The proper health care goal is health insurance for NOBODY (Guest Post)

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Obamacare4

The new Republican alternative to Obamacare is another wrong-direction big-government boondoggle. Senators Coburn, Burr and Hatch have included a few good things, allowing insurance providers to compete interstate (section 204) and reining in out-of-control malpractice lawsuits and awards (section 401), but their centerpiece is free universal health insurance for the needy (section 204) and subsidized insurance for the not so needy (section 203).

Free insurance is wrong on both counts. The free part is bad and the insurance part is bad. It health care is free, whether for the needy or for anyone else, the recipients lose all financial incentive to behave responsibly so as to avoid expensive health risks, making total costs far higher than they would otherwise be.

If people are paying for their own insurance then risky behavior will lead to higher insurance premiums, leaving the financial incentive to avoid health-risky behavior intact, but even self-paid insurance destroys incentives in another way. Once people have insurance they have no incentive to shop for the best medical-service price.

This is what made our health care industry dysfunctional long before Obamacare. Tax incentives and employer mandates created an artificially high level of insurance coverage. When the resulting lack of price competition caused prices to explode the “something must be done” answer was a proliferating system of government imposed cost controls.

It’s a textbook case of Friedrich Hayek’s “road to serfdom” where each government imposition on liberty creates problems that the advocates of government-imposed solutions then use as justification for yet more impositions on liberty, until now we have an almost complete government takeover of a full one sixth of the U.S. economy (Obamacare), when the original dysfunctionality that set us off on this road to full-blown socialism was created by government itself.

Conservatives are supposed to understand this but the current crop of “establishment Republicans” clearly do not. Instead of eliminating the government-created sources of dysfunction they just offer their own set of unnecessary and perverse government impositions. Faced with the Obamacare disaster they offer Obama-lite.

Strategically this is idiotic. A broad and rapidly growing majority of Americans oppose Obamacare so just get rid of it. Do we really have to first fight off a whole different big-government takeover? This is a another self-inflicted wound, like the establishment Republican leadership’s push for an illegal-alien amnesty that Republican voters overwhelmingly despise.

If the Republican leadership really somehow believes in free health care they can just go back to how things were before Obamacare, when the needy got free care by the simple expedient of not paying their bills at emergency rooms and county hospitals. That was the proclaimed big problem that Obamacare was going to fix by forcing everyone to buy insurance. Now Republicans leaders want to solve the problem of the uninsured getting free health care by… giving the uninsured free health care.

Talk about superfluous, and while it is nice that these guys want to help the poor, they are doing it in exactly the wrong way.

All government aid should be billed to the account of the recipient

As I have been advocating for many years, all government aid should be billed to the account of the recipient, to be paid back with full market interest according to an ability to pay formula over the life of the recipient, whether the aid be for health care, welfare, unemployment benefits, Obamaphones, Social Security, food stamps, or anything else.

Many aid recipients will never have the ability to fully repay so such a system will still be costly but billing aid to the account of the recipient keeps incentives to responsible behavior as fully intact as is possible. That maximizes the bang-per-buck from giving aid, which means that whatever aid is given it should be given this way.

Philosophers can argue over how much aid should be given, but how to give it is determined purely by these economic considerations. Every penny of aid should be billed to the account of the recipient. Keeping the books straight not only optimizes incentives but it also has the salutary side-benefit of making clear who owes who.

Our present system of giving aid away instead of loaning it sends the perverse signal to recipients that they must be owed, or why would society be giving them stuff? The result of this wrong signal is a nasty, ungrateful, bitter underclass that blames its poor condition on the rest of society and responds by grabbing as much as it can, not just from social services, but through crimes against people and property.

The current national epidemic of blacks attacking random whites and Asians on the street is one of these byproducts. People who feel that they are owed a bitter debt often have an urge to take a pound of flesh, so make it clear to every aid recipient: no, society does not owe you, you owe society, and here is an accounting of exactly how much and for what, so don’t ever pretend that it is you who are owed.

