down naturally.   Tax policy and health care policy need not have much to do with each other, mainly because the government need not have much to do with health care.

Sounds Interesting, But Do They Work?

Ironically, we can look to the experiences of a government for proof that they do.   In 1995, Mayor Bret Schundler of New Jersey’s Jersey City oversaw the introduction of HSA’s for government employees.   Costs went down and participants were happy.   It is documented by Schundler here.    Likewise, in the private sector, Whole Foods chairman John Mackey has described his company’s positive experiences with HSA’s.    Steve Forbes has done similarly about the experiences at Forbes, Inc.   But more generally, HSA’s will work because the free market, with all of its aspects of informed consumers being satisfied by motivated producers, works.   We don’t have a free market in health care today, so it should be no surprise that the system is not working.

Unfortunately, there is a big loser in this entire approach, and that is the armies of government bureaucrats who want to retain control over our health care and the associated sectors of our economy.    Perhaps that is the sole reason HSA’s have not yet taken off.   It is time for someone, perhaps a newly emboldened GOP, to call the bluff.

Oct 16

What happens to healthcare reform if the people invited to pay for the party don’t show up?   Honest historians already know:  It won’t be pretty.

Even voters of the most liberal persuasion have a hard time arguing against the economic truism, “tax something and you’ll get less of it”.   So check out this bag of goods:  Among the key funding mechanisms for the healthcare bills being promoted are a 40% excise tax on so-called “gold-plated” or “Cadillac” plans, and a windfall profit tax on insurance companies themselves.    When even the unions are raising an eyebrow to taxing high-cost plans, you know something’s up.

Senator Max Baucus and others have run their numbers and see a moneypot in these high-cost plans.   Their spreadsheets look really simple and have formulas in them like “Tax Revenue = MoneyPot * 40%”.      What is being attempted here is something akin to studying physics without calculus, calculus being the “language” of dynamic processes.  The planners and masterminds in control insist on using static analysis, a simplification that results in financial recklessness.

History shows conclusively that people don’t sit back and accept 40% tax rates with glee.   In an instinctive pain-avoidance maneuver, they change their behavior in an attempt to minimize the tax.    Some percentage, likely bigger than Sen. Baucus will ever admit, will reduce their high-cost plans one way or another.    The unions certainly realize this — they’re likely to see the value of their plans cut closer to, or under, the tax-trigger threshold, all via reduced benefits.   In any case, the total taxable dollars to drive the Senator’s moneypot is going to go down.     Witness, the birthplace of government program cost overruns.   Calls for further tax increases and/or limitation of services (also called rationing) will be soon to follow.

In another form, this dynamic is happening today in the form of shrinking state tax revenues.   In New York, thanks to the  ongoing economic illiteracy of the state legislature, the Working Families Party was able to convince them that their budgetary woes could be solved by raising the taxes on the “rich”.     Things haven’t gone according to plan, and they’re about $500 million short (note that a sad side-effect of the staggering numbers being bandied around the health care, stimulus, cap & trade and other policy debates is that $500 million now seems like chump change).    Steve Malanga’s excellent article goes on to describe similar stories in New Jersey, Maryland and elsewhere as high-wage earners pack up and leave.

But for striking parallel to the tax on luxury insurance plans, we can visit the boatyards up and down the Eastern Seaboard in the early 1990’s.   In an attempt to get the “rich” to pay their “fair share” of taxes, liberal Democrats in Congress enacted a family of taxes on “luxury” goods, as defined by them, including boats costing more than $100,000.    Ironically, Ben Bernanke, along with Robert Frank, wrote about the backfiring of this legislative mess in their 2003 book “Principles of Microeconomics“, quoted here:

pg 96:

“Before these taxes were imposed, the Joint Committee of Taxation estimated that they would yield more than $31 million in revenue in 1991.   But in fact their yield was little more than half that amount, $16.6 million.   Several years later, the Joint Economic Committee estimated that the tax on yachts had led to a loss of 7,600 jobs in the U.S. boating industry.  Taking account of lost income taxes and increased unemployment benefits, the U.S. government actually came out $7.6 million behind in fiscal 1991 as a result of its luxury taxes — almost $39 million worse than the initial projection.    What went wrong?

