aefenglommung (aefenglommung) wrote,

Some thoughts on health care

My friends who are defending government-run health care generally see private insurance as not only inadequate, but somehow tainted by corporate greed; meanwhile, they fail to acknowledge the possibility that government could ever fail to act in a compassionate and effective way. They are wrong on both counts. They fail to understand both capitalism and government.

Capitalism invented insurance. It started with merchants shipping goods in sea-going vessels. If you are sending goods into foreign countries in wooden sailing ships, you tie all your capital up in goods which can be stolen that are being transported in a ship that can be sunk or captured. Unless you are rich enough to have multiple shipments coming and going, a single disaster can render you impoverished. It was a very risky business.

Of course, not all ships sank and not all goods were stolen. Merchants figured out that there was a fairly standard rate of loss due to war, piracy, weather, and thievery. If they just paid a percentage of each shipment’s value slightly greater than their aggregate rate of loss into a fund, then that fund could reimburse those who experienced a loss; the extra charged covered the costs of administering the fund, including the salary of the fund manager. Insurance companies spread their own risk by inviting people to invest their capital in the company in return for the chance of profit. Premiums were set by employing actuaries, whose mathematical skills enabled them to quantify risk in monetary terms.

From shipping, insurance was soon extended to other forms of risk. You can now insure your home, your car, your crops, your life (mostly in terms of your income-producing capacity), and, of course, your health. All of these are positive boons to mankind, and all of them are born of the capitalist desire to gather resources to manage risk. This makes possible more risk-taking, without which society cannot advance.

But aren’t the insurance companies out to make a profit? Well, duh. Without a profit, they cannot stay in business. Aren’t they trying to keep from paying out benefits? No. If they don’t pay out what they owe, others will do not do business with them; however, if they pay out benefits they do not owe, then they are defrauding their investors. Insurance is not a charitable enterprise; insurance is a contract – a covenant, if you will. The insured must choose carefully what one wishes to insure, and what one wishes to risk not insuring. The insurer must be able to set premiums in accordance with risk – and if the risk is too great, then the insurer will not cover the risk. The way capitalism addresses the need to insure high risk is to spread it out: the occasional hemophiliac in a pool of insured persons can be insured for X dollars; a pool consisting of all hemophiliacs would require such enormous premiums to cover the expected outlays that the pool would be priced out of the market.

Could the government require the insurance companies to cover a pool of all hemophiliacs anyway? Well, yes, but the result would be to drive the companies out of business, and then everybody suffers. The only way to do it would be to say that all high risk persons in category X must be covered, but only for certain expenses. This is the way State minimum coverage for required auto insurance works. If your previous behavior renders you too high risk to cover at a reasonable price, you can purchase a minimum policy that basically just protects other drivers from you; if you wreck your car (again), it won’t cover that damage.

This still means that health care is rationed by ability to pay and that the availability of insurance is linked to such factors as pre-existing conditions. Pre-existing conditions could be handled by the government requiring insurance to be portable from one job to the next, and by enrolling persons in high-risk categories in larger groups that spread risk. Inability to purchase minimum health coverage due to poverty could be addressed by various forms of welfare. All of this keeps the insurance industry functioning as a primarily market-driven enterprise, which keeps it healthy and able to provide services to the society at large. It means keeping the golden goose alive so that it can lay its golden eggs for the benefit of all; the propensity of some people to gather more eggs than others is not a problem that is finally soluble by government.

And yet that disparity of wealth offends many people. They think that government ought to be able to run the whole enterprise better – that is, in terms of taking care of people’s needs – than private enterprise. Government, in this case, is assuming a role that insurance companies never did. They are acting as an eleemosynary institution – a charity. In the end, the government will pay for everything, and tax people to provide the benefits. But the government must operate under the same reality that the actuaries measure. If they deliberately plan to cover expenses that exceed the calculable risk, then they will operate at a loss. That’s fine, but how much loss can the government stand? As Margaret Thatcher used to point out, the problem with socialism is that sooner or later you run out of other people’s money.

In the end, health care will be rationed by available money, whether one likes it or not. The available money may be someone’s personal bank account, or it may be the US Treasury, but there is only so much money available. At some point, someone will have to say that the government health care system will not pay for X treatment for patients in Y category, because we can’t afford that. Which means patient Z – you, or your child, or you elderly parent – will be refused treatment, which will be quite as catastrophic to the person and family concerned as being turned down by an insurance company or being unable to finance the cost of the treatment by direct means. All the government mandates in the world and all the government revenues that can be squeezed from the populace cannot succeed in providing every treatment for every person in need of it.

And this assumes a government run in an intelligent and caring manner by people who fully sympathize with you and want to help you. It does not account for corruption, stupidity, or arrogance on the part of the government agents running the health care system; yet, corruption, stupidity, and arrogance are all part of human nature and they are particularly evident in government enterprises. Why do we suppose that they will not be part of government-run health care? But aren’t corruption, stupidity, and arrogance part of private enterprise, too? Yes, but in the long run, a for-profit enterprise run that way will lose customers, which is to say, it will eventually go out of business. In order to stay in business, it must constantly strive to serve its customers better. Government is under no such constraints, and will tend to stay in business no matter how poorly it delivers benefits to its citizens.

Despite all the statistics thrown around by the advocates of government-run health care, their desire is for a system that defies actuarial mathematics. Despite their heart-rending pleas for sick people to be taken better care of, they desire to give more decision-making power to government than to families or doctors or private insurers, all of whom know better how to treat sick people than government does. They are under the illusion that they can solve massive societal problems with the passage of sweeping laws, and to protect themselves from reality they will then refuse to see the pain their pet program will cause, which means that in the end, they will create at least as much distress as they will alleviate, besides crippling the country with the taxation necessary to run the program.

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