The ultimate goal is not health insurance for everybody but health insurance for NOBODY

… these alternative provisions strike the right balance between strongly encouraging individuals to become insured, while ensuring greater regulatory predictability and market stability …

—Senators Coburn, Burr and Hatch (section 202)

Wrong wrong wrong. We do NOT want to encourage insurance. All of the health industry’s problems stem from government incentives that create an artificially high level of health insurance coverage, destroying price competition among health care providers. The ideal system—what any policy today should be aiming for as its long-term objective—is a system where nobody has health insurance.

Self-insurance (paying for health costs out of one’s own savings) is inherently more efficient than 3rd party insurance. Self-insurers retain incentive to price shop, which keeps costs down, they retain incentive to avoid expensive health risks, which keeps costs down, and self-insurance avoids all of the very substantial administrative costs of 3rd party insurance. Best of all, everyone is automatically self-insured up to their level of savings/wealth.

Over time, unimpeded economic development will raise the prosperity of every segment of society, moving more and more people, and eventually all people, to the point where self-insurance is the most rational choice for them. At that point everyone is paying with real money (their own money rather than insurance company money), causing them to shop for price, and the result is a normal market where prices get driven down by competition, eliminating all need for regulatory cost-controls. This natural progression is the goal to aim for and the way to do it is just to get government out.

Ironically, Obamacare’s rapid destruction of the existing health insurance industry could prompt a big step in this direction. Obamacare has already put a significant portion of the population into the ranks of the uninsured/self-insured and once the exemption on the employer mandate expires the number of the uninsured will rise dramatically. Really, the whole health insurance industry could be razed, and if government then just vacates the field of health care regulation many of the newly self-insured will likely remain self-insured.

This would inject price competition which would bring self-insurance within the reach of more and more people, creating a “virtuous cycle.” We have a chance here to bring the era of artificially over-insured health-care to an end, just by revoking Obamacare.

What kind of health insurance aid should be billed to the account of the recipient, insurance premiums or the actual cost of the care delivered?

Consider this an addendum for the wonks out there (if Paul Krugman and Ezra Klein haven’t completely flipped the meaning of wonkery from unbiased policy analysis to purely biased political spin).

Suppose that under a system where all aid is billed to the account of the recipient, need-qualified individuals are allowed to choose for themselves whether to have a monthly health-insurance premium added to their debt to society or whether to let the uninsured cost of actual health care services rendered be added to their debt as these costs are incurred. Which should they want to choose?

With the government acting as a source of liquidity (making loans to cover claims of need), letting actual health care costs be billed to one’s account would amount to a kind of quasi-self-insurance. It would be financed via debt rather than savings, but the benefits would remain.

When people buy insurance it reduces their incentive to avoid the insured risks. If you know that obesity incurs lots of expensive health risks then you have far stronger incentive to avoid those costs by avoiding obesity if you have to pay the health costs out of your own pocket.

Ditto for other health-risky activities like drug use, extreme sports, unprotected sex, careless use of power tools, etcetera. People who don’t have 3rd party insurance are a lot more careful about a lot of things.

Since the total costs that end up being covered are substantially higher when 3rd party insurance is involved, the price has to be higher by at least the same amount. Similarly for the higher health-care prices that result from the lack of price competition. That is an increase in cost to the consumer when 3rd party insurance is used. Add in the administrative costs of 3rd party insurance and self-insurance makes sense for anyone who can self-insure, thus so long as the system of billing aid to account allows this option it would be the sensible way for most aid recipients to go.

Of course this is also what society would like. Quasi-self-insurance by the needy would leave them a financial incentive to avoid risky behavior, thereby reducing overall costs, and it would give them incentive for shop for price when they do need medical services, allowing the needy to become a major driver of the price competition that would turn our current out-of-control cost-regulated health market into a normal cost-minimized competitive market.

