Healthcare: More Is Less

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There was a time when insurance companies focused on actuarial tables while physicians focused on diagnosis and treatment. But not any more! Now insurance companies are raking in the premiums — double what they were five years ago for many customers — while doing everything in their power to reject claims. Patients are more afraid of the insurance agent than they are of the disease.

In the past month alone, my daughters have had four hefty medical claims rejected, including a medication prescribed to control chronic seizures and a gallbladder removal that was deemed “elective” by the insurance company! What is the point of buying insurance if you can’t use it? And how can the market respond to customer dissatisfaction when government regulation gives insurance companies so much power?

Insurance companies are raking in the premiums — double what they were five years ago for many customers — while doing everything in their power to reject claims.

I raised five active, rambunctious, rough-and-tumble children across three decades, and while I worried occasionally about their health and safety, I never worried about how I would pay for their healthcare. My relationship with insurance companies was straightforward and consistent. Our copay was consistent. Our deductible was consistent. If one of the kids was injured, I could call my favorite orthopedic practice without worrying that the claim would be rejected on the grounds of some esoteric technicality. When my daughter developed epilepsy, I was proactive in finding the right doctor, the right diagnosis, and the right treatment that has kept her virtually seizure-free for 15 years — until her current insurance company decided that the medication her doctor has prescribed for those 15 years will not be covered.

In the past five years, everything has changed. Suddenly it’s the insurance agent, not the physician, who decides what the patient needs by deciding whether it will be covered. Insurance premiums are so high that few families can save enough to cover out-of-pocket expenses, yet everything is becoming an out-of-pocket expense. My daughters find themselves owing nearly $15,000 in uncovered medical expenses in a single month — and they have insurance!

In the past month alone, my daughters have had four hefty medical claims rejected, including a medication prescribed to control chronic seizures and a gallbladder removal that was deemed “elective."

American healthcare, once the best in the world, is collapsing under the weight of over-regulation and crony capitalism that favors the insurer over the healer. Rand Paul, the only actual physician in the US Senate, has been locked out of discussions about healthcare reform. Let’s hope it all collapses soon, so the free market can rebuild from the ashes.




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Crisis Communism

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No law has drawn more ire from libertarians and conservatives than Obamacare. The idea of the government using its power to punish people for making a free and informed decision not to purchase health insurance, justified by the noblest-sounding idealism of "lowering costs" and "increasing access," is obvious pavement for the road to socialism. If the government has the right to impose economic decisions on us, then capitalism is finished.

My own view is that, contrary to conventional libertarian wisdom, Obamacare gets some things right. I have a history of health problems and the end of exclusions for preexisting conditions benefits me greatly; without it I probably would not have health insurance. I also like the Obamacare health insurance exchanges, because they enable plans to compete for buyers, and competition is the engine that lowers cost and improves quality. In terms of preexisting conditions, and the lack of competition among plans, I think the old system was broken and the new system is better.

But my point is that these good things would have happened from deregulation. The flaws in the old system were caused by government control, not by the free market or the greed of insurance companies. In fact, greed is a main motive of Obamacare's insurance-company backers, who love a law that forces people to buy their products and pay them more money.

Here I posit a theory that I call Crisis Communism: when the government interferes in the free market it causes a crisis, which the socialists then use as an excuse for greater government interference, justified by the need to end the crisis. Thus regulation achieves a downward spiral towards Marxism. One good example is the Great Depression. The Federal Reserve caused it; then the New Deal was offered as a solution — which made it worse.

In the field of health insurance, two regulations precipitated the crisis "solved" by Obamacare. First, the complex of laws and codes known as ERISA (associated with the Employee Retirement Income Security Act of 1974) tended to force health insurance to come from a worker's employer, so that the employer chose the plan, which killed competition for plans among individual consumers. Second, the state insurance commissioners issued detailed regulations about what a health insurance plan was allowed to cover and what benefits it could have. The advocates of Obamacare might blame the free market for a bad system, when really it was state socialism that was to blame.

I want Obamacare repealed. But if we are to repeal Obamacare, then we must also repeal ERISA and all state health insurance regulations, so that free market competition can force health insurers to make plans available at prices that people want to pay for the benefits they want and freely choose to purchase.




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What? When? Why?

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Exactly what did the president just “apologize” for?

For lying, when he promised, over 30 times, that if you like your insurance you can keep it, “period”?