The 1990 law imposed no luxury taxes on yachts built and purchased outside the United States.   What Congress failed to consider was that such yachts are almost perfect substitutes for yachts built and purchased in the United States.   And, no surprise, when prices on domestic yachts went up because of the tax, yacht buyers switched in droves to foreign models.   A tax imposed on a good with high elasticity of demand stimulates large rearrangements of consumption build yields little revenue.   Had Congress done the economic analysis properly, it would have predicted that this particular tax would be a big loser.   Facing angry protests from unemployed New England shipbuilders, Congress repealed the luxury tax on yachts in 1993.”

Other accounts of the yacht tax put the job losses at upwards of 25,000, or as high as 45,000, with sales revenues plunging as much as 71%.    But if you think the lesson here is that Congress should have only taxed imported yachts, or all yachts, you’ve sadly missed the point.

Finally, there is the self-defeating notion of taxing “windfall profits”.   Simply put, if one of the stated goals of the left is to reduce the profits of the insurance companies, is funding health care legislation with a “windfall profits tax” nothing more than a parasite killing its host?

Just like the yacht buyers who changed their behavior, or the people voting with their feet and moving out of high-tax states, the “dynamic” will with certainty trump the “static” when it comes to trying to raise big dollars to pay for big health care.    When it does, and the budget hole is measured in 12 or 13 digit numbers, to what peg will Congress turn?   Once again, it won’t be pretty.

Oct 08

This past Wednesday morning, Representatives John Dingell (D, Michigan) and Kevin Brady (R, Texas)  sat down for an interview with CNBC’s Becky Quick, Carl Quintanilla and John Harwood.   Discussing healthcare legislation, bipartisanship and the law-making process in general, some unintentional revelations of our completely dysfunctional Congress were laid bare and proved stunning.

A few minutes into the discussion, Becky Quick questioned whether or not a “public plan” was needed to achieve the goal of “lowering the cost curve”.   Here is Dingell’s response:

Well, I think a public plan is an absolute necessity, and the reason is, that we have found, that the current pattern of state regulation does not work.  There’s no way, whatever, that we can control the costs and the behavior of the insurance companies.  And so we’ve got to substitute for that, competition.   And the only way we can get that competition that will work is by seeing to it that we do have a public plan.

Nevermind that many Republicans believe that it is exactly all the state and federal regulation prohibiting competition that is a big contributor to our dramatic health care cost inflation.   What was truly remarkable was that even with the admission of a non-working public policy, there has been no call from these same people to repeal it.   Rather, a massive new program must be put in place which will correct for the failings of the first one, which will be left in place.

Dingell was also proud of the Congressional Budget Office’s estimate that through the inclusion of a public option there would be “an increase the number of persons receiving employer based health insurance by about 2 million people”.   Using his number of 46 million uninsured, that’s a little over 4%.   Enough said.

But it got better.   Minutes later, following a discussion of whether or not there was bipartisan cooperation, Rep. Dingell, elected to the House in 1955, initiated the following exchange:

Rep. Dingell: “One of the problems that exists, and this is a very real one, is that we are engaged now in the public [his emphasis] drafting of legislation.  This leads to all manner of unfortunate misunderstandings as to what it is that we are doing.”

Becky Quick:   “But you say doing this in ‘public’.  That means doing it under the light of day where people can actually see what’s happening?”

Dingell:  “Uh, you’re just seeing the unfortunate consequences of public drafting of legislation and it makes a fine mess because people don’t understand the complexities of this.”

Quick:  “So it should done behind closed doors…?”

Dingell:  “Bismark observed, ‘If you like sausage, or legislation, don’t watch either one made.'”

Carl Quintanilla:  “Right, right. We’re watching it get done this time.”

Quick: “I don’t know, I’ve always thought that the openness is something that’s a good thing though, the more people that are involved, the better.”

Rep. Brady: “It is.”

Quintanilla:  “That’s assuming that people really understand and have time to pay attention to the detail, right?”

Quick: “I guess it depends on whether you trust what’s happening behind closed doors or not though.”

Brady:  “I’ll tell you… We held over 51 Town Hall meetings, the people who came to our Town Hall meetings were knowledgeable, they’d read the bill, they knew health care issues. Their problem is too much of this has been done behind closed doors.   They want it to be open.  They want their ideas heard.  And it’s not.”

At an earlier point in the interview, John Harwood turned to Rep. Brady and said “Are you really going to stand in the way of the Congressman realizing his dream”?    Brady calmly ticked off a number of initiatives that Republicans would do instead.   But the point is that this isn’t about Dingell’s dream.   It’s about doing what will produce the best result, according to the people affected, in the most fiscally responsible manner, which just might include having the government doing a whole lot less than what’s been done thus far.