It is true that the incentive effects that come from billing aid to the account of the recipient are not as strong as for non-needy people who pay for things from their own pocket rather than with government subsidized liquidity, but for anyone who expects to get on their feet and eventually pay down their social debt it isn’t that much different, especially for young people, many of whom are needy just as a function of being young and not yet having developed their earnings potential. Since the benefits to society of these half-intact incentives are still plenty strong, this is the solution that society would choose: to have actual health costs get billed to the account of needy recipients, instead of billing them for monthly insurance premiums.

On the other hand, if aid recipients are forward-looking enough to think that borrowing to pay insurance premiums makes more sense for them personally than the risk of owing a big medical bill, that is something to encourage, so let aid recipients choose: they can have premiums billed to their account, or they can have actual costs billed.

Just note very clearly that what we do not want is the universal health insurance that Obamacare and the Obama-lite Republicans have both fixed as their objective. We want the opposite. The ideal is a society where nobody has 3rd party health insurance but everyone instead is self-insured, even if some are only quasi-self-insured via government loan. That ideal would not come about by force, but by getting government out so that individuals and the economy as a whole can prosper, making self-insurance the best choice for everyone eventually.

5 Responses to “The proper health care goal is health insurance for NOBODY (Guest Post)”

  1. 1

    Nanny G

    In some places a Medicaid recipient’s estate is BILLED for the costs before any heirs get theirs.
    http://www.factcheck.org/2014/01/medicaid-estate-recovery-program/

    Obama has raised a new trial balloon last night: let all those Americans whose insurance was cancelled keep their old plans until Obama leaves office!
    Then let it be the problem of the next president!
    Cute.
    The only thing left in place from the original ObamaCare is the tax and enforcement system.
    After it really gets going we will still have the same 31 million under 64 years of age uninsured!

    Reality is, music and art have taken awful ugly turns in recent decades.
    If millions of people, freed from job-lock, and studying iambic pentameter can improve this situation, it might be worth it.
    (NOT!)

  2. 2

    Alec Rawls

    That news about Obama wanting to let people keep their old insurance for the duration of his presidency is interesting. No way it could possibly work because Obamacare has already exploded the groups that “group health insurance” is based on.

    Health insurance in this country has never been true actuarial-based insurance based on the risks faced by individuals. It is actually just cost-sharing. That’s where the “groups” come in. Each person shares costs with their designated group. Obamacare ended the old groups and forced the insurance companies to establish a bunch of new groups. Part of the reason for the new higher premiums is the extra risk the insurers are taking on: they don’t know the actual cost-averages of the new groups they are putting together so they have to be cautious.

    Another consequence is that there is no going back. The old groups cannot be put back together again. It is literally impossible for people to retain their old group health insurance policies when the groups these policies were based on no longer exist.

    This is one of the reasons why in the post above I refer to Obamacare’s “rapid destruction of the existing health insurance industry.” The new system is a total fiasco that cannot possibly work and there is possibility of going back to where we were. Revoking O-care will not restore the old system of group based insurance. It would take years to re-establish those groups with any kind of accurate cost sharing.

    In the meantime there will be chaos and premiums will be especially high to cover the chaos-risk. Those super-high premiums will add to the already gross inferiority of 3rd party insurance vs. self-insurance from the point of view of consumers, leading to my suggestion that the O-care debacle could jump-start a move towards the ideal system, where most people choose to self-insure rather than use 3rd party insurance.

  3. 3

    Mully

    Funny how a law with over two thousand pages needs constant on the fly changes to try to make it work. The changes are an acknowledgment that this thing is failing as written. And those changes are being made by a person with zero health insurance market place experience. Yet the left has full confidence in it and him. Fools rush in….
    So why do we need a congress if the president can get up each morning stick his finger in the air and declare what is now the law?

  4. 4

    Eric Dunnes

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