No.

For saying, as late as Sept. 25, “If you already have healthcare, you don’t have to do anything”?

No.

For misleading people when he said those things?

No.

For causing millions of people to lose their insurance, and other millions to lose their full-time jobs over the insurance issue, caused by him?

No.

For permitting a healthcare delivery system to be initiated despite the fact that the people administering it knew it wouldn’t work?

No.

“You know — I regret very much that — what we intended to do, which is to make sure that everybody is moving into better plans because they want ’em, as opposed to because they're forced into it. That, you know, we weren't as clear as we needed to be — in terms of the changes that were takin' place. . . .

“Keep in mind that most of the folks who are gonna — who got these c — cancellation letters, they'll be able to get better care at the same cost or cheaper in these new marketplaces. Because they'll have more choice. They'll have more competition. They're part of a bigger pool. Insurance companies are gonna be hungry for their business.

“So — the majority of folks will end up being better off, of course, because the website's not workin' right. They don’t necessarily know it right. But it — even though it's a small percentage of folks who may be disadvantaged . . . I am sorry that they — you know, are finding themselves in this situation, based on assurances they got from me.”

Huh? If that’s an apology, what is he apologizing for?

And when did he realize that he was, uh, well, uh, uh . . . that he might be somewhat, uh . . . at fault . . . ? Or no, that he needed to . . . maybe . . . uh . . . apologize? . . . Or no, that he needed to say those magic words “I am sorry”? I mean, stick them somewhere in a sentence.

Was it on Oct. 30, when he belligerently claimed that he had never said that if you liked your insurance, you could keep it, period, because what he had actually said was that you could keep it if it didn’t change (because he made laws to force it to change)?

Was it last week and all this week, when his propaganda machine blamed the insurance companies for causing all the problems?

Was it last week and all this week, when his propaganda machine blamed the Republicans for causing all the problems?

Was it when he and his party claimed that millions of people had gone online to sign up for insurance? Or when they kept claiming that the insurance website was entirely cool? Or when, last week, they claimed that it was fully functional, just somewhat “slow”? Or when — even now, five weeks after the disaster began — they decline to tell anyone how many people have managed to sign up? Or when — constantly — they have claimed that Obamacare has already reduced the cost of insurance “for everyone”?

What? When? . . . And why? Does anyone believe that Obama “apologized” because he was sincerely aggrieved to discover that he had done something wrong? In short, does anyone still believe that he has a conscience?

Tell me.




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October Angst

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Obamacare is upon us. Uninsured Americans will begin enrollment at health insurance exchanges this October. The floodgates will be open to 57 million uninsured American citizens and legal residents, who will finally have the opportunity to purchase affordable, high quality healthcare coverage. It comes with Obamacare discounts, in the form of subsidies and tax credits, that are quite generous and widely available, even for foreign students and guest workers. They can be obtained by families and individuals with incomes up to four times the federal poverty level; the average amount of the subsidy, just to get things started in 2014, is $5,290 a year.

At last there is manna for our forgotten poor, our reckless youth, our promiscuous women, and our income-challenged aliens. America will no longer deny them healthcare. Their benefits, too numerous to count, are listed in the 2,000-plus pages of the Obamacare law, which, according to ObamacareFacts.com, is chock full of "really impressive and long-overdue reforms." When Obamacare enrollment opens for business, many people, such as Nobel Prize winning economist and New York Times columnist Paul Krugman, expect "unexpected success." To such advocates, come October the biggest Obamacare worry will be crowd control.

But the 2,000 pages of bold promises has become a 20,000-page (and rapidly growing) monstrosity of officious bewilderment, provoking fear, disappointment, and confusion in the hearts of the uninsured, not to mention distrust, despair, and anxiety among taxpayers and business people. An astonishing two-thirds of the uninsured do not know whether they will purchase healthcare insurance by the January 1, 2014 deadline. Many fear that they will have to pay more than they can afford, even after getting their subsidy checks and tax credits. Some, including those who have enthusiastically waited for their chance to get Obamacare, worry that they may not qualify, and be shuttled instead into Medicaid.

Still others are troubled by the prospect of losing their jobs or having their hours reduced. A poll of 603 small businesses found that 19% have laid off workers specifically because of Obamacare; 41% have suspended hiring; 55% believe Obamacare will lead to higher healthcare costs. Businesses, from small to large, are circumventing Obamacare with part-time jobs; in labor-intensive industries, the new work week is 29.5 hours. Even altruistic organizations such as school districts and state and local governments are employing this strategy.

