Q&A on Obamacare
By Robert Higgs • Tuesday March 30, 2010 9:39 AM PDT • 19 Comments
A few days ago, via e-mail correspondence, I answered some queries about the new health-care-insurance law put to me by Marina Galisova, a reporter for the Slovak weekly magazine Tyzden. It seems that this interview has formed the topic of an article in the magazine, although I cannot be sure because I cannot read Slovak. In any event, on the assumption that not many readers of The Beacon can read Slovak, either, I reproduce here the questions Galisova put to me and my answers.
1. Under the passed legislation, what does it mean that “every American having health insurance”? How much shall be paid by the federal government and how much by the states to gain this objective?
The new law forces everyone to buy health-care insurance. Many people already have such insurance, most of them as part of the compensation they receive from their employer. In general, these people will be able to keep their current coverage. People who do not buy health-care insurance acceptable to the government will be fined heavily, so besides having no health-care insurance, they will be punished by the government!
2. It looks unlikely that this “reform” will result in a better health care for Americans. However, can you think of at least one example where it might actually help someone?
In general, the new system will make health care worse in the United States, for many reasons. However, some persons will benefit. The major beneficiaries will be those with pre-existing conditions who are currently rejected by insurance companies (the companies do not wish to sell fire insurance to people whose houses are already on fire). The new law forbids insurance companies from rejecting any applicant because of a pre-existing condition. Owing to this new legal requirement, health-care insurance will no longer be true insurance, but merely a third-party payment system for health-care expenses.
3. Will the price of health insurance be kept down by state force? Will Americans be forced to buy health insurance—subsidized by the state? Will Americans be forced to pay premiums, as, if I remember correctly, Dr. Ron Paul has once indicated?
Premiums and benefits of health-care insurance plans are already heavily regulated by the state and federal governments. The new law places many new requirements and restrictions on the companies. It also regulates the difference between the amount they may charge older people and the amount they may charge younger people. The result will be that younger people will have to pay greater premiums than they would pay under a fair insurance scheme in a free market; that is, younger people will be forced to subsidize the health-care expenses of older people (who demand much greater amounts of health care).
4. What, in your opinion, will be the long term effects for American health care? Do you expect deterioration in the quality of services, as is often the case in Canada and in Europe?
This system will almost certainly prove to be much more costly than now projected. Pressure will be created to increase the prices of care and the amount of insurance premiums needed to cover the costs of care. The government will respond by measures that amount to price controls and by selective subsidies to lower-income people and to those with the most political clout. Shortages will increase; waiting times for care will increase; the quality of services will decrease. The overall health care system will cost more and more while delivering worse and worse care. Ultimately, the government will probably throw up its hands and nationalize the entire system because it will have become such a terrible mess.
5. Could you say that the Americans are, as a majority, in favor of this legislation? Not even all Democrats supported the bill...
Polls show that a majority of Americans oppose the law just enacted. These poll results seem plausible to me. In truth, however, few Americans have much real knowledge about the present law, which occupies more than 2,000 pages, and even less understanding of the economics and political science required to understand its likely consequences. The law is not simply a shot in the dark, it is a barrage in the dark.
Tags: Business, Corporatism, Economics, Government subsidies, Healthcare, Insurance, Liberty, Personal Liberty, Politics, Regulation, The State 
Dr. Higgs,
These responses do a very good job of getting to the gist of the monstrosity just passed and well inform readers of what to expect.
I am an actuary for a life insurance company and also favor companies being allowed to underwrite and charge people according to their risk, but I do have a quibble with one point. I think it is an overstatement to equate insuring people with preexisting conditions with providing homeowners insurance to those whose houses are burning down. In the current environment, it is undeniably true. However, in my view, a great many sick people could buy suitable and affordable health insurance if we had a free market in health care. The types of treatments and coverage would need to be tailored to accommodate their needs. Certainly they could not be covered at an affordable rate with the standard, profligate approach to health care that prevails today. That these alternatives are not available today is very unfortunate, but in my view not a necessary consequence of the workings of insurance markets. It is to a greater extent the fallout of the lack of flexibility allowed to insurers and providers to create affordable health care.
D. Saul Weiner | Mar 30, 2010 | Reply
Mr. Weiner makes some very interesting points.
It seems to me that one reason (but certainly not the only reason) this healthcare program became law in spite of the fact that it will assuredly do grave damage to our economy is that conservatives have not done enough to create and promote private sector programs that will truly meet people’s needs.
The combination of private industry and non-profits working together can be both more effective and more efficient than government programs, but much more needs to be done to persuade the public that this is so.
