Public Option Twisted Logic
Today, the Philadelphia Daily News joined the chorus on healthcare reform by attempting to make the case for why the public option is crucial. Central to its thesis is the notion that a government run alternative is necessary to "keep insurance companies honest." Funny, I thought that was the role of the regulatory bodies that oversee them, and the "free market" itself?
If true, why stop at healthcare? Shouldn't other critical markets be "kept honest" with the government as a competitor?
Food is pretty essential. Maybe the government ought to be in the business of producing and distributing it?
What about telecommunications? Perhaps the government should become a cellular provider?
How about the commodity markets? Legislators are always exercised about the price fluctuations of oil and other natural resources. Might it make sense for the Feds to build and run an exchange?
Everybody needs shelter. Do you think the government should be in the home building business?
Sounds silly, doesn't it?
Let me repeat what I've stated many times in the past. I am a limited government pragmatist—emphasis on pragmatist. I do not believe that unfettered markets always function flawlessly. Inefficiencies arise. Prudent intervention can be necessary. The proper response, however, is a sensible adjustment to the regulatory and incentive regimes, not direct government insinuation into the marketplace.
Our lawmakers just don't seem to understand that it is the competing self-interests of disparate parties, coupled with intelligent, competition-enhancing regulations and incentives, that always lead to the best, albeit still imperfect, outcomes.
There is no denying that the health insurance market is seriously flawed, as is the legal climate in which its professionals are forced to operate. Given that the aforementioned two areas appear responsible for the preponderance of upward price pressure, shouldn't we focus our efforts on breaking down the contributory elements?
The argument that insurance companies have gained monopoly or near-monopoly power in various regions has legitimacy. Let's use the regulatory and legislative tools at our disposal to lessen their stranglehold, but do it in a way that empowers the private market to help find the equilibrium point. It is completely justifiable for the government to stimulate an environment whereby hundreds of smaller, more nimble companies provide innovative coverage across state boundaries. Doing so will stabilize prices, or minimally, slow their rate of growth. The government need not be a direct competitor in order to kindle such viable solutions.
We must also recognize the tremendous costs of defensive medicine. Those who quote the 1% to 5% price tag for jury awards (out of the total healthcare cost pie) fail to acknowledge the orders of magnitude greater indirect costs incurred due to medical personnel acting in ways that mitigate their legal exposure.
It's hard to not recognize/admit that healthcare costs are skyrocketing largely because of artificial, rather than standard micro/macro-economic factors. Doctors and nurses certainly are not making more money. In fact, by all accounts, their compensation is at or near all-time lows. So, if it's not labor driving up the price tag (the typically most significant input cost, particularly in service-oriented industries), then what is it?
Logic dictates the culprit is insurance. But, is it that simple? Are greedy insurers to blame?" The data tells a somewhat different story. While insurance companies do earn solid profits on a nominal basis, the previous quarter rank for the insurance industry, among all other sectors, from a profit margin standpoint, was #86. That's right, 85 industries achieved higher margins. Imagine the rank after they are required (rightfully so) to address pre-existing conditions and stop terminating coverage when a patient requires expensive care.
That certainly does not absolve the industry of responsibility; however, it does point to a couple of problem areas. It validates, in my estimation, President Obama's claim that the absence of a universal patient record and robust, interconnected healthcare IT infrastructure, is contributing to an astronomical rise in the cost of claims processing. Moreover, it highlights that those costs, potentially combined with others (e.g. unknowable tort liability), have erected barriers to entry that make it unattractive for competitors (principally smaller ones) to enter the market.
The government has a legitimate role to play in helping to remove the barriers. The proposed dollars to catalyze the creation/adoption/installation of a standard patient record, and the infrastructure on which it can ride, is a step in the right direction.
The matter of cost uncertainty must also be addressed, though. Insurance providers, like all companies, need a reliable way to estimate their costs. Unfortunately, that is difficult/impossible to do in an atmosphere of capriciously large jury awards (or the threat thereof). Responsible tort reform will lead to less upward price pressure because insurers will no longer be forced to price for wildly random contingencies. That, along with the realization of Obama's healthcare IT objectives, will allow significantly greater competition because smaller, innovative companies can compete in an environment where low margins and unpredictably catastrophic costs (e.g. egregiously punitive jury awards) are much less likely.
A proper diagnosis of the root causes of hyper-escalating costs will point to the right course of action. No need to transplant multiple organs when diet and exercise is the appropriate prescription.
Kitchen sink legislation that checks all the boxes of its supporting constituent groups is every bit as bad as defensive medicine.
We need to unleash and enable private competition, not shackle it.
If true, why stop at healthcare? Shouldn't other critical markets be "kept honest" with the government as a competitor?
Food is pretty essential. Maybe the government ought to be in the business of producing and distributing it?
What about telecommunications? Perhaps the government should become a cellular provider?
How about the commodity markets? Legislators are always exercised about the price fluctuations of oil and other natural resources. Might it make sense for the Feds to build and run an exchange?
Everybody needs shelter. Do you think the government should be in the home building business?
Sounds silly, doesn't it?
Let me repeat what I've stated many times in the past. I am a limited government pragmatist—emphasis on pragmatist. I do not believe that unfettered markets always function flawlessly. Inefficiencies arise. Prudent intervention can be necessary. The proper response, however, is a sensible adjustment to the regulatory and incentive regimes, not direct government insinuation into the marketplace.