According to the Congressional Budget Office, the number of uninsured people will never fall below 30 million, even by 2023.

Then there is the troubling spate of recent news decrying the Obamacare implementation delays, missteps, unmet milestones, and special treatment (waivers, exemptions, and exceptions) of politically favored groups. Public support is eroding, with 63% of voters believing the Obamacare law must change. Similar dissatisfaction has been expressed regarding the clumsy rollout, with 57% referring to it as "a joke."

Mr. Obama believes that these attitudes have been shaped by his adversaries and by people who do not understand Obamacare — as if the layoffs, work week reductions, benefit cuts, and cost increases (insurance rates and the 18 new Obamacare taxes and penalties) were merely rumors spread by Fox News and angry Republicans. According to Obama, the number one priority of the entire Republican Party is to ensure "that 30 million people don't have healthcare." But according to the Congressional Budget Office, the number of uninsured people will never fall below 30 million, even by 2023 — after ten years and $2.6 trillion of Obamacare. Looks like Obama wins the uninsured contest.

Republicans certainly revel in Obamacare's inherent flaws and design errors (what Obama calls "glitches and bumps"), but after all, they played no role in writing it, and not a single one of them voted for it. Republicans have not caused what one of Obamacare's senior authors, Senate Finance Committee Chairman Max Baucus (D-MT), called a "huge train wreck coming down." The cause of the inevitable wreck is the tricks, gimmicks, and false promises that were stuffed into the bill to get it passed — that, and the Byzantine regulations written by Obamacare lawyers, lobbyists, and bureaucrats who now, in frantic futility, struggle to implement the law.

It is Obamacare itself, at least the grand version sold to the public, that troubles Obama. As he observes its slow, painful, horribly costly implementation, he seems to have come to understand that the public will not see the real version for years (if ever), let alone by October. Consequently, his objective is not to make Obamacare succeed but simply to keep it alive long enough for it to take root (i.e., for the Obamacare insured to become dependent on its handouts). To achieve this, the administration must (a) convince enough people to turn out to enroll in October and (b) ensure that the Obamacare Data Hub will be ready to process them.

Obama has decided that the objective can be effectively accomplished with a $700 million marketing campaign.After all, campaigning is what he does best. And the people he must reach are the same people who voted for him (twice). Bamboozling some of them should be easy, but conscripting the so-called young invincibles, not all of whom voted for him, or anyone, is critical. The premiums paid by the young and healthy are needed to defray the cost of insuring older, higher risk individuals and pay the subsidies for the 30 million heretofore denied health care.

Obama’s marketing blitz will promote the idea that health insurance is necessary, affordable, and "cool" to have. "Don't be left out," reads one pitch. Expect a barrage of ads containing various "guiltless" lures of handouts (similar to the SNAP marketing of food stamps, and hoping for similar success). Although we can expect ads ranging from the most condescending (e.g., wealthy celebrities extolling Obamacare for the poor) to the most shameless (e.g., 21 year-olds fraught with fears of sudden, crippling accidents or early heart disease and cancer), the underlying theme — aimed at the poor, the young, the uneducated, the disengaged — is that health insurance will make you feel good, like a winner. These are exciting times to be temporarily uninsured.

Many states have launched similar campaigns. For example, Minnesota recently announced that Paul Bunyan and Babe the Blue Ox will be the faces of its Obamacare exchange. The equally banal creative director of Minnesota's $9 million Obamacare web-based marketing campaign enthusiastically said that the Paul and Babe angle is "great news for those that are uninsured." He was looking for something "easy to work with" and "unique to Minnesota." Presumably, the coolness will be provided by the campaign's motto, "The Land of 10,000 Reasons to get Health Insurance." (Minnesota may be, as it calls itself, “the land of 10,000 lakes,” as if someone were counting, but Michigan and Wisconsin would challenge the uniqueness claim about the pseudo-mythology of Paul Bunyan.)

We will continue to "find out what's in it,” as Nancy Pelosi said — through more discoveries of unforeseen problems, unintended consequences, and the "bumps and glitches" of moral hazard.

