Health Insurance
Bernie Sanders and Gavin Newsom, among many others, are promoting the idea of universal health care. In order to have a productive discussion on this subject, or any other contentious subject, it is vital to properly define terms and milk them of emotional content.
We’ll start with “insurance” and begin with a thought experiment. Let us say that a community contains 1,000 houses, each of which would cost $100,000 to replace if destroyed by fire. On average, one house per year burns, and the timing is randomly spread throughout the calendar year. If you sell all the homeowners a policy of fire insurance, having an annual premium of $105, you end up with $105,000. If you have to pay to replace one house a year, you’ve made a 5% profit. In addition, you are able to keep the money for an average of 6 months. If you can invest it at 5%, you make another $2,500. The resulting profit of 7.5% motivates you to sell insurance. Those who do proper underwriting make a tidy living.
Why would anybody buy the product? Because the buyer determines that he/she could not afford to replace their house if it burned. The buyer is pooling money with other homeowners to insure against an event which has low odds of occurring, but would have devastating financial consequences if it did.
Health care coverage as it exists today is not, for the most part, insurance. Mostly, it pays for routine expenditures.
A little history is in order. When I was young (a long damn time ago), health care was like any other service. If you saw a doctor or went to the hospital, you paid. If you couldn’t afford to pay, you went to the County Hospital. The care was second rate, but it was free. It was a welfare program. During WW II, FDR, in a partially successful attempt to limit inflation, froze wages and prices. Unions had a lot of leverage due to the scarcity of workers, but could not legally bargain for higher pay. So they bargained for other forms of compensation, among them, reimbursement of health care expenses. Payment of medical care for employees was not insurance; it was additional compensation. Companies, calling themselves insurance companies, and otherwise engaged in real forms of insurance, were paid by employers to administer the system.
There is a model of insurance for health care. Let’s call it catastrophic coverage. Your medical bills are paid by an insurance entity only in the event of serious (and expensive) injury or illness. It would be possible to have a low cost national system requiring all citizens to carry such insurance, and assigning those with preexisting conditions to carriers on a random basis. Those unable to pay would remain on Medicaid. That is the model for auto liability insurance in California (and other states, I assume). Every driver is obligated to post a bond or carry insurance to cover injury they might cause in a wreck and bad drivers are parceled out as “assigned risks”. But that is not the kind of coverage those advocating “Medicare for all” are aiming for. They want the government to pay all your medical bills.
What’s the matter with the idea of universal health care? It suffers from a fatal defect. The law of supply and demand is one of the few discoveries of any social science that holds up in almost all circumstances. The demand for medical care (especially medical care paid for by somebody else) is almost unlimited. If you’re sick, or think you’re sick, you want the best care available. The supply of such care is limited; therefore rationing is inevitable, and some sort of black market/escape hatch always develops in countries that purport to have universal coverage.
The second term we need to define is “right”. Those who advocate universal health care assert that it is a right! A misleading misnomer, in my view. In the American political system, the concept of “right” has roots in Aristotle’s concept of natural law, as refined by 19th century English political philosophers. It is embodied in the the first ten amendments to our constitution. It is a recitation of things government is not allowed to do, not a wish list of things you’d like government to do for you. Government is not to interfere with free expression (speech, press, assembly), quarter troops in your home, mandate religious belief, apply different rules to different citizens (including members of government) or seize property without compensation. The use of the term “right” to apply to actions you wish government to take on your behalf is a way to foreclose argument–to elevate your wish list to the status of a constitutional mandate. That is not conducive to rational debate or good public policy. As a society, we may choose to take money from one group of people and give it to another group, but there is no excuse for sanctifying the process.
There are a lot of terms that can, with various levels of ideological coloration, be applied to the concept of government provided universal health care: humanitarian empathy, a taxpayer provided subsidy, an antidote to income inequality, wealth transfer, vote buying or welfare. But it is most assuredly not insurance, nor is it a right.
