A Few Thoughts on the Health Care Bill

I wanted to say a few things about health care reform. I am not in favor of the legislation signed into law today. I think it was as partisan an outcome as possible, and will create significant problems with regard to the cost and availability of quality health care.

I do not think it is the end of the world, or the end of our country's remarkable ability to prosper. I do think those who created it have been at best naive and at worst sinister in their motivations.

The main issues are unintended consequences and unforeseen outcomes.

In my work I often remind people that governmental involvement, from either party, has never been able to "wreck" our still-unique economic system. We have a special combination of institutional protections and culturally-based inventiveness that gives us an advantage over other nations. Still, I worry about those unintended consequences and unforeseen outcomes. Regarding the first:

1. Unintended consequences

It is incorrect to assume that governmental initiatives have no effect on supply and demand. EVERYTHING that changes incentives shifts either demand or supply, or both of those things.

Living in Florida, we have seen the impact of hurricanes on property insurance. This has made it difficult for some people to get insurance. Who are these people? Generally those near the coast, where there is greater likelihood that storms will affect them. These are people with pre-exisiting conditions. As a result the government has established a company that is meant to be an insurer of last resort, with manageable premiums. The kicker is that ALL Floridians subsidize this insurance company AND this insurance company will be instantly bankrupt if Florida experiences a bad storm season.

Insurance is only as good as the company that issues it. Because Citizen's (the government option) is a government-sponsored entity it can avoid the rules that a State Farm or Nationwide have to operate under. As a result, the best-run, most financially-sound companies, have left the State of Florida as a market. This has made coverage even harder to acquire, as the government has limited what companies can charge for coverage.

Health insurance uses different data and actuarial assumptions than property insurance, but the idea of unintended consequences works with the health care legislation. Government mandates on PRICING will force companies out of the business, as it has done in Florida's property insurance industry, or it will affect how they offer insurance.

It is naive to think that new laws will only have beneficial outcomes. Think of the 1990's relaxation of home-buying requirements or the deregulation of the airlines. We have ALL experienced the unintended consequences of those laws..

Furthermore the law has created an incentive for people to keep their incomes below a certain threshold in order to keep their government health care subsidy. This will not promote a system which pays for itself.

2. Unforeseen Outcomes

This means things that were not caused by a law or program or projection, but which have affected it's outcome. One example are the projected surpluses at the end of the Clinton administration. Bush is often accused of driving us into high deficits and squandering the surpluses of the Clinton years, but some of those surpluses, being projected, NEVER WOULD HAVE OCCURRED. They were based on projections of tax revenues that evaporated when the dot.coms crashed, we entered recession, and 9/11 occurred, in that order.

We have a 1 trillion dollar health care law that has been evaluated using assumptions of future earnings, tax revenues, and utilization that were out-of-date the minute they were created. Assumptions can be massaged to create exactly the outcome you were hoping to find.

I don't think Obama deliberately tried to use faulty assumptions, but I think his acceptance of these assumptions was politically expedient and intellectually naive. My point is that we cannot know what the next ten years holds for us as an economy or a country. If he wanted to make the case that the program was fiscally responsible, and he did, than he opened himself up to this kind of criticism.

3. Alternatives

We certainly need health care reform. There are other things that Congress could have done that would have been more impactful to costs and been fiscally neutral.

Obviously there is a huge political incentive in the creation of the health care entitlement. When FDR created Social Security, he took a group of people that were not united under party lines and made them into a single, new voting bloc. That is what has occurred with the health care law. Future attempts to change or modify the program will be met with similar reactions to efforts to reform Social Security (They're trying to take away your benefits!).

Health insurance is my single largest expense. It is more costly than rent for our offices or even my mortgage at home. I am fortunate to enjoy very good coverage, but it carries a high cost.

I believe that we need reform, but it could have been tackled differently, in a bipartisan manner, and it wasn't. Very simple solutions, such as those discussed in this post, might have been an excellent place to start. Their implementation would provide time for a more thorough and careful examination of the health-care system.

That didn't happen, Obama ignored key campaign pledges, and we will have to see how everything unfolds.