When October arrives, many tens of thousands of “navigators” will be available to guide applicants through the steps in the Obamacare enrollment system. They will be paid $20–$48 per hour; a high school diploma is not required, nor is a criminal background check. The Department of Health and Human Services (HHS) tells us that Navigators must take a 20–30 hour online course (to learn about a 1,200 page law with over 20,000 pages of regulations) and that Americans "can trust that information they are providing is protected." That should quash any quality or privacy concerns.

Integral to the enrollment system looms the Obamacare Data Hub — a colossal database system storing unprecedented reams of applicants' personal information. To determine eligibility and subsidy size, navigators and other government officials will use the hub to evaluate applicant records at various government agencies. These include, for starters, the IRS, the Department of Justice, the Social Security Administration, the Department of Defense, the Veterans Administration, the Department of Homeland Security, the Peace Corps, the states' Medicaid systems, and, of course, the HHS.

The Obama administration is confident that it can persuade the young and healthy. But most who show up to enroll will likely do so under the duress of the Individual Mandate. The Obamacare Data Hub is another story. Although the administration insists that it will be open for business on October 1, it has been plagued by development problems. One difficulty, in particular, stemmed from the Employer Mandate (requiring that employers provide coverage to full-time workers). The complexity involved in verifying people’s income and employment status threatened the timely development of the Hub, which cannot tolerate delays. Thus, the Employer Mandate was delayed for one year. Administration officials gave large employers a one-year break, but they let the Individual Mandate stand, certainly annoying many from the critical target group (the young and healthy) whom they must somehow hornswoggle. Brilliant! And as if to demonstrate the essence of Obamacare, they wrote a new regulation for the delay in the Employer Mandate. Quietly released on a Friday (the Friday following the Fourth of July, no less), the regulation was 606 pages long. (Would a two-year delay be 1,212 pages?)

The massive public relations campaign will have some success. The same team and strategy (targeted messaging) that got Obama reelected should not be underestimated. Obamacare advocates will improve their messaging and they will never miss an opportunity to blame Republicans. They will convince many young invincibles to purchase insurance they don't want and many others to purchase insurance that they still cannot afford, even with their subsidies. So despite Obamacare's growing disfavor, campaign leaders remain optimistic, at least in public. But will the sizzle in their messaging entice enough enrollees to require October crowd control?

The vast majority of the uninsured may stay home. Along with most of the 157 million who already have health insurance, they may be and remain skeptical about the Obamacare PR campaign (a marketing blitz for a product so wonderful that it must be required by law), confused by the complexity of the program (mandates, rules, options, taxes, fees, penalties, waivers, exemptions, exceptions, etc.), and frightened before the vision of a $2.6 trillion house of cards in which we must now reside. Peering in from its rickety porch, we will continue to "find out what's in it,” as Nancy Pelosi said — through more discoveries of unforeseen problems, unintended consequences, and the "bumps and glitches" of moral hazard. What else could be found in a 20,000 page regulatory labyrinth of specious minutia, concocted by unscrupulous lawyers, venal lobbyists, and smug bureaucrats, all of whom possess at once the utmost lack of any practical medical or business experience and the utmost disdain for free-market capitalism?

As October approaches, anxiety over the turnout will shift to the Data Hub. But the Hub will not be ready, at least not to the extent Obama expected. He will worry that it will be unable to process enough applicants for the financial sustainability of his prize legislation. And worry he should. If the American public comprehends the capabilities of his Hub, not to mention what it could become, they will burn the entire operation to the ground, if only to keep the NSA from getting its hands on it.




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Insurance: For Me or Thee?

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Once upon a time, before we got married, my wife Tina got a ticket for driving without insurance and decided to contest it pro se. Her argument to the judge was simple: insurance was designed to protect the insured from potential losses to herself — not to protect a third party. Anyone she might harm had recourse to indemnification by demanding recompense either voluntarily or through civil action — the traditional recourse for most torts. She added, for good measure, that compulsory insurance laws were a racket — nothing more than rentseeking, insurance industry full-employment legislation.

At the time, Tina was very poor and couldn’t afford insurance. Burdened by a heavy student-loan debt and no job prospect, she was treading water running a one-woman cleaning business. Her $300 Chevy Nova was basic transportation. She had no other assets and was living in a $150-per-month apartment on the wrong side of town.

