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December 05, 2007
Remind Me Why These Officials Bear the Title "Hon."
Don Boudreaux
On Monday I sent this letter to the Washington Post:
You document that all of the leading Democratic presidential candidates are leveling charges against NAFTA that are ridiculous in the extreme ("Trade Distortions," December 3). You also rightly accuse these candidates of pandering to acute economic ignorance.
Given these would-be national "leaders'" displays of what is either profligate lying or gross stupidity, remind me why you trust them to take greater control over health-care provision in America. Or, more generally, why you typically argue that such elected officials can be relied upon to promote the greater good.
Sincerely,
Donald J. Boudreaux
Posted by Don Boudreaux in Politics | Permalink
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A recent Economist/YouGov poll,
http://www.economist.com/media/pdf/econ26nov2007_tabs.pdf , shows Americans equally divided on whether increased trade has helped or hurt American consumers. Dems say consumers have been hurt by a margin of 41 - 33. (12 say "no effect", 13 say "not sure".)
Posted by: hwinva | Dec 5, 2007 10:15:25 AM
Interestingly, nobody seems to be taking the Dems to task on their proposals for health care. To me, how can anyone possibly defend national health care when social security and medicare are essentially bankrupt. Nobody is making this arguement from either side of the debate. Although free trade is a good one, since it is so polarizing.
Posted by: Orlando Armaswalker | Dec 5, 2007 10:33:57 AM
Orlando there is an argument that can be made that says the median American spends far more on healthcare than is optimal for him. See "Overtreated" by Shannon Brownlee or the work of Robin Hanson.
You might get 1/3rd of the care that we get now for 1/2 the cost (the 1/6th difference is because Gov. tends to be inefficient) but be better off becuase the value of the extra care that we currently get is just not worth very much.
Posted by: Floccina | Dec 5, 2007 3:56:30 PM
Picking up on the professor's question regarding why we should trust our "leaders" with health care - Here's an interesting factoid I found out recently.
Health insurance regulators allow the following:
You start your own company and pay up for individual health insurance. You pay your premiums for 20 years. In the 20th year, you develop cancer. That year, the health insurance company decides not to do business in your state anymore. It is no longer obligated for to pay your cancer claims -you are on your own and no other insurance company will pick you up. Even though you paid 20 years worth of premiums to protect yourself from this very outcome.
It gets worse.
Insurance companies enter states as subsidiaries of a larger insurance company. Let's call the holding company Main Health and the subsidiary New York Health. You pay premiums to New York Health for 20 years. For reasons known only to itself (but which we can all guess), New York Health pulls out of the state of New York. It is no longer obligated to pay the health claims of any of the people who paid premiums. However, Main Health immediately begins to do business in New York under the name of another of its subsidiaries, Allstate Health - no pre-existing conditions need apply. It is under no obligation to honour claims by previous New York Health insurance holders. So, if Main Health wants to simply collect insurance premiums but not actually pay out claims if the going gets tough, it can simply pull one subsidiary out and start doing business under a different name with a completely clean slate - even though, it's the same company.
All of this is done with the blessing of the GOVERNMENT regulators.
I would dearly love to collect premiums by selling puts all day long without ever having to pay if the options end in the money. However, in the financial markets that kind of activity is called "fraud" and carries some pretty hefty consequences. Thanks to our wise and powerful leaders, however, when the health insurance industry does the very same thing, it's called "the greater good."
Posted by: Methinks | Dec 5, 2007 5:01:16 PM
"For reasons known only to itself (but which we can all guess), New York Health pulls out of the state of New York."
I'd guess the reasons have to do with ham-handed government regulation.
And what's your point anyway? If the company contracted to provide coverage for X years and breaches the contract they're liable for it. If they didn't, then I'm not sure why you think the insured has a right to something they didn't pay for.
I'm guessing you also think insurance companies ought to be paying for flood damage on the gulf coast even when people didn't buy flood insurance?
Posted by: Nick | Dec 5, 2007 6:19:55 PM
Who wrote the piece you are replying to?
Posted by: Mathieu Bédard | Dec 5, 2007 6:58:31 PM
If the company contracted to provide coverage for X years and breaches the contract they're liable for it.
No, they're not liable for it. That's the point. State regulators allow health insurance companies to breach contracts with no liability. That is one of the many screwed up things about our health care system.
I'm guessing you also think insurance companies ought to be paying for flood damage on the gulf coast even when people didn't buy flood insurance?
How did you arrive at that screwed up conclusion?
Posted by: Methinks | Dec 5, 2007 7:32:43 PM
The screwed up situation that Methinks cites could be easily fixed by markets if they were allowed to work. State laws effectively preclude someone from buying directly from "Main Health," which clearly reduces accountability for health insurance coverage. As the regulatory environment in a state changes, or as one ages, moves, leaves the corporate world, etc., it provides an opportunity for a state company to 'break the link' of existing coverage.
