Health insurance and sports

On Marginal Revolution, it is asked which system should be redesigned from scratch?

My first answer: health insurance.

Many problems in health care (like cost inflation) and employment stems from one simple design flaw: the tax benefit companies receive for buying health insurance that individuals do not receive when they purchase it on their own.

This has caused an unproductive melding of health insurance and employment that aliens would find strange, but we accept as normal.

We don’t expect companies to provide home and auto insurance and those markets are not nearly as mucked up.

My second answer is soccer in the U.S.

Somehow, unlike most of the rest of the world, we wedded sports and schools together from about high school on, including soccer.

I don’t have much problem with it for American sports that are not played widely around the world.

But, it has been detrimental to soccer development. If anyone wonders why the U.S. isn’t in the World Cup and, when we do qualify, we don’t make it far, I believe part answer is school sports.

Our youth soccer culture has emerged to prep players for college soccer rather than World Cup competition, which is a different game (the checkers/chess analogy applies), in several dimensions.

It also changes how the market for players and development of players works at crucial ages.

The U.S. is the Galapagos Islands of soccer.

To the inattentive, it looks like to the sport played elsewhere.

But, being cut off from the rest of the world in various ways has caused it to evolve along a slightly different path, which happens to not be optimized for producing the chess players that operate on the world stage.

Iceland is a good example of a country that went another way. Literally an island, it opened itself up to the soccer cultures of soccer-playing countries and from its tiny population has produced a World Cup team that played to a draw against Argentina last week, which is like Emporia State beating KU in basketball.

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Good news and bad news

Good news: I get to keep my health plan (even before the new ‘Keep Your Plan’ act).

Bad news: My premium will increase by 23%.

Parallel

Government action -> Unintended consequence -> More government action

In this 2010 EconTalk podcast, I learned that Stalin set a ceiling on the price of agricultural products. He thought this would generate a surplus of agricultural products. But, his price was so low that farmers could not cover their cost of production, so they stopped selling their produce.

Then, Stalin sent the militia to take the grain by force.

I find this to be a striking parallel to the individual health insurance mandate.

First, government (federal and states) contribute to making the price of health insurance high over several decades through employer tax preferences, state mandates, guaranteed emergency room care, pre-existing condition requirements and so forth.

That is similar to Stalin’s price control, but it’s a supply control. That is, rather than setting a maximum price, government is setting supply requirements.

Both of the government interventions distort incentives. Stalin’s price ceiling reduces incentives for farmers to sell their produce. The government health insurance supply requirements reduce incentives for people to buy insurance by increasing the price of it and making it easier to get medical treatment without insurance.

Next, people predictably respond to those distorted incentives. The farmers in Russia sell less produce. People in the U.S. purchase less health insurance.

Finally, government uses more force to try to fix the problem they caused. Stalin, rather than address the source of the problem by eliminating his price control, sends the army to force farmers to give up their produce. In the U.S., rather than eliminating the source of the problem driven by the supply requirements that cause fewer people to buy insurance, government plans to force people to buy an approved plan or face a penalty.

This is how government grows. It does something to solve some problem, but causes more problems. Few people recognize that government caused those new problems and looks to government to solve them. So government does more things to solve those problems, causing even more problems.

I thought I already posted this

I was digging through some of my recent drafts and found this one, which I thought I had posted.

Here’s an outstanding post from Dan Mitchell on his blog International Liberty, E.J. Dionne Forgets that America Is a Constitutional Republic.

In it, Mitchell asks of Dionne:

Did he not learn about separation of powers in school, and that the courts are supposed to protect us against tyranny of the majority emanating from the legislature?

I remember covering the separation of powers in my 9th grade government class. I didn’t gain a good understanding of why that was important then. I’m not sure if it was just such an abstract concept for me to grasp as a 9th grader that took freedom for granted or if the teacher didn’t do a good job of teaching it.

What about you? Did you know that the Constitution was intentionally designed to separate powers of government help protect us from tyranny in various forms, like government tyranny and the tyranny of the majority?

Later Mitchell writes:

I have no idea of the Supreme Court will make the right decision, but I am overwhelmingly confident that the Founding Fathers didn’t envision mandated health insurance as a function of the federal government.

I’m fairly certain that not every Justice will agree on this case. It will be interesting to see why they disagree.

Pathologies of the health care system

Another good op-ed from John Cochrane in the Wall Street Journal about health care, What to Do on the Day After Obamacare.

Cochrane agrees that many of the problems in health care are caused by previous government meddling:

Most pathologies in the current system are creatures of previous laws and regulations.

And, he again writes eloquently on how these previous laws and regulations distort the medical care and health insurance markets to cause the very pathologies that Obamacare supporter think more regulation will fix.

“Why I Support Obama”: Point 1

This my response to the first point made by the Facebook Obama Supporter.  Let’s first review her point:

For 30 years I’ve heard politicians talk about health care reform, and he’s the first one to do something about it.  The Affordable Care Act removes conditions on pre-existing conditions, makes health care more affordable for small businesses, raises the age at which children can be on their parents’ policies, removes lifetime caps, and more. With the possible exception of insurance execs, who would not want these changes?

First, politicians have been reforming health care for a long time.