The judge — in a totally unnecessary flourish of engagement — cited these very reasons to show that mandatory insurance was necessary. Tina retorted that you can’t squeeze blood from a turnip; that, traditionally, once the perpetrator’s assets, however large or small these might have been, had been exhausted in compensation, that was all she wrote; that, in essence, mandatory insurance schemes forced the poor to cover wealthier people who could afford to insure themselves against damages perpetrated by those who could barely afford food and a roof.

Of course, she lost, but the judge admired her spunk and charged her only half the usual fine. While trying to settle up at the cashier's window, she argued her case to the cashier too. He asked her if she was black or Mexican or Indian and pregnant. She wasn’t, so she didn’t get off.

With the prospect of mandatory health insurance coming in 2014, will we get off? Where will the unfunded mandates stop?

Mandatory car insurance is premised on the assumption that driving is a privilege, not a right. Therefore, greater state control is justified. The counter-argument is that people have a right to travel; that driving a vehicle is the modern equivalent of using a horse, and that horse travel was never considered a privilege. It was a necessity.

Alongside the privilege argument (which actually came later) was the “assurance” argument, the argument that there is “no way of assuring that even though fault was assessed the victim of an automobile accident would be able to collect from the tortfeasor” (as Bill Long recounts in Automobile Insurance: A Brief History).

This argument prompts the question: since there is no assurance that a victim may be able to collect damages from a pedestrian, bicycle, equestrian, horse and buggy; or any other type of accident — including accidents on property normally covered by homeowner’s, renter’s, or liability insurance — will we one day be forced to buy these also? I can just imagine governments requiring panhandlers and the homeless to carry liability insurance to make it easier for citizens to collect damages from unfortunate encounters with them.

The “assurance” argument is better described as a “convenience” argument: an argument about providing a convenience for insurance companies and the better-off, at the expense of the poor. (The uninsured better-off face serious loss, if not destitution, when at fault.)

With the invention of the automobile in the late 19th century came the inevitable side effect of automobile accidents.These were perceived — rightly or wrongly (and probably as a natural response to a new and untested technology) — as more frequent and more harmful than previous, more familiar torts. Therefore, it was thought, new laws were required to govern automobiles.

Connecticut led the way in 1925 with a modest “financial responsibility” law. This required any vehicle owner involved in an accident with damages over $100 to prove "financial responsibility to satisfy any claim for damages, by reason of personal injury, to, or death of, any person, of at least $10,000."This early financial responsibility requirement applied to vehicle owners only after their first accident. In the same year, Massachusetts passed the first compulsory insurance law as a prerequisite to vehicle registration.

Mandatory insurance schemes force the poor to cover wealthier people who could afford to insure themselves against damages perpetrated by those who could barely afford food and a roof.

By and large, traditional tort practices remained effective, since — for over 30 more years — no other state saw a need to enact special automobile accident legislation. Then, in 1956, New York passed its compulsory insurance law, with North Carolina following suit the next year. Today, every state bar New Hampshire has some sort of compulsory insurance scheme, and even it has a “personal responsibility” requirement.

Minimum insurance coverage requirements vary wildly from state to state, since estimating the cost of an accident before it occurs is very difficult.The requirements are often expressed in tripartite form — as, for example, in Alaska’s and Maine’s laws, with the highest requirement at 50/100/25, or in the District of Columbia’s, at 10/25/5. These numbers are shorthand for thousands of dollars and refer, in sequence, to: "bodily injury per person/bodily injury per accident/property damage."

After an accident, and once these limits have been reached — again, that’s all she wrote. Limits on insurance coverage have no relationship to liability limits, which are determined only by a judgment and restricted only by one’s net worth.

How effective is the mandatory auto insurance system? An Insurance Research Council study estimated that about 15% of the US population is uninsured — in Colorado, almost 23%.

Many of the logical shortcomings in the mandatory car insurance laws must be evident to people generally, because there is no political will to enforce them effectively. In most states, it's pretty easy to avert the mandates. Most people who fail to comply with the laws do so because they cannot afford the additional cost. It doesn't seem that the will exists to remove these people's means of transportation, and often their means of earning a living. (California and New Jersey, however, have taken a perverse approach toward incentivizing compliance: if uninsured drivers are victims in an accident, they are — by law — prevented from recovering non-compensatory damages, such as damages for “pain and suffering” from the perpetrator.)

Instead of being fined or having their vehicles taken away, motorists are ordinarily given a ticket, and the fee is waived when they show up in court with proof of insurance. Naturally, they can then cancel the coverage or cease making payments once the court date has passed. All this does is create a hassle for the uninsured who happen to get caught, and increases the paperwork for the insurance companies — a small price to pay, I assume — that minister to the captive market.