It would seem that the truth about the nasty rotten sausage that pass for many of our laws, and the factory conditions where they’re produced, are exactly what is getting people worked up and causing them to look more closely over the process.    Dingell’s obviously not happy with that (and we can probably count on him never signing on to H.R. 554, requiring that all non-emergency legislation and conference reports receive 72 hours of Internet exposure prior to debate).   When people see something disgusting,  a common reaction is to recoil and try to ensure that they don’t see it again.  Better yet, they act to find the cause of the disgust and fix it.

It’s safe to say that we’d all be better off by ramping down the production lines at the sausage factory that is the US Congress.

Sep 24

Perhaps you’ve caught MoveOn.org’s recent satirical ad that goes after the health care insurance companies, staring none other than Will Ferrell.   I’ve loved Mr. Ferrell’s movies, but man, as Laura Inghram might say, “Shut Up & Sing!” Let’s examine a few quotes…

“So why is Obama trying to reform health care when insurance companies are doing just fine making billions of dollars of profit?”

I’d like to know exactly how MoveOn.org would like to see the health insurance industry operate in the absence of profits.   Of course, this is not a theme unique to MoveOn.org and their (sadly) many supporters.    The briefest time spent with Google will reveal numerous people and organizations decrying “profit-driven health care”.

The most elementary Economics 101 (albeit, not of the Karl Marx variety) stresses that profits provide the all important signaling mechanism to potential suppliers as to where the demand is, or equally importantly, where it is not. Without the profit mechanism, some other telegraphing mechanism would have to be substituted instead.    MoveOn.org’s implied solution is that that mechanism should be politically rooted.   It’s back to the question of “who decides?”   Should individuals decide what product/price offering works best for them, or should a bunch of government bureaucrats do it for them?

But if MoveOn.org feels so confident that the profits within the health care industry are too large, it’s a glaring admission that they could either provide a similar service for a lower price and are choosing not to do so, or that competition within the industry is lacking.  Again, Economics 101 says that in the presence of a robust free market, no competitor will sit back and watch other market participants enjoy outsized profits.

Don’t we already have a robust free market in health care?   A simple example will prove the negative:  In search of a good deal, I am free to cross my state border and purchase a car, no small purchase at that, and then drive the car back to my home and register it.   No one cares, and similar transactions happen across the country every day.   One could even say, to use a frequently used phrase in the health care space, that the cheaper out-of-state dealers help keep other dealers in my state “honest”.

Will someone in the MoveOn.org camp tell me why I can’t do this with health insurance, and what the rationale is behind that policy?

Yes, I know that each state has its own laws mandating the particulars of policies sold in their state, so each state couldn’t possibly regulate the offerings of the companies serving all of the other states according to their own mandates.   But who asked for this mess?   Why shouldn’t I just go shopping for a policy that fits my needs, as dictated by me, from whoever wants to sell it to me, wherever they exist?   Isn’t that exactly how we buy every other product?

Making just this one change would unleash a torrent of price and product competition that would vaporize the supposed outsized profits almost overnight.  I’d also welcome the education as to why this wouldn’t cost almost nothing, in stark contrast to the other wildly expensive plans out there.   Furthermore, any group of people from MoveOn.org would always be free to join into that market competition with their own lower-cost/lower-profit company.

If anyone’s angry with insurance companies, letting them truly compete with each other would seem to be a great way to vent that anger.    Let them beat each other up as you watch!   Great theater!    America’s a country that hasn’t yet outlawed boxing (where the stated goal is to render your opponent unconscious — talk about a need for medical care), so why not let the companies really duke it out?

“Eighty percent of the American public support the public plan…”

Wow.   If that were true, wouldn’t that overwhelming majority have forced its will on the other twenty percent of us by now?    Wouldn’t all these crazy town hall meetings and such indicate that statement’s a little off?   Last I checked, big government had only a 60 seat majority in the Senate, not 80.

But this is the crux of MoveOn.org’s ad.   They want viewers to lobby congress for a strong public insurance option.    So where are their ads decrying the profits of internet service providers, or railroads, or software companies, or household and personal products, which on average make higher rates of return than insurance companies?   Should Congress authorize the creation of public companies to keep Cablevision or Procter & Gamble honest?   Just who does Amtrak keep honest?

