Wednesday, June 15, 2011

Zombie Lie #5547: Set the Health Insurance Companies FREE!

We've all heard it from our free-market healthcare friends.  "If only the insurance companies could sell insurance across state lines, our healthcare system would be the envy of the whole galaxy!"  There's only one problem with this argument.  Insurance companies are already allowed to sell across state lines.  What they're not allowed to do is ignore state law.

You see, each state is empowered to regulate it's own insurance needs.  The elected officials in each state legislature determine what is appropriate for their state.
Since states differ in terms of local politics, and local needs, they set different rules for insurance. Some states want to have an insurance market where you can’t be denied insurance for any reason, and you can’t be charged more for being sick. Other states want to limit the difference you can be charged for being older or sicker if you want a policy.
But if you tear down the rules that force insurance companies to comply with the will of the people in each state, you'll end up with a repeat of the credit-card industry.  The state with the fewest regulations would attract all the health insurance providers who would issue policies across state lines which don't meet the needs of local citizens but can compete unfairly with the in-state insurers.

Private insurance cannot address the healthcare needs of America.  The problem is too large, too complex, and too "non-market" for us to optimize both profits and health.

Back in 1963, a prescient economist reviewed the state of the health insurance industry and came to the same conclusion.
[S]pecial structural characteristics of the medical-care market are largely attempts to overcome the lack of optimality due to the nonmarketability of the bearing of suitable risks and the imperfect marketability of information. These compensatory institutional changes, with some reinforcement from usual profit motives, largely explain the observed noncompetitive behavior of the medical-care market, behavior which, in itself, interferes with optimality. The social adjustment towards opptimality thus puts obstacles in its own path. (Uncertainty and the Welfare Economics of Medical Care, Kenneth J. Arrow, p. 947, emphasis added)
Translating from the academic: Because of the risk measures and need for optimized outcomes (people need to be cured and can't be written off as "bad product"), private insurance (i.e. the free-market solution) does not adequately address or accomodate this risk (having to cover everyone).  The profit motive of private insurance is at odds with the struggle for adequate information in the medical care world which is a function the nature of care delivery.  Therefore, a larger social entity must assume this risk on behalf of everyone (i.e. the federal government).

It's exactly like flood insurance. No private insurance company would issue flood insurance without the backing of the federal government, and indeed, they do not.  Health insurance is the same way.  But for some reason, we can't see this forrest for the tea bags.


  1. I hate to be so cavalier, but...

    ...I've paid into The Government System for 40 year now, and I want my due when I hit 65. The under 30 demographic supported "Hope and Change". Well, I hope they have lots of change, because they'll going to have to work their fannies off to cover my entitlements.

    That's the problem with socialism: sooner or later you run out of other people's money.

  2. We're spending the money now, just stupidly. Private health insurance is a boondoggle which wastes our money. Most of the rest of the world has figured this out and have done an excellent job managing healthcare costs and providing longer life-expectancy for their citizens. So your assertions are, on their face, false.