Do states that have more uninsured drivers actually have lower fatality rates or lower accident rates, because uninsured drivers will presumably drive more cautiously? This is a milder form of economist Walter Williams’ thought experiment, in which he mused that traffic accident rates would decline dramatically if every car’s steering wheel were equipped with a razor-sharp rapier extending from the center of the wheel to within a few inches of the driver’s sternum.

Many of the logical shortcomings in the mandatory car insurance laws must be evident to people generally, because there is no political will to enforce them effectively.

Would the costs to the auto liability system be lowered if we had no mandatory coverage? Perhaps. The narrowing of the base might work against the lowering, but the reduction in regulation would certainly promote it. On the other hand, rates might increase with a broader use of uninsured and underinsured coverage — a pittance to pay for greater freedom of choice and much more convenience.

Soon after the enactment of the first mandatory car insurance laws, the imposition of compulsory social insurance (or retirement insurance) in the form of Social Security became a reality. Lately, after some of the floods, hurricanes, and tornados that have devastated various regions of the country, precipitating massive federal and state relief programs, mandatory flood insurance has been proposed.

Today we are faced with the prospect of compulsory health insurance, beginning in 2014 — if the Supreme Court upholds the constitutionality of Obamacare, a program being challenged by several states because of its compulsory nature.

One major provision of the new Health Care Act requires employers above a certain size to buy health insurance for their employees — definitely a third party mandate. The irony of this requirement is that the practice of employer-provided health insurance began during World War II as a way for businesses to get around government imposed wage and price controls. Since employers couldn’t offer salary hikes, they began to offer perks which, by some loophole in the wage and price control legislation, were not considered pay raises. Yesterday’s dodge becomes today’s mandate.

Advocates of compulsory health insurance argue that it is in the best interest of every individual. It broadens the base of insured people, thereby lowering premiums. But this argument hides the underlying logic of compulsory health insurance: whether or not it actually benefits individuals, it benefits third parties — insurance companies, paying patients (mostly insured), hospitals, and taxpayers, all of whom, to one degree or another, now pick up the tab for deadbeat patients (mostly uninsured).

Only a small minority of uninsured patients are destitute. For the rest, being uninsured is a lifestyle choice made possible by the widespread requirement that hospitals treat the seriously ill regardless of their ability to pay. The repeal of such laws would provide the strongest incentive for everyone to choose to buy insurance, while the truly destitute would rely either on charity or on Medicaid.

Insurance was invented to protect people from unforeseen losses to themselves, not to protect third parties. Transferring the definition of insurance into the realm of bonding muddles the distinction. Some states, such as Arizona, recognize this and offer a bonding option — based on the premise that driving a car is a privilege, and on the state constitution’s prohibition against forcing an individual into any sort of a private contract. But it’s a messy compromise, with folks overwhelmingly choosing insurance instead of bonding.

And when it comes right down to it, isn’t it reprehensible for a majority that is mostly well-to-do to force a less well-off minority to buy insurance merely for the majority’s convenience?




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Insurance — Against What?

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The brouhaha over whether Catholic institutions should be required to provide insurance coverage for contraception highlights everything that is wrong with medical insurance today. And Obama’s “compromise” of requiring insurance companies to provide contraception for free, thereby sidestepping the argument that Catholic institutions shouldn’t have to pay for it, is even worse.

No one should use insurance to pay for contraception. It is a regular, pre-planned expense of daily living. There is nothing to “insure.” There is no guesswork in whether a person will need it or not. It is the best example of the current problems with medical "insurance."

The purpose of insurance is to protect against unexpected catastrophic expenses — the kind of costs you wouldn’t be able to cover on your own. It is a way of hedging your bets against disaster. People pool their money, and whoever has a disaster gets to take money out of the pot. If too many disasters occur, the pool runs dry. The only remedy is to increase the amount each person pays into the pool, and decrease (through healthier, safer living) the number of disasters that individuals can’t pay for themselves.

Some people may never “get their money’s worth” out of their insurance premiums, because they remain healthy and accident-free. And that’s a good thing.

Insurance is the lottery you don’t want to win.

