Wednesday, September 30, 2009

Health-Care Smoke and Mirrors

So now the Left-Democrats (Social-Democrats) are focused on somehow ramming the health-care public option through Congress – even though they know that a significant minority opposes it (maybe even a majority). They absolutely refuse to hear the word "No"! Anyone who opposes them is a traitor, a stooge of the Insurance Companies, the Hospitals, or some other interested exploiter – never a sincere objector.

But when pushed about the details of the plan they provide one or more of three unsatisfactory responses.

  1. The details have yet to be worked out
  2. The premiums paid to the public provider will cover the costs
  3. The private insurance companies are expensive because their profits are high – competition from the public plan will solve that

Let's consider these.

Number 1. is a cop out. For such a drastic proposal we need details. How is it going to be paid for? Who is going to pay for it? How much is it going to cost?

Number 2. is smoke and mirrors. Somehow the public provider will be able to cover its costs with premiums way below the private providers'. How can this happen? Which brings us to the number 3.

Number 3.- it's all the fault of the private insurance providers and their high profits. A lot of people believe this. They believe that medical insurance premiums are high because medical insurance companies make large profits. I find this puzzling. If their profits are so high (meaning their RATE of profit, not the absolute numbers) then why are there not more competitors. High rates of profit always attract competitors unless there is some real barrier to entry.

When I point this out I am told there is a barrier – the insurance companies are a cartel (a private monopoly) – they prevent entry by lower cost (premium) competitors. Really? How do they do this? And if this is the case, is not the appropriate response to break this cartel and allow vigorous PRIVATE competition? Why do we need a public, aka government, option. The government never does anything efficiently – why would anyone think the government would be good at producing medical insurance?

So where is this private medical insurance cartel and how do we break it up?

Understand this clearly, the public option, if it charges premiums below the competitive level will have to be subsidized. That means an extension of the model we have now for Medicare. Those who have private insurance will face even higher premiums, maybe much higher, because their medical costs will rise, so that the private plans end up subsidizing the public one. Private medical costs will rise becasue hospitals and doctors will not be able to make money on the public reimbursements (from the public insurer) so they will charge more to their private patients. But price-discrimination ("rich" pay more, "poor" pay less) can only be pushed so far. In addition there will be new heavy taxes – probably on the private insurance companies, which they will partially recoup by raising their premiums. The public option will grow. It will become bloated, inefficient and corrupt, like all the other public health systems - even the French one. And you and I will pay through the nose.

You can't get something out of nothing.

4 comments:

Mike Reyher said...

Insurance protects finances not health. And the folks at issue here don't have finances worth protecting. So why is everyone talking about insurance instead of directly providing healthcare? If the question is "Should we provide healthcare to those that can't afford it?" then consider that we already provide the most costly forms of healthcare to the financial indigent as emergency care and then saddle providers and the victim with the bills from these most expensive procedures and venues.

So the most appropriate questions may not be "How are we going to provide..." the real question underlying question might be "Who is and how are they going to deny appropriate healthcare to those in need?" Right now we let the economy, insurance, and credit companies to the dirty work. They don't mind because this setup because it seems to provide huge profits to anesthetize their conscience.

Peter Lewin said...

Mike: Good point about distinguishing between the provision of insurance and the provision of care. The Obama administration made the switch for strategic reasons - suggesting a public insurance provider is different from a public-care provider. Economically speaking it is not that different.

Your second paragraph begs some important questions. You are correct in indirectly saying that scarcity implies hard choices and asking the question who gets to make those choices. I would point out that only people make choices, not the economy or insurance companies, etc., but I know what you mean. I would ask how it is that the insurance companies get away with the allegedly "huge" profits without attracting competition? Do their share prices reflect a sustainedly high rate of profit? If so why are people not buying their shares and bidding the prices up, and the rate of profit down?

The Proprietor said...

I can only say, as someone living in Britain who and receives superb, world-class treatment completely free of charge that has saved my life, that you should stop looking at the imagined pitfalls and realise the benefits of the system Obama is proposing. People who have jobs and health cover are OK, but many MILLIONS of Americans do not have this kind of cover and cannot afford to buy it life becomes a precarious, miserable affair when they fall ill or develop chronic illnesses. It's not just a matter of economics. It's a matter of fairness. And if that has to be called "socialism", well then you guys are going to have to get used to it!

Peter Lewin said...

Only saw this comment now. I need to respond.

It might be true that many MILLIONS of Americans do not have insurance. However, this is a small part of the total, many of them choose not to have insurance because they are young and healthy and want to save the money, and, even if you are uninsured, you do not get denied emergency treatment in America. One has to focus on the pitfalls because they imply tremendous obligations for many MILLIONS of people. They involve major coercive intrusions into their lives. And they will do major harm to the economy as a whole. There are many things that need improvement in the delivery of health care to make it more responsive and cheaper, but Obamacare does not do it.

Of course some people benefit from a system that others pay for, like you did. This is not a good argument for it. I would like to take five percent of the earnings of all my friends who earn more than 250K a year to use for my health expenses. Why? Because it will benefit me. Not such a good argument.

And apparently not everyone is as happy with the public system as you are.