Our lawmakers just don't seem to understand that it is the competing self-interests of disparate parties, coupled with intelligent, competition-enhancing regulations and incentives, that always lead to the best, albeit still imperfect, outcomes.
There is no denying that the health insurance market is seriously flawed, as is the legal climate in which its professionals are forced to operate. Given that the aforementioned two areas appear responsible for the preponderance of upward price pressure, shouldn't we focus our efforts on breaking down the contributory elements?
The argument that insurance companies have gained monopoly or near-monopoly power in various regions has legitimacy. Let's use the regulatory and legislative tools at our disposal to lessen their stranglehold, but do it in a way that empowers the private market to help find the equilibrium point. It is completely justifiable for the government to stimulate an environment whereby hundreds of smaller, more nimble companies provide innovative coverage across state boundaries. Doing so will stabilize prices, or minimally, slow their rate of growth. The government need not be a direct competitor in order to kindle such viable solutions.
We must also recognize the tremendous costs of defensive medicine. Those who quote the 1% to 5% price tag for jury awards (out of the total healthcare cost pie) fail to acknowledge the orders of magnitude greater indirect costs incurred due to medical personnel acting in ways that mitigate their legal exposure.
It's hard to not recognize/admit that healthcare costs are skyrocketing largely because of artificial, rather than standard micro/macro-economic factors. Doctors and nurses certainly are not making more money. In fact, by all accounts, their compensation is at or near all-time lows. So, if it's not labor driving up the price tag (the typically most significant input cost, particularly in service-oriented industries), then what is it?
Logic dictates the culprit is insurance. But, is it that simple? Are greedy insurers to blame?" The data tells a somewhat different story. While insurance companies do earn solid profits on a nominal basis, the previous quarter rank for the insurance industry, among all other sectors, from a profit margin standpoint, was #86. That's right, 85 industries achieved higher margins. Imagine the rank after they are required (rightfully so) to address pre-existing conditions and stop terminating coverage when a patient requires expensive care.
That certainly does not absolve the industry of responsibility; however, it does point to a couple of problem areas. It validates, in my estimation, President Obama's claim that the absence of a universal patient record and robust, interconnected healthcare IT infrastructure, is contributing to an astronomical rise in the cost of claims processing. Moreover, it highlights that those costs, potentially combined with others (e.g. unknowable tort liability), have erected barriers to entry that make it unattractive for competitors (principally smaller ones) to enter the market.
The government has a legitimate role to play in helping to remove the barriers. The proposed dollars to catalyze the creation/adoption/installation of a standard patient record, and the infrastructure on which it can ride, is a step in the right direction.
The matter of cost uncertainty must also be addressed, though. Insurance providers, like all companies, need a reliable way to estimate their costs. Unfortunately, that is difficult/impossible to do in an atmosphere of capriciously large jury awards (or the threat thereof). Responsible tort reform will lead to less upward price pressure because insurers will no longer be forced to price for wildly random contingencies. That, along with the realization of Obama's healthcare IT objectives, will allow significantly greater competition because smaller, innovative companies can compete in an environment where low margins and unpredictably catastrophic costs (e.g. egregiously punitive jury awards) are much less likely.
A proper diagnosis of the root causes of hyper-escalating costs will point to the right course of action. No need to transplant multiple organs when diet and exercise is the appropriate prescription.
Kitchen sink legislation that checks all the boxes of its supporting constituent groups is every bit as bad as defensive medicine.
We need to unleash and enable private competition, not shackle it.
When things are on the verge of ridiculous, I always told my employees that "common sense will prevail". I am not so sure this time???
It is not about common sense or right or wrong. It is an agenda.
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And that is what's so unfortunate. The way in which the President initially (and still to a large extent) attempted to sell the program was (and is) totally disconnected from the language in the bill itself. In many respects, it is a microcosm of how Obama sold himself to the American public--the product has little relationship to the rhetoric.
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First of all, the notion that health care is a "right" is the sirens song of the socialist euro-weenies that has perverted the perception of many Americans. If it is your "right", then all providers become your slaves, since they are obliged to provide their services whether you pay for them or not. As Chuck correctly points out, where does it end? Food, Fuel, Housing,Cars? There is no downward pressure on health care costs because no one (except everyone) pays. If you have insurance, you want every possible test or treatment for your sore knee, all for a $20 deductible. The same is true for the Medicaid patient (without the deductible). Everyone wants everything covered. And the Doctors willingly order everything, for fear of being sued for the one headache that is actually a tumor.
Insurance should be insurance, not an entitlement to everything , all the time. If you ding your car, you are likely to pay for the repair yourself if it is close to your deductible, and a claim will increase your premium. You will get a few estimates, and get it fixed at the cheapest place, or live with it. But with health insurance there is no such thing. There is no consumer incentive to prevent ailments, or shop around for the most affordable remedies, it is everything, all the time, for everyone.
If you think Health care is valuable, be willing to pay for it. If you think it is a right that should be provided for "free", you won't even get what you pay for.
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You're right; and don't have to be a doctor (like yourself) to recognize that when the patient is not the direct payer, there is a serious incentive to over-indulge. It's not unlike being at an all-you-can-eat buffet. It's quite tempting to try everything on the menu when there are no immediate implications for doing so. Regrettably, like the buffet (obesity), the real costs of patient/payer misalignment show up down the road (out of control costs).
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