Frequently, the left will attack opponents of these government programs by saying that their opponents don’t care about people, etc., but it is precisely because we DO CARE that we want the best possible programs for them. We MUST NOT merely say no; we must develop better programs and show why they are better. We know, from both history and economics, that these government run programs are the least effective and least cost-effective way to go, We have known for sixty years and more that out of every dollar the government takes from us to meet social needs, only about 33 cents actually reaches the person in need, With charities (think United Way) about 66 cents reaches the needy person. And with programs operated by faith-based groups at least 98 cents actually reaches the needy. It is only common sense, therefore, to go with thou programs and organizations where we get the most bang for the buck and where we are least under the heavy hand of the government bureaucrat.
To Mr. Weiner, I can only say I would like to hear a lot more of his ideas.
TheTruthForum.com
Paul Anderson | Mar 30, 2010 | Reply
Dear Saul,
I agree completely. Virtually anything that has not yet occurred can be insured against in a completely free market for insurance. But existing insurance markets have been anything but free for a very long time. State coverage mandates in particular have made coverage too expensive for many people to afford. When one thinks about the matter, however, it makes little sense — except as a blatant form of cross-subsidization — to require everyone’s policy to cover, say, pregnancy-related care, even when one is a man or is a woman too old to become pregnant. The list of mandates is quite long in most states, and the items that policies must cover are often quite outrageous. The welfare state in action!
Robert Higgs | Mar 30, 2010 | Reply
In my comments (above) I probably should have focused more specifically on the insurance issue. So just a few more comments:
We are probably all aware of some trends in the insurance arena. On the private industry side, one trend has been for more and more small businesses to create a savings account to meet the cost of smaller, non-catastrophic medical expenses while relying on health insurers for catastrophic coverage. As the savings account grows the business asks their insurer for a higher deductible. Coupled with various wellness programs to give incentives to employees to be proactive in health maintenance, substantial savings have been realized.
Both large and small employers are finding ways to encourage good health habits and practices: subscriptions to various health and fitness publications, lower health insurance premiums for not smoking, and even bringing in health and fitness experts from time to time to present health ideas.
While smaller businesses may have neither the space nor the funds to install their own fitness center, as larger businesses have done, they are finding that they can do things such as offering to reimburse membership fees for employees who join a fitness center and faithfully follow through.
Today there is serious discussion about allowing insurers to sell across state lines. There are also discussions about forming insurance consumer pools, so that as a larger group they can be more effective in negotiating with insurers for better rates.
On the non-profit side, Christian health-care cost-sharing is an alternative to health insurance, which pools select heath-care costs among a broad base of members, reducing individual risk, and fostering a sense of community.
Some of these programs are:
More of these types of organizations could be developed. Because they are less regulated than commercial insurers, they should be able to more easily experiment with a variety of plans and programs. Out of fear of attracting increased government regulations they have kept a low profile and have not been as innovative as one might hope. Furthermore they have relied only on their own membership for funds with no attempt to do any external fund-raising, no foundation grants, etc.
As I understand it, this is because of legal restrictions. As long as they are receiving funds from their members on a donation basis (rather than as a fixed obligatory insurance premium) and as long as they do not accumulate substantial cash surpluses, they will not come under insurance company regulations.
However, it is just these kinds of ideas in the private and non-profit sectors that, when given freedom from excessive government regulation, give the best opportunity to meet the health-care needs of our society effectively and economically.
[So much for a few short remarks! Ah, well.]
Paul Anderson | Mar 30, 2010 | Reply
“Owing to this new legal requirement, health-care insurance will no longer be true insurance, but merely a third-party payment system for health-care expenses.”
Superb observation, that really gets to the heart of the matter. However, it would seem that most people *do* view insurance companies as just such an entity (a third-party provider), and that the insurance companies have not really tried to correct this (false) impression as it’s been profitable for them not to.
Beefcake the Mighty | Mar 30, 2010 | Reply
I wrote an article a little while back that discusses how health insurance could work as a powerful force for delivering cost-effective care in a free market. See the link here.
Also, for anyone who is interested in gaining great insight into how and why our medical system went off the rails, there is a gold mine of information and evidence in my favorite documentary, “Hoxsey: How Healing Becomes a Crime.” It clearly demonstrates how the deliberate elimination of competition has driven up costs and denied consumers access to affordable, life-saving treatments, for no defensible reasons. Well worth your time.