These problems could be cured by the ability of individuals to cost-effectively purchase insurance from companies operating across state boundaries. There is no reason that nationally operating insurance companies selling to individuals wouldn't try to brand themselves along the dimensions that matter most to people--reliability, cost, wellness programs, etc.
But Hillary & Co. think they can do better if that national insurance program is run by a government monopoly rather than privately run competitors. Don's frustrated wonderment is that so many people seem to believe the politicians on this. I share that frustration.
Posted by: M. Hodak | Dec 5, 2007 8:51:48 PM
Methinks wrote:
"It is no longer obligated to pay the health claims of any of the people who paid premiums. However, Main Health immediately begins to do business in New York under the name of another of its subsidiaries, Allstate Health - no pre-existing conditions need apply.
...
"Even though you paid 20 years worth of premiums to protect yourself from this very outcome."
First you should pick another state for your example. Under New York state law health insurers are not allowed to deny you for pre-existing conditions. (Note there can be a waiting period for treatment of the condition but it must reduced by the number of months you previously were insured -- search the NY Office of Attorney General webpage.)
Second, Insurance is not a savings plan. It only covers you for the year (or other time period) you have contracted. Paying premiums for the previous 19 years is not relevant. And yes, during that 20th year they are liable. If you want a savings plan open a Health Reimbursement Account.
Is this example based on a real data?
Posted by: Dano | Dec 5, 2007 8:52:16 PM
Methinks, sell those Charlie Rangle May ’08 25% approval rate puts to your heart’s content, my friend. May we all get rich…..
Posted by: Mesa Econoguy | Dec 5, 2007 9:41:05 PM
Dano, I chose New York because I needed a name for my example. Don't get too tied up in minutia.
Even in NY, group insurance is not allowed to deny you for pre-existing conditions (a mandate which raises the costs for everyone, incidentally). However, individual insurance can and does deny coverage for pre-existing conditions. You'll find that there is a huge difference between group and individual health insurance in every state. The difference is artificially designed by regulation.
The insurance company's liability ends the minute it stops doing business in the state. If that happens to be in the middle of your contract with them, too bad for you. If a company pulls out of the state, regulators see it as going out of business. A company which has gone out of business cannot be expected to continue to do business (i.e., pay claims). If this seems retarded to you, then consider yourself normal. You may try pursuing a lawsuit against the company. However, you'll only do this if you want them to pay a claim and if that's the case, you probably haven't the excess funds for a lawsuit.
Yes, this is based on real "data". I've recently been shopping for health insurance for a start-up company with very few employees. This information comes from health insurance companies themselves and from insurance brokers.
For example, state regulations have so screwed up the industry that maternity riders aren't even offered in Connecticut. Certainly, maternity is risky, so it's expensive. But NONE of the insurance companies in Connecticut offer maternity riders at ANY price. What if you're willing to bear the cost of normal pregnancy and just wish to purchase a maternity rider for catastrophic events? Not available. At any price.
Once again regulation, which is supposed to protect us from "big bad" insurance companies "ripping us off" has done nothing but reduce choice and raise costs for consumers by reducing competition for health insurance companies. As usual, regulation has exactly the opposite of its intended effect. The whole thing would work much better if we got rid of regulation and forced the insurance industry to compete for its customers rather than to compete for favours from government - As M. Hodak so eloquently pointed out above.
Incidentally, it has occurred to me that under the circumstances, a savings plan may be better than insurance - especially for healthy, young people willing to bear the cost of routine medical care.
Posted by: Methinks | Dec 5, 2007 9:46:48 PM
Mesa, my friend, I'm hoping I can sell Charlie Rangle May ’08 25% approval rate calls to get rich!
Actually, I'm a seller of NY state in 'O8. I'm taking a long position in a lower tax state.
Posted by: Methinks | Dec 5, 2007 10:06:52 PM
Methinks,
Be careful. NY might decide otherwise:
http://www.hodakvalue.com/blog/2007/11/let_me_tell_you_where_you_live.html
Posted by: M. Hodak | Dec 6, 2007 1:02:16 PM
M. Hodak,
Thanks. I've already worked with my CPA and my lawyer to make sure I cut my ties with NY state. I read that post on your blog when you first posted it there. I read your blog regularly.
Posted by: Methinks | Dec 6, 2007 1:26:21 PM
Thanks Don,
I needed that.
Posted by: vidyohs | Dec 6, 2007 10:19:11 PM
I am in favor of deductable assistance, or government subsidies for high risk individuals that need it the most. Another thing to point out is that unfortuntely in the US, insurance (especially health & life) is considered a luxury and many young people and working middle class with a choice of where to spend there money are opting for toys and entertainment rather than planning ahead. Hopefully that will change in the future. Great post and resource links though!
Posted by: QuoteFL | Aug 19, 2008 4:13:25 PM
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