“What’s so American about competition?”

Exactly.  Anyone can play this game.  Go for it MoveOn.org.   Forget the public option.    There’s a huge hole in the marketplace right now that you can fill.    Between George and your 5 million members, you should have a lot of resources at your disposal to create a great company that by your figuring would attract a ton of customers.    And it would be free to ignore typos.

Sep 10

Long before he walked on water, Steve Jobs’ comments and musings about Apple’s products resulted in the not-necessarily-flattering phrase, “The Reality Distortion Field”.   As President Obama is no longer walking on water, he seems to have been pulled into that same tractor beam in trying to pitch his health care plans to the country.   All subsequent quotes are his…

For those who already have health insurance”, the President assured that “what this plan will do is to make the insurance you have work better”, by making it “against the law” for insurance companies to:

  1. Deny coverage to those with pre-existing conditions
  2. Drop coverage due to changes in health
  3. Put “arbitrary some cap” on total lifetime payments

Likewise, he said there would be limits on the total out-of-pocket expenses, and that companies “will be required to cover, with no extra charge, routine checkups and preventive care, like mammograms and colonoscopies.”

Only a Reality Distortion Field would suggest that it is economically possible for a company to be forced to incur (perhaps dramatically) higher expenses and not attempt to recover those costs through some combination of higher product prices and/or reduced availability of the product itself.   But let’s move on.

The President wants to create an “insurance exchange”.   Hello — this is commonly called a market, something we do not have in health insurance right now.   Of course, the kids that want to play in that sandbox will have a strict list of rules to abide by as to what they can sell.   And of course, the neighborhood bully, the allegedly self-funding, non-profit, “public option”, will be in the sandbox from the start, welcoming all newcomers.     I suppose logic and reason should result in similar non-profit entities being created in other industries as well, just to “keep them honest”,  such as those that provide us with food, clothing and shelter, three things that are at least as important as health care, but that’s another story.

And yes, technically, nothing in the plan will require anyone to choose the public option.  But here again the central planners assume that we live in a static world.  If, all other things being equal, a “public option” was not burdened with the pesky issue of profits, and enjoyed structural cost advantages, wouldn’t that necessary result in a lower-cost product?   Wouldn’t many individuals and/or companies flock to it?  Isn’t this exactly how organizations like Fannie Mae, Freddie Mac and Sallie Mae eventually took over their marketplaces, all the while under political influence?   We’ve seen that movie before.  You know the ending.

He continued:  “So let me set the record straight. My guiding principle is, and always has been, that consumers do better when there is choice and competition.” Great.   Calling you to the carpet Mr. President:   allow the insurance companies to truly compete. Let the best ones win and the worst ones fail.    This is how markets work and when left alone, they do it better than any other system.    The many Republicans waving their plans and reports in the air seemed to want to have a chat with you as well.

But lastly, there was the tortuous reasoning that we will somehow fund this more-perfect system largely with savings from cleaning up the old one.   Somehow, the very same government forces that resulted in “hundreds of billions of dollars in waste and fraud” will by way of the Reality Distortion Field now waste nothing.

The President cited two moments in history where government stepped in and supposedly acted bravely against calls of overreaching.  “In 1933… there were those who argued that Social Security would lead to socialism. But the men and women of Congress stood fast, and we are all the better for it.   In 1965, when some argued that Medicare represented a government takeover of healthcare, members of Congress, Democrats and Republicans, did not back down.”

Are we better for it Mr. President?   I would suggest that those two acts, along with numerous others, planted and fed the seeds of an insidious moral hazard, leading too many to look to government for their long-term well being, rather than to themselves and their private relationships with their fellow man.   Socialism requires exactly that mentality.   As for Medicare, it represents nearly 50% of total healthcare spending, which sounds like great progress towards a “government takeover of healthcare” to me.    This goes a long way towards explaining the disconnect between what things cost and the monitoring of those costs by consumers, the exact kind of monitoring that in a normal market would keep price inflation in check.    Most importantly, Social Security and Medicare will soon be broke.  They simply can not be held up as role models.

Will a majority of voters succumb to the Reality Distortion Field?  Or will their representatives ignore them and enact Obama’s plan anyway, seeking to build a monument for themselves?   I think Obama showed his cards:  “I am not the first President to take up this cause, but I am determined to be the last.”

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