Second, the Obama supporter doesn’t realize those reforms are why we have the problems that she wants the government to solve, like pre-existing conditions.

I wrote about how government created the pre-existing condition problem here.  John Cochrane, finance professor at the University of Chicago, agrees with me.  So does economist Steven Levitt.

Next, the Obama supporter believes Obamacare will make health care affordable for small  businesses. First, intentions of government programs are rarely realized. Usually it’s the opposite — the government programs make things worse. Second, affordability is partly caused by the government tax treatment of health insurance (see links in previous paragraph).  If we purchased health insurance like we do auto and home insurance, small business — or any business — could get out of the health insurance business and focus on whatever they do best.

Next, it’s not clear to me what problem raising the age for children to remain on their parents’ policy solves that wouldn’t be solved by decoupling insurance and employers as discussed in the previous two paragraphs.

Next, lifetime caps?  I haven’t heard of these caps being a problem.  And, in a freer market of health insurance, if people wanted protection over and above the lifetime cap, they could probably get it.

I’m not an insurance exec and I don’t want these changes.  I believe they will have negative unintended consequences that will slow progress and innovation in health care and lower quality and availability.

Plus, I bet insurance execs are not as upset by this as the Obama supporter thinks.  They are now politician’s cronies and as long as they keep their political cronies happy, the political cronies will keep directing our money to them.  That’s easier than developing innovative products that individuals choose over the competition.

Fallacy?

This letter to the editor was printed in today’s Kansas City Star:

I recently have had two separate conversations with self-proclaimed tea partiers. They each admitted that they do not have health insurance and they refuse to buy it under any government mandate. They told me that when they or their family members get sick, they go to the doctor or hospital and “wheel and deal” with the service providers to get breaks on the costs.

They think this is saving the country money. What they do not realize is that the portion they don’t pay gets thrown back at the rest of us in higher insurance premiums and health care costs.

In so many words, they said that their method of “personal responsibility” would save the country money. The fallacy in this form of logic is clear: Even responsible people get sick. Even responsible people get hit by drunken drivers.

When that dreaded serious medical condition comes for them, how will they pay for it? They won’t. The rest of us will. This is not the solution. This is the problem.

Cathy Edwards

Kansas City

First, I’d like to congratulate and thank Ms. Edwards.  Instead of ignoring tea partiers and calling them names, she’s having civil conversations with them.  That’s a big step.

Now, my responses to her letter:

Keep Your Advice Motley Fool

Brad Hessel and Madge Cohen do a decent job at laying out the things causing problems in the medical and health insurance market in the United States in their piece at the Motley Fool, Dear President Obama, Per Your Request…

I’m not a fan of all of their recommendations.  They prescribe a meddlesome role for government in everything from mandating coverage to setting education curricula and maintaining health records, all beyond the limited role of government should have.  The Founders of this country believed in the limited role of government to protect our freedom from overreaching politicians.

Hessel and Cohen recommend overreaches from the outset.  Do we want the government to maintain our individual health records?  Do we really want them to mandate coverage?  Is this still a free country?

Over time it would get worse.

For example, under their recommendations, by what mechanism would government be prevented from prescribing lifestyle choices in the name of “keeping health care costs down.”

Let’s revisit Obama’s criteria:

1) Bring down premiums

2) Reduce deficit

3) Cover the uninsured

4) Strengthen Medicare

5) Stop insurance company abuses

Health Savings Accounts, elimination of the tax advantage employer-provided plans have and fewer mandates can accomplish #1 and #2.

#3 should be changed to: cover everyone that wants to be covered.  Many uninsured are uninsured by choice.  I see no reason to force them to do something they don’t want to do.  And, if you accomplish #1 and #2, that should reduce, if not eliminate, the number of people who are uninsured not by choice.    For those who still cannot afford coverage, I could entertain ideas of targeted assistance in the form of health coupons, much like food stamps.

#4 If we go to HSA’s, over the course of the next generation or two, we’d be able to reduce the need for Medicare as people would be able to save for a fair chunk of their health care costs.

#5 I think this is overblown.  Getting government involved in health care would give rise to much more abuse.  Make the health insurance market more transparent by eliminating the employer tax advantage and much of this (if much exists) will go away.  Do we often hear of auto or home insurance company abuses?  No.

Costs Don’t Go Away With Mandates

In his column today, Politicians in Wonderland, Thomas Sowell explains a very important point:

It costs politicians nothing to mandate more insurance coverage for more people. But that doesn’t mean that the costs vanish into thin air. It simply means that both buyers and sellers of insurance are forced to pay costs that neither of them wants to pay. But, because soaring political rhetoric leaves out such grubby things as costs, it sounds like a great deal.

Costs can vanish into thin air if you let the free market work.  My cell phone company is giving free phones away each year now.  The latest one I got for free is more powerful than anything I’ve ever had before.  Two years ago, a phone like this was only available to those willing to pay significant amounts.  Now, it’s a freebie.  That’s an example of costs vanishing into thin air.  Nobody in the government mandated this.

Mandating insurance companies to cover unprofitable cases doesn’t make those costs go away.  The mandate is really a mandate for the customers like you and I to pay those costs.