We have to stop thinking about insurance as some kind of unlimited prepaid plan in which everyone scrambles to “get their money’s worth.” For an insurance program to work, there need to be more healthy people than unhealthy people. Insurance premiums always have to outweigh medical payments. But when we start covering every little doctor’s appointment and medical expense, there isn’t enough money left for the true disasters without vastly increasing the premiums.

Contraception is a perfect example. There is nothing catastrophic or unexpected about its cost. If a person is having sex and doesn’t want to make a baby, the cost of contraception is as regular and predictable as clockwork. There is no unexpected event to insure against (unless the contraception doesn’t work — but that’s a different medical event). There is no reason to insure against the possibility that you will have sex.




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Risky Business

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There I was, minding my own business and rereading Emerson’s Nature (with the intent of writing something about how the Transcendentalists would reject out of hand today’s “green” cult) when I was interrupted by rhetoric so strikingly stupid I was compelled to put down the old book.

The president was on the television, babbling:

And when you look at what independent economists are saying about the American Jobs Act, my jobs plan, uniformly what they are saying is, this buys us insurance against a double-dip recession, and it almost certainly helps the economy grow and will put more people back to work, and that's what the American people want . . .

It’s excruciating to me how this affirmative action-borne halfwit misuses the word “insurance.” And this is more than just a semantic objection — the stupidity that statists show about matters of risk and insurance are a major reason America is stumbling toward bankruptcy.

I make my living writing about risk and insurance for professionals and interested laymen. It’s important stuff, a nexus of philosophy and finance. So it galls me particularly when some hack yammers about “insurance against . . . recession.” That’s like insurance against bad luck or unhappiness. There’s no such thing.

Insurance entails many elements but two are most important: risk identification and risk transfer. The first involves understanding and organizing the specific causes of loss that a person or entity faces in given circumstances. The second involves finding a counterparty willing — for a fee — to indemnify the person or entity against the losses that occur from those specific causes.

The point here is that no one, and no form of insurance, can eliminate risk. All that insurance does is move the risk around. Done well, it moves the risk in a way that makes economic sense to all parties involved.

The president believes that his latest spending spree is insurance. If so, who’s the person or entity identifying the risk? He? We? And who’s the counterparty agreeing to indemnify against the specific losses? They? A bunch of rich guys who aren’t Jeffrey Immelt?

The answer, of course, is nihil and null set. The American Jobs Act transfers nothing and insures against nothing. And I hazard the prediction that will accomplish nothing.

Hacks like Obama confuse the concepts “insurance” and “subsidy.” And this isn’t a new mistake for the president. Four years ago, when I reviewed his meager campaign document The Audacity of Hope for this magazine, I wrote:

Obama’s most tortured pages are the ones that deal with issues of risk and security in public policy. Like most statists, he has a weak understanding of risk theory.

“The bigger the pool of insured, the more risk is spread, the more coverage provided, and the lower the cost. Sometimes, though, we can’t buy insurance for certain risks on the marketplace — usually because companies find it unprofitable. Sometimes the insurance we get through our job isn’t enough, and we can’t afford to buy more on our own. Sometimes an unexpected tragedy strikes and it turns out we didn’t have enough insurance. For all these reasons, we ask the government to step in and create an insurance pool for us — a pool that includes all of the American people.” (177–78)

This passage makes Obama seem either ignorant or willfully misleading about risk allocation and insurance. . . . no [counterparty] — including the state — can “step in” and create a risk pool after a loss (in his words, a “tragedy”) has occurred. The purpose of risk pools is to gather resources before a loss occurs, so that they can be allocated when one does.

That part about stepping in and setting up risk pools after a loss is important. It’s essentially what Obama is doing now — arguing for more borrowed money to be spent “creating jobs” after high unemployment numbers have been reported.

This willful stupidity about risk and insurance explains much about Obama’s ineffectiveness as an executive. And I still wonder today what I did four years ago: do statist hacks believe in collectivism because they don’t understand risk and rewards? Or do they believe in collectivism first and then ignore risk because its rules contradict their halfwit pieties?




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The Audacity of a 1% Hope

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Federal Judge Roger Vinson of the Northern District of Florida has declared Obamacare unconstitutional in a lawsuit joined by numerous states seeking to escape from the onerous burdens that the law places upon them. But when I read that his rationale is that the mandate requiring people to buy health insurance exceeds the power of Congress under the commerce clause, I became a little bit sad — sad not because Judge Vinson is just dangling the dream of a new attempt to use commerce clause jurisprudence to limit the government’s meddling in the economy, but because there is only about a one in 100 chance that the United States Supreme Court will agree with his reasoning.

