Health Care Primer

I really don’t have time to craft a decent post this morning, but in light of the Health Care Debate Palooza that’s schedule, combined with a remarkable level of ignorance on the topic, I’m compelled to provide this primer (a discussion I heard while driving to work this morning between two radio disc jockeys–on opposite sides of the issue, both equally ignorant–is what has really motivated me):

First off, most Americans detest the fact that people with pre-existing conditions can’t get insurance. And I agree: that sucks.

But here’s the thing: you can’t cover pre-existing conditions and call it “insurance.” That’s like buying house insurance after your home is on fire. It violates the two fundamental principles of insurance: avoidance of adverse selection and moral hazard.

Moral hazard: If I can get insurance after I get sick, I’ll wait until it happens. As people starting doing that, problems of adverse selection arise: more and more sick people get insurance and fewer and fewer well people get insurance. The cost of coverage goes up, as do the premiums. As the premiums go up, more well people say “Screw it,” with the result that their premium dollars drop out of the system and premiums go up even more. At some point, the system only covers sick people, and then the system crashes because the premiums will have gone up 10, or 20, or 1,000-fold.

Washington understands this, so they decide that everyone must have insurance. This is where a fundamental truth about political philosophy shows itself brazenly: If you’re going to benefit some people, you must coerce others to do it. It happens with every tax dollar that is spent on welfare. But here, it’s highly noticeable. Because you want to cover pre-existing conditions (a popular notion), you must force everyone to carry insurance, or you’ll crash the system due to moral hazard and adverse selection.

Well, not everyone can afford insurance, or they don’t have access to it through work. The option? The public option. The government will provide the insurance for those who can scarce afford it.

But now the government is in the insurance business, and it will drive out all comers. This last point is in dispute, but it will happen. The government, acting through the Federal Reserve, can create its own money through deficit spending . . . private insurance companies can’t. The government, in other words, can offer low premiums and good coverage even though it means they’ll operate at a loss. Private insurance companies can’t. As a result, more and more people will opt for the government plan, which drives more and more private insurance companies out of business.

The eventual result: The one-payer system. Socialized medicine.

I gotta run. I hope this helps.

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2 Responses to Health Care Primer

  1. I think another issue with not covering pre-existing conditions is that health insurance has become connected with your employer. We don’t buy auto insurance through our employers, but for some reason we think that health insurance through our employer is a good thing.

    So if I or my dependents have a condition, I can’t change jobs because they may not pay for my kids chemo. Or I lose my job, and in between job interviews I slip on a patch of ice and blow out my ACL. I hobble around for 3 months, and finally learn that my new insurance won’t cover the surgery to repair it because it was pre-existing.

    So, it’s not just people who wait until they are sick to get insurance who are concerned about the pre-existing conditions. Of course, nobody seems to address the insanity of having health insurance through your employer. I can make changes to my auto insurance and customize my level of coverage to what suits me and my needs because I am a private consumer. But lump me into my employer’s group and the HR department picks what sorts of things are covered (because many employees want birth control, it’s in ther and we all pay for it even if we don’t need/want it) and I can’t even change my PCM until the first Tuesday after the Harvest Moon.

    Health insurance, like government backed student loans and grants to colleges, is the root cause for astronomical medical expenses. But not to worry. Soon we’ll just kill of the old and sick, and medical expenses will drop off for the rest of us.

  2. Eric says:

    “Health insurance, like government backed student loans and grants to colleges, is the root cause for astronomical medical expenses.”

    Bingo, except I’d make one change to that statement: “Tax-deductible health insurance . . .”. By making the premiums tax-deductible through employment, we push more money into that sector than it would otherwise merit. Excess money flows in, resulting costs escalate. Exactly what’s happening in college education.

    Aside: I don’t have a problem with employer health plans, but there shouldn’t be tax deductions for the premiums. There should be portability, though, which I think HIPAA addressed, but I’m not sure.