These days, the pathway to truth is often obscured by the detritus of opinion.
Put another way, in the health care reform debate, commentary from both sides has gotten so convoluted that we no longer are cogently debating the fundamentals.
What is really at issue here?
1. The plans all require free American citizens to have health insurance.
2. Most proposals include a windfall tax on insurance companies.
3. Most proposals tax so-called ‘cadillac plans’ in an effort to once again cure the regressivity common to government schemes.
4. The Baucus plan allows the insured to drop existing plans, pay the penalty, and then pick up a new plan when needed by abolishing preexisting condition rules.
Let’s start at the beginning. Health insurance is a market-based solution to spread the cost of the sick to the healthy. When someone with insurance is sick, the healthy people paying into insurance help pay for the claims of that sick person.
So by requiring insurance, we are forcing every single healthy person in the U.S. to pay for the sick. We might be able to rationalize this by saying that each individual pays small, known costs into the plan to secure against much larger, unknown costs. OK, so maybe it’s a close call (except that there is something about being required to support others that still rubs raw).
Let’s take a peek at some other issues, starting with the requirement that any reforms be revenue neutral. Let’s consider one way the government is planning to make any reform “revenue neutral:” windfall taxes on the insurance companies. So part of the ‘pluses’ column in the revenue calculation is revenue from taxes on windfalls in profits for insurance companies. Two points have merit here: (1) all profits are windfalls by definition, so how the hell does that all work?; and (2) based on all remedial economics, business and grade school textbooks, the insurance companies will not absorb the costs of those taxes internally — they will pass those costs on to the insured, increasing costs for everyone.
Here is the general method in which insurance companies calculate profits: Profit = earned premium + investment income – incurred loss – underwriting expenses.
So insurance companies make money in two ways: income from premiums and income from the investment of the cash from those premiums. So not only do insurance companies insure against losses for the future-sick, they also are a huge source of investment capital — which means a huge source of real economic stimulus. What happens when the profits of those investing money into the economy are restricted? Less money is invested in the economy.
Moving on to the third issue in the health care debate: So what if we tax those high-earners more for their ‘Cadillac plans’? They have enough money to pay for it anyway, right? Answer: probably.
But why do we need to do this in the first place? Again, back to revenue neutrality — how can we compensate for the cost of picking up all of those millions of uninsured Americans, many of whom don’t want to be insured anyway? Keep in mind that, as with all national programs, the costs here are severely regressive — impacting the poor disproportionately to the rich. See also: cap and trade (electricity and food costs); all environmental regulations; etc. So to balance out the regressivity of an increase in the costs of insurance across the board because of things like windfall taxes, it has been proposed that Cadillac plans should be taxed even more. Hey Galt, how you been?
The point of insurance is that the insured agree to hedge against future risks by paying small, up-front fees to insurers, who, in exchange, agree to bear the costs of their customers’ future risks. If, as under the most recent iteration of the Baucus plan (at least that we know about), the insured are allowed to drop plans and pay a cash penalty (which would still be cheaper than insurance), and then pick up a plan later on after some calamity, insurance companies no longer have any reason to be in business!
To sum it all up: the Democrats’ health care reform will require healthy people to pay for the sick, whether the healthy want to or not. This reform will be revenue neutral on paper if the plan taxes insurance companies for making profits and those with better plans are taxed disproportionately. But after we put away Obama’s public ledger and open the real one, we see that those increased costs will obviously be passed on to the insured. Some of those people will be paying more for plans they didn’t want in the first place. A lot of those people will be paying more for plans they didn’t want in the first place whose costs will severely impact their family budgets, much more so than those who already have existing plans and can afford them. And the economy will suffer a double blow, as the increased costs on each family will reduce short-term spending while reduced profits for insurance companies will reduce long-term capital investment.
And the point of health care reform was to drive down costs right?
Shauna Moser is a weekly contributor to The D.C. Writeup.
Loading ...