There was a time when Congress could only pass laws authorized by the specific enumerated powers of the Constitution. (This is ostensibly still true, but most congressmen don’t take it seriously.) One of those powers, indicated by the commerce clause, is the major one that Congress uses to destroy — I mean, to regulate — the economy. The commerce clause states: “Congress shall have power… to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.” In my constitutional law class final exam two years ago, I argued that the commerce clause clearly gives Congress precisely the same power to regulate economic activity within a state that it has to regulate economic activity within foreign nations, and since we obviously cannot march into France and order them to have a minimum wage or a health insurance mandate, and we can really only regulate goods from France that come across the Atlantic Ocean, the commerce clause means that Congress can only regulate goods that physically cross state lines. I got an A in the class.

However, most lawyers don’t think that way. Even back in the 1800s the commerce clause case law said that Congress could regulate anything that did not take place entirely within one state. There was a time before the New Deal when the Supreme Court still took the commerce clause seriously and tried its hardest to allow Congress only to regulate interstate commerce. But this interfered with the New Deal. So, after FDR threatened the court with his infamous court-packing scheme, the Court made a “switch in time that saved nine,” in the landmark case of NLRB v. Jones & Laughlin Steel Corp. (1937); it began to undermine the commerce clause by permitting the commerce power to extend wherever commerce within one state had effects across state lines.

Later, US v. Darby (1941) made it clear that the commerce clause was now a joke and Congress could do anything it wanted. To throw a little paint on the feces, the Court decided Wickard v. Filburn (1942), which said that a private individual’s private behavior within one state could be “interstate commerce” under an aggregation theory that proposed the questions: “What if everybody did this? Would the aggregate cumulative effects have an impact on interstate commerce?” This meant that a person growing tomatoes in his own farm for his personal consumption could be engaged in interstate commerce, even though the tomatoes never left his farm, because he was somehow magically connected to all the other tomato farmers out there — a conclusion that is ridiculous only if one does not understand that it is a mere pretext for socialism. FDR’s supporters argued that economics had somehow fundamentally changed since America’s founding, and the law needed to change with it.

Commerce clause jurisprudence remained buried for decades, but in a shallow grave. In the 1990s, Chief Justice Rehnquist, with help from Justice Thomas and the Court’s other conservatives, tried to revive the distinction between economic and noneconomic, and national and local, in cases such as US v. Lopez (1995), which struck down a gun ban under the commerce power, and US v. Morrison (2000), which struck down an anti-gender violence law as having nothing to do with interstate commerce. Then Justice Scalia murdered Rehnquist’s commerce clause revival in Raich v. Gonzales (2005), saying that the commerce power authorized the criminalization of medical marijuana because of the necessary and proper clause: “Congress shall have power . . . to make all laws which shall be necessary and proper for carrying into execution the foregoing powers.” For some reason, Scalia failed to understand that the necessary and proper clause is irrelevant if Congress cannot pass a law under the commerce clause in the first place.

The fate of America’s healthcare system now turns on how the Supreme Court will interpret the commerce clause, whether the justices will hold that the aggregate effects of choosing not to buy health insurance constitute interstate commerce. I predict that the vote will go along political ideological lines, as the choice of whether to take the commerce clause seriously as a limit on Congress’s power is as much a political as a legal decision. But there is no way to tell how Justice Kennedy will vote, and it is still too early to tell how Obama’s appointees will vote. Still, I estimate that there is only a 1% chance that Obamacare will be struck down. It has been many decades since the commerce clause limitation had teeth; and the Court will be afraid of accusations that it is frustrating the will of the American voters if it strikes Obamacare down, even though it is the role of the judiciary to check the tyranny of the majority, and most Americans don’t like Obamacare, anyway.

Nonetheless, if libertarians are to make ourselves known in the legal world, then the commerce clause is one of the main weapons that will need to be in our arsenal. We can hope that one day our constitutional jurisprudence will return America to the Founding Fathers’ vision of a federal government that cannot do whatever it wants. As my constitutional law professor was fond of saying, constitutional doctrines fade away, but they can always come back, and there are libertarian legal doctrines from American history that we can revive if and when we develop the power to make our voices heard in within the legal system.




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