Wednesday, December 23, 2009

The fatal flaws in healthcare reform (4)

The list of fatal flaws is growing longer by the day. My last post on the subject was just two days ago, here, where you can also find links to supporting documents. Here is the summary so far, with the most recent addition being #4:

Fatal flaw #1: The penalty imposed for not buying a policy is very likely to be less than the cost of insurance for a great many people. This, combined with the requirement that insurance companies may not deny coverage to anyone with a pre-existing condition, means that a large number of people will forgo signing up for a policy, knowing that they a) will save money and b) can always sign up for insurance if they turn out to develop a serious medical condition. Thus, the actual revenues will far way short of projections.

Fatal flaw #2: Mandating that people buy a health insurance policy simply because they are alive is unconstitutional. It is also a way of hiding the fact that young people will effectively be paying a huge new tax in order to subsidize older people.

Fatal flaw #3: Regulating the price which insurance companies must charge for policies, coupled with a requirement that companies must rebate to their customers the amount by which their loss ratios fall below 90%, effectively turns these companies into government-run enterprises and would likely result in the effective nationalization of the healthcare industry, something that the CBO has also noted. That is a violation of the Fifth Amendment, and of a Supreme Court requirement "that any firm in a regulated market be allowed to recover a risk-adjusted competitive rate of return on its accumulated capital investment."

Fatal flaw #4: A government-imposed restructuring of the healthcare industry can't possibly improve our healthcare system, and is extremely likely to make it worse. As Don Boudreaux notes, "Trying to restructure an industry that constitutes one-sixth of the U.S. economy is ... so complicated that it's impossible to accomplish without risking catastrophic failure." Here are some excerpts from his article, but be sure to read the whole thing:

Our world is full of complexities that defy human engineering.  Attempts to consciously redesign the health care industry are ... hubristic and hazardous. That industry is one of billions of unique, often personal, relationships, each of which is part of countless long chains of efforts to transform raw materials and human effort into life-improving and life-saving drugs and treatments.

Like weather and the mysteries of love, these long chains of human relationships weren't designed by anyone. Like weather and love, they change, often unexpectedly; they also possess as many unique properties as there are persons involved.

And like weather and love, their all-important details are beyond the comprehension of would-be redesigners. These long chains of human relationships cannot be undone and reassembled at will by politicians and "experts" without risking enormous and unintended catastrophe.

It's as if a committee of engineers trying to design, say, a bridge to connect New York and London draft a blueprint that is so huge and complex that none of the engineers can possibly comprehend its details. No engineer knows, or can know, exactly what it is he or she is helping to engineer.

If an engineer can't read and understand even his own blueprint, why should we trust him to understand the vastly more complex reality that his blueprint allegedly represents? And, more importantly, why should we trust that what is built based upon the incomprehensible blueprint will work as advertised?

With hundreds of millions of customers ... the idea that 535 geniuses on Capitol Hill can design this industry so that it will improve human well-being is laughable.

There are steps that Congress can sensibly take, but all of these involve removing government-imposed restrictions on the abilities of individuals to seek out, and to supply, health care provision within markets.

Health care will be improved only by unleashing the creativity of millions of people and by market competition. Health care will be severely damaged if it is designed and restricted by a few hundred arrogant political operatives.


juandos said...

Ahhh, some good stuff here sir...

I'm probably excessivly cynical so I think flaw #2: 'Mandating that people buy a health insurance policy simply because they are alive is unconstitutional' is a bit optimistic...

I can't help but think of two examples that seemed flaggrantly unconstitutional to me...

The most recent one was Campaign Finance Reform which the Supreme Court approved, why I'll never understand...

The second case is FDR and socialist security...

The threat to pack the Supreme Court until FDR got enough judges to see it his way is another glaring example of an unconstitutional action if not in the letter of the law then most definitely in the spirit of it...

W.E. Heasley said...

Mr. Grannis:

How is this for #5: Price Controls.

The Socialized Medicine Scheme is argued along the lines of “Cost”. The mantra being “Bend the Cost Curve”.

You know, that point where the Long Run Average Cost Curve becomes tangent to the Short Run Average Cost Curve and is intersected by Short Run Marginal Cost. Right, like the Politicos have any clue about cost curves.

“Bend the Cost Curve” is political speak for Price Controls. There is not one example ever where Price Controls worked. Never-Ever! Price Controls always end in supply being rationed.

Bad economic ideas like Price Controls never die, they just get recycled and sold to the gullible.

Scott Grannis said...

Sadly, what you say is very true.

Public Library said...

This quote of yours gives me hope it can work.

"A government-imposed restructuring of the healthcare industry can't possibly improve our healthcare system, and is extremely likely to make it worse."

Scott, of all people, you should be the most leery of this type of negativity. The coverage is now so one-sided it only takes a bit of "not-so-bad" news to get things really headed in the right direction.

I think once this gets passed, everyone will begin to move on to improving it. Which is actually the entire point. This is not the end all be all but doing nothing is a worse option in my opinion.

I do not like government intervention and hopefully the market will start providing solutions out of necessity of survival.

Not to bleed Americans of cash using monopolistic laws and back slapping tactics we see today.

Scott Grannis said...

Public: Sorry, I'm not budging on this. It is inevitable that Congress will introduce things into the final legislation that will have serious unintended consequences. There is no way the political process can design an efficient industry that serves 300 million people. Period.

Yes, "everyone could get together and make the thing work" BUT only if the government steps out of the way and lets free market forces take over.

Jay Kaplan said...

I read Mr. Boudreaux's piece and it profoundly understates the "engineering" problems because the piece assumes (at of expediency, not ignorance) that the trans-Atlantic bridge is "designed" by all those engineers to allow automobile traffic to cross the Atlantic. But what if it was really designed to allow a high speed rail system to supplant automobile traffic? There can be little doubt that this new health care system was designed to morph into a single payer, government system. The current system design cannot possibly succeed.

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