Government and Health Care

A few more words on what government does. For those who scroll through this blog, you will find I support full Federal coverage for health care. That is at apparent odds with my assertion that the government has no right to usurp such powers. Well, both statements are true.

We have allowed our federal government to interpret the promotion of the common welfare in a way so broad as to be virtually a blank slate for assertion of Federal power. At the same time, we are averse to big government (!) and quite clearly averse to the appearance of federal usurpation. When confronted with a truly free market solution, however, most people are in favor of regulation of some kind. Out of these conflicting values we have the casual willingness and expectation that 'the government' will pay for our health care when we are old and expensive and yet a desire to have Federal health care administered by private companies. And no matter where people fall in the continuum of federal power, almost no one is comfortable with a pure 'you get what you can pay for' approach with health care, or many other services for that matter.

Oddly enough we have, as currently law, an item that is the worst combination of private and public health care. we have given government the power to regulate the care, to determine what care is given to whom, but have retained a private company framework within which to administer it. Thus a large bureaucracy slow to respond to voters makes the decisions about what happens, but a private company with a fiduciary duty to stockholders gets to determine pricing. And all of this gets distorted by federal payment mandates such that consumers pay very high prices for medication and certain services, simply as a way for companies to make up their losses in  selling medication to Medicare and Medicaid. Thus even paying cash is unreasonable.

A system that used cash payment would not have fees anywhere near as high, but would have problems with catastrophic care and almost any hospitalization. Because the cost exceeds what most people can pay, we have spread cost over all of society through private insurers and our government. Insurance in this sense is nothing different from setting Las Vegas odds. There is good data about utilization of health care based on demographics, and this expected utilization is used to set insurance costs for a given number of people. The person who sets the 'insurance line' is an actuary, but functions no differently than a Las Vegas odds maker.

For this reason life insurance, when first introduced in Venice, was made illegal. It was considered a form of gambling on another person's life. health insurance is simply a different gamble- that a given number of people will pay more for their collective premiums over time than they will use in health services. Built into this system is profit, what in Vegas would be the house advantage. For example, in Las Vegas, for every 100.00 bet, the house pays 93.00. Thus on average, over time, gamblers lose 7% playing in casinos. When you consider that many billions are gambled, 7% is in the hundreds of millions of dollars.

Guess what the house advantage is in privately insured health care? 20%! That is what it is. Who would gamble in a casino where for every 100.00 bet there is an 80.00 return? Any fool could figure out pretty quickly they were being had. Health care, however, is so big, so expensive and so misunderstood that consumers don't see the 'house advantage'. We thus clamor for private companies to administer our governmental health benefits, screwing ourselves twice. We give power to the government, and pay increased costs for company profits.

I think it is fair, in this time of great medical complexity and expense, to consider health as a good for all. Since almost no one can pay for the cost of health care, and it is a good thing that all have it, it follows that it really is a common good, and that this justifies the government paying for health care.

I don't think it is right to have private companies be the pass through. These companies have large margins, and are responsible in the end to their shareholders. Their margin is 20%. A fully governmental plan would be responsible to the people first (at least theoretically), and have no shareholders. The 'house advantage' for Medicare is 7%. Thus a conversion to a pure Federal system of healthcare, assuming Medicare cost structure, would cut medical outlays by, on average, 13% (20-7%).

It is commonly said that a Federal system would increase taxes. It would. What is forgotten, or simply not said, is that employers and individuals would see their costs go down, and their disposable income go up. In my personal case, my insurance costs 1200.00 monthly in premiums, with a deductible of 7000.00, for a total cost of 21,400.00 yearly. There is no magical money tree; I earn that money, and I pay it. In a fully Federalized system I would pay more taxes, but get an income boost of 21,000.00.

And so, I object to simply giving the Federal government power. We should vote on the ceding of power, and make it easy to take it back if we want it. We forget it is our power. In the case of health care, however, I think a good argument can be made for Federalizing it completely. Here Obama made a major error in trying to appear less liberal. The lesson, for me, is that when we give power we should give gracefully. The only power we have preserved is the power to pay more money willingly.

Ted