Re: "nothing ... will require you .. to change" and other

Topics: foreign policy
14 Oct 2009

From: Ervan Darnell

In Obama's speech [1] on health care he said:

, nothing in this plan will require you or your employer to change =
the coverage or the doctor you have.

In the very next paragraph, he said that pre-existing condition limits,=
dropped coverage, lifetime caps, and unlimited out-of-pocket expenses will=
all be banned. That's a huge change in my current insurance, making =
it much more expensive, and removing many of the levers that insurance comp=
anies compete on to keep cost under control.

Of course he promised "it will slow the growth of health care cost=
s "
The economic utility of medical insurance is not just spreading risk, b=
ut rationing resources as efficiently as we can manage. It's a bargai=
n that says "before I'm in desperate need and irrational I'm binding m=
yself to these limits and foregoing some exotic procedures", in exchan=
ge you get coverage you can afford. As an individual, you get to move=
that line where it suits you. Unfortunately, the tax code has alread=
y greatly harmed that model, but the Obama plan more or less destroys it. R>

"By locking in these flaws, the mandates will inhibit precisel=
y the innovation needed to reform U.S. health care. Ultimately, as governme=
nt seeks to rein in costs, it will curtail access to health-care services b=
y erecting barriers between patie...nt and health-care provider." [2]<=
BR>

This makes me wonder how bad the government "option" is. It's=
a ruse of course. There are two possible outcomes from it: either it=
does nothing (because it cannot compete on a level playing field), or it i=
s subsidized and destroys private insurance. But, the government is h=
ell bent on regulating insurance into irrelevance. The senate bill pr=
ohibits insurance companies from taking anything into account except age, s=
moking, and family composition [3]. And the rate differences for thos=
e are regulated. Meanwhile the procedures that must be covered are al=
so regulated. What's left for insurance to do? I guess it can s=
till bargain with providers and seek some efficiency there, but this is alr=
eady almost as locked down as the government "option".

Meanwhile, Rockefeller in his bill on the government option wrote "=
;It participates on a level playing field with private plan choices." =
and Obama said about his plan "And they'd be right if taxpayers were s=
ubsidizing this public insurance option. But they won't be." Bou=
cher is at the same time (ref my previous post) taxing private plans that o=
ffer more than the default government option. While the Rockefeller a=
mendment died, it was clear that it was a lie from get-go, as was the Obama=
plan. Any bill that is passed will tilt the playing field and no cou=
rt would have dared to invalidate the "public option" on that bas=
is. Similarly, the Obama plan is not letting you keep your current in=
surance even though he says he intends that.

Back to the speech,

We'll do this by creating a new insurance exchange ... As one big g=
roup, these customers will have greater leverage to bargain with the insura=
nce companies for better prices and quality coverage. This is how large com=
panies and government employees get affordable insurance.

This represents a frightening lack of economic understanding. I h=
ear many liberals making the argument that all we need to do is squeeze the=
profits out of insurance and health care will be affordable. That's =
ridiculous on the facts. Insurance company profits are somewhere arou=
nd 1-2% of the total medical cost (and profit is just a way of rationing ca=
pital to future versus current consumption and is necessary regardless).&nb=
sp; But more subtly it reveals the zero-sum fallacy, that all product=
ivity is fixed and it's only a matter of distributing the spoils, that pric=
e signals are irrelevant. Obama is stepping into that fallacy here an=
d saying if we can squeeze the profit out by negotiating harder we can solv=
e the problem. No, we can't. Yes, hard negotiation keeps wastef=
ul players off the field and that serves a purpose, but "big is better=
" is not the same thing. It's only transferring the cost to some=
one else. As Eric noted a long time ago here, Medicare is not an expa=
ndable model exactly because it's doing that. Neither is Obama's coop=
erative. It wouldn't be able to get a substantially better price.&nbs=
p; Even the small amount that it gets is a chimera. Anybody can alrea=
dy start a meta-insurance company to do exactly this kind of pooling. =
They don't because the overhead of running the meta company is greater tha=
n the saving to be achieved (as best anyone can tell). The government=
cannot beat that logic. All it can do is subsidize the operation of =
the pool, so much for the level playing field.


[1] re-speech_n_281265.html">http://www.huffingtonpost.com/2009/09/09/obama-hea=
lth-care-speech_n_281265.html
[2] 74426872264215790.html">http://online.wsj.com/article/SB1000142405297020448=
8304574426872264215790.html
[3] htt=
p://finance.senate.gov/sitepages/legislation.htm
[4] feller-Public-Option-Amendment">http://www.opencongress.org/articles/view/1=
260-The-Rockefeller-Public-Option-Amendment
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