D. Saul Weiner | Mar 31, 2010 | Reply
Excellent comments all, and as usual, you succinctly hit the nail on the head, Dr. Higgs. I have also been of the opinion that this “reform” is really just more of the same of what got us into this mess (mandates, regulations, subsidies) and will make the single payer option that much more appealing. Perhaps that is why it was so important that “something” get passed, even if it is an overall disaster. Even if the republicans were to win big this coming November, I don’t see them as having the political will to really do what is necessary to fix the problem. So far, the only alternative they have offered to the Democrats’ plan has been...more mandates, regulations and subsidies, sometimes with a slightly different twist.
Chesley Elkins | Apr 2, 2010 | Reply
One unmentioned aspect of government-controlled health care is that the current crisis of exorbitant cost and poor quality is not indicative of a broken, free market, but rather a direct effect of previous government intervention into the industry. Prior to the nonsensical intertwining of employment with insurance coverage, before the explosion in ambulance-chasing lawyers and malpractice law, health insurance was designed to mitigate against unforeseen, catastrophic illness or injury. Physicians regularly provided free or low cost care to the poor in their community as a matter of course. Local churches and charitable organizations such as the Shriners took up the slack to make sure no one who needed care was forgotten. That system worked admirably for our parent’s generation, but was slowly usurped by well-intentioned (one hopes)but inept government “help”. Such “benevolent intervention” displaced efficient community-based solutions with bureaucratic, top-heavy control from Washington. Instead of understanding these past errors, our leaders have decided to cure our health care hangover with a huge draught of “hair o’ the dog that bit ya”.
h5mind | Apr 2, 2010 | Reply
I agree with Saul that everyone should see the Hoxsey documentary. They should also read World Without Cancer, Politics in Healing, Racketeering in Medicine among others.
My opinion is that the idea of patient as consumer, empowered to make choices, has been crushed under the jackboot of the titan that is our present medical establishment.
I expect this bill to only make it worse.
Jerri Lynn Ward | Apr 2, 2010 | Reply
Saul Weiner touches upon a very important point. Through professional licensing and FDA regulation, medicine based on disease symptom treatment has been handed the upper hand over safe and effective holistic medicine based on nutrition and supplements. This is primarily the reason why conventional health care is not only outrageously expensive but dangerous and ineffective as well. The gun of government has once again outlawed competition for the benefit of the politically connected.
To make matters worse, government schools have so dumbed down their students that few people are able to make intelligent nutrition choices, most falling prey to disease promoting processed “foods” laden with sugar, high fructose corn syrup, hydrogenated oils and all kinds of toxic additives.
So Big Foods and Big Pharma, abetted by Big Education and protected by the gun of Big Government, have joined hands to create and perpetuate disease. It’s a safe bet that the new 2,000+ page health care “reform” law will continue to keep this prosperous cartel happy.
MetaCynic | Apr 2, 2010 | Reply
Dear Dr. Higgs,
I believe that this bill is a head tax to fatten the federal coffers. Even now actuaries like Mr. Weiner are recommending rate hikes to accommodate the influx of persons with pre-existing conditions. These hikes will further expand the body of persons who cannot afford health care and the government will find a new stream of revenue with which to finance its new wars against humanity—the fines levied on the growing uninsured. Oh, and let’s not forget the layoffs that will occur when companies like Caterpillar decide to close their local plants and manufacture overseas. For those employees and businesses that remain, it might be more economical to just pay the fine. Good news for the Washington Mafia. Bad news for the rest.
Bill Cole | Apr 2, 2010 | Reply
They say, ‘Simplicity is genius’ and most humans have lost their humanity. All governments throughout history due one thing best. Take power and money and redistribute as little as possible back to whom they taxed, stole, raped, etc.
Healthy life is a choice and with the Internet their is no excuse on gaining good knowledge to live a healthy life, the only rub is totalitarian government which the USA is fast becoming. But not alone, the puppet governments of the world are simply doing their masters bidding, and their masters are central controlled banks.
Good food, which is expensive or hard to find, rest, which is the most ignored because we all have been sold on future benefits that will not be there and freedom to control your local town will produce a life without modern diseases which are mostly manufactured for profit in the Medical industry.
Personal experience has shown me that hospitals are little more than death camps. If you have money and lots of it you will be taken care of handsomely. The rest will be disposed of in the most economic way possible.
In fact modern medicine is built upon germ theory as opposed to terrain theory (look it up and learn) or allopathy as opposed to homeopathy.
Hospitals are a military invention and useful for emergency repair due to trauma like that found in war but unnecessary for what amounts to a weakened immune system usually caused by poor rest, nutrition and in obvious cases of extreme pollution.
