Where’s Lumpy?

How many times in the past few months have we heard President Obama stump for the public option for healthcare coverage with the line “if you like your private insurance, you can keep it?”  He may truly believe that. I do not.

When private companies operate at a deficit for long enough, they go out of business.  When elected officials run up tens of trillions in debt, including current unfunded liabilities in Social Security and Medicare, they get re-elected despite (or because of) their arithmetic failures.  How could a private insurer “compete” against the government, when the latter can bleed red ink freely and without consequence?  I can imagine two possibilities:

1. Private insurers won’t be able to compete against the public option, not because they aren’t viable, but because the rules are different for one of the competitors (which is, of course, no competition at all).  One by one, the private insurers fail.  Voila, we get the back-door single-payer system that President Obama used to favor, before it became politically inexpedient.
2. The insurance industry, realizing the danger behind door #1, lobbies Congress to pass what Ayn Rand called an “Anti-Dog-Eat-Dog” act to prevent destructive “competition” by the public option.  The act would enshrine price controls and benefit caps in law, and forbids new competitors from entering the market.  For a few hundred thousand in contributions to campaign funds, it establishes a de jure healthcare cartel – this time with Uncle Sam as a founding member, to get around those pesky anti-trust laws.

These options aren’t necessarily mutually exclusive, of course.  Both lead to a single payer system, but because the cartel in the second option can claim some semblance of “choice” between insurers, it scares me more.  It boils the proverbial frog more slowly.

No apologist for the insurance lobby, I would scarcely be surprised if someone documents its rent-seeking shenanigans in Congress.  Such abuses should be brought to light and shamed.  However, to accuse them of being afraid of a little competition – when that competition is anything but fair to them – is disingenuous.  On the other hand, to expect the public option to curb corporate rent-seeking is simply naive.

Today, some friends were having a Facebook discussion about impending healthcare reform.  I couldn’t participate much because I was busy setting up a new payroll provider for my company — which involves re-entering everyone’s healthcare elections.  I tried re-joining the Facebook discussion, but ended up writing the following screed which, it turns out, exceeds the Facebook comment limits.  So, after a long hiatus, I’m back to blogging.

We offer two plans:  a high-deductible PPO plan that includes a healthcare savings account (HSA), and a point-of-service (PoS) plan.

The PoS plan works a lot like the HMO it replaced:  most services are fully covered for a small co-pay.  The PPO/HSA sports a $4500 family deductible; the employee pays everything up to that.  Each year, the employee can squirrel away money via tax-free payroll deductions, up to their deductible, in their interest-bearing, portable healthcare savings account, and use that tax-free money to pay for healthcare services and goods rendered.  The PPO/HSA includes a max out-of-pocket cost per year of $10K; beyond that, in case of emergency, most services are fully covered.

We’ve had these two plans for several years now.  The premium cost for the PPO/HSA plan for the employee and their family is about 85% of the cost of the PoS plan.  The HMO-turned-PoS plan increases in cost by 10-15% every year; the PPO/HSA increases by 2-3% per year.  Why?

I suspect that those with the PPO/HSA plan are incented to spend their healthcare dollars carefully, because they bear front-end costs themselves.  They are exposed to price signals that the PoS folks never notice.  They are far more selective about what services they truly need, and may go so far as to bargain for a discount on them.

If government-administered healthcare advocates are truly concerned about controlling costs, they’ll  expose the consumer to a meaningful portion of the cost of the services they use.  If “universal coverage” means that even larger segments of the insured are protected from the financial consequences of their healthcare buying decisions, we’re no closer to controlling costs than we are today.

Worst of all, are we still naive enough to believe that the healthcare provider industry won’t lobby for an ever-widening scope of services to be bankrolled by taxpayers?  Better to pay off a Representative or Senator to ensure that your slate of services are compensated at a favorable rate, or that your drug is included in their formulary at a decent profit, than to compete on the open market.  American history is blighted with such rent-seeking nonsense, from the steamboat cartel, to the transcontinental railroad, to February’s $787 “stimulus” that bought an inordinate amount of pork and very little infrastructure spending to date.

The problem isn’t that we have a “free market” system, it’s that we don’t.  In a truly free market, the consumer is exposed to price signals, and pays the consequences for their choices.  In a truly free market, the producer doesn’t bribe corrupt politicians to avoid competition.