Use the Internet and be your own medicine man and shun the system whatever the cost, you will do better.
Ken Brodeur | Apr 2, 2010 | Reply
Quote: “Shortages will increase; waiting times for care will increase; the quality of services will decrease. The overall health care system will cost more and more while delivering worse and worse care. Ultimately, the government will probably throw up its hands and nationalize the entire system because it will have become such a terrible mess.”
...and that’s the plan from the beginning. Obama and the demon-crats KNOW this won’t work, will be almost impossible to reverse, and will eventually become what they really want: full-blown government control of all healthcare in the U.S. As Hannibal Smith says, “Ah, I love it when a plan comes together.”
Lloyd Bonifide | Apr 2, 2010 | Reply
Even if the government were seriously trying to solve the problems associated with health care (as opposed to political posturing while serving the interests of the insurance giants), there is a core issue that nobody seems to want to address: health care is so expensive that large percentages of people are simply never going to be able to afford it. The free market is not going to serve them because there’s no profit in it. So we have to decide whether to simply let them die, or subsidize their care in some way.
I think that single-payer is the best solution. Insurance companies don’t add anything of value to this system. The government may be bad at many things, but it doesn’t take much to write checks. People would actually have more choice in terms of where they go to get care, and the result would be more competition among providers — which is supposed to lead to better quality and lower prices, right?
Jon Tveite | Apr 2, 2010 | Reply
Jon,
I think you are missing the point. Health care is so expensive because the free market has NOT BEEN ALLOWED to operate, not as a result of its functioning. A free market in health care, as in other areas, would produce much better and more affordable care for all. Does it make sense for a market to produce goods and services that are out of the reach of all but the very few? More government control will mean lower quality and higher costs, though the direct price to the consumer may be lower in some cases.
D. Saul Weiner | Apr 3, 2010 | Reply
D. Saul: I agree that the market is not free, but that’s not just because of government interference. It’s mainly because of the way that HMO’s and other work-based insurance have been structured. The government doesn’t determine that so much as the employers that offer health insurance.
Because medicine has become so technological, it’s to have real competition. You have to have a ton of capital just to get into the MRI game. That limits the marketplace, too.
And then there’s the fact that people are basically over a barrel when it comes to health care. It’s “your money or your life” — and providers have profited by that fact.
I still don’t see the free market is going to help people to don’t make enough money pay for health care. Markets don’t serve people who are not profitable to serve. That’s how the government got involved in the first place.
Anyway, a single-payer plan would not be government control. The market would operate freely when it comes to supplying the care, and that’s what matters most to people.
Jon Tveite | Apr 5, 2010 | Reply
Jon,
I suggest that you check out the 2 links that I cited in my 2nd post above and then reconsider your point of view. There is more here than meets the eye.
D. Saul Weiner | Apr 5, 2010 | Reply
Jon, let me help you with a few things. First – and this is for everyone – the government is in the false advertising business, and lies are about all that you can expect. So let’s start at the beginning. 1) The law that just passed is a “Health Insurance” law, NOT a “Health Care” law. 2) HOMs exist because of the government – period 3) employer-provided health insurance exists because of the government (price and wage controls of 1940′s) 4) A true “Single-Payer” health care would be free-market health care; one seller (doctor) one buyer (patient). What politicians pass off as “Single-Payer” is really “millions-of-payers” meaning that it is funded by tax money. This is basically what we just got. 5) Insurance companies are in the business because there is money to be made by selling health insurance (basic economics at work here). 6) The numbers of “uninsured Americans” that the politicians love to toss around include tens, if not hundreds of thousands of people who are capable of doing math, and so choose to not buy insurance – BY CHOICE!.. And 5) this is the biggest one, which makes up 2 parts. First, health care is not as expensive as you think (if you have insurance, it looks a LOT more expensive than it really is), and Second, many if not most doctors will charge you a substantially lower rate if you pay cash (my doctor charges me less than 1/4 of his normal rate if I pay cash). The “cost” of health care that we see on government documents is the cost of the healthcare PLUS the cost of dealing with the insurance regulations, which thanks to the gang in Washington, is about to get a LOT HIGHER!
In short, everything about this law has been a lie, and things are only going to get worse (I thank God that I decided not to have children to inherit this mess).
joe4liberty | Apr 12, 2010 | Reply
See web: Liza Cummings, etc., studied the U.S. “h.care reform” law. “Premiums” NOT capped, some say benefits paid on “cost effective” basis, no appeals, etc.
o' hig .gins | Nov 11, 2010 | Reply