Health Insurance Scam
It is fitting, on several levels, that the debate over de facto nationalization of “health care” may hinge on abortion. To get her bill through the House, Speaker Nancy Pelosi had to accept an amendment that would forbid the use of taxpayer money to buy insurance policies that pay for abortions (except for rape, incest, and danger to the mother). The prolife and prochoice sides are wrangling over whether people who get government insurance subsidies should nevertheless be allowed to spend their own money for abortion coverage.
For me that’s not the interesting issue. My first reaction was: How can you get insurance for a volitional act? Regardless of one’s position on abortion, there is no denying that it is something a woman chooses. It doesn’t happen without her initiative and consent. My objective here is not moral judgment but precision. For all kinds of reasons a pregnant woman might feel she needs an abortion, but that does not change the fact that it is an action not a happening (as Thomas Szasz would put it).
So how can it be insured against? Insurance emerged long ago to protect one’s assets against the risk of rare but catastrophic events that one cannot prevent, such as a house fire or a serious automobile accident. You’re not likely to find an insurance policy that covers arson by the homeowner, an intentional crash, or elective cosmetic surgery. And for good reason. What would be in it for the insurer? He’s in business to make a profit. He doesn’t exist to pay other people’s bills. (That will be a surprise to some folks.) Traditional insurance is viable when the pool of policyholders is sufficiently large and so constituted that the expected payoff for the covered rare event is a small enough percentage of the premiums collected to make the profit greater than the opportunity cost. If the covered event were a volitional act, the business plan would be fatally flawed.
But “health insurance” isn’t traditional insurance. As Szasz puts it, “[W]hat we call ‘health insurance’ has little to do with health and nothing to do with insurance.” (By the way, when did medical care/insurance become health care/insurance? They aren’t the same thing. Health care is whatever you do care for your health: dieting, exercising, meditating, and so on. Medical care is what you buy from a doctor or a hospital to recover from or manage a disease or injury, or to ascertain if you have one of those. Conflating those terms has had huge adverse public-policy ramifications.)
The historical explanation for the corruption of insurance in the case of medical care has been rehearsed many times. When 1940s wartime economic controls prohibited pay increases for factory workers, the government allowed employers to provide medical coverage instead. Unlike wages, noncash benefits were not taxed and soon became part of labor negotiations. The tax advantage given to insurance versus cash wages brought forth ever more elaborate packages, which included coverage for uninsurable events, such as routine physical and dental exams. Employers had no problem with this because their employees actually paid the price in forgone cash wages. (Bosses might have liked that their workers were dependent on them this way; it was one more reason not to leave a job.) Employees were satisfied because they were fooled into thinking their bosses were paying for the benefits. But even if they had realized who was really paying, the tax advantage would have proved irresistible. The employer-based policy was paid for with pretax dollars; not so an individual policy.
Why were the insurance companies willing to cover noninsurable events? Because they were compensated through the oblique payment system. But the fact that an insurance company covers something doesn’t make it real insurance. Getting a physical exam each year is completely discretionary no matter how beneficial it may be. For an insurer to cover that predictable service he would have to be paid, for each covered person, the price of the exam plus administrative overhead. Why would the company do it for less? It’s not a charity. Many years ago an insurance CEO told me it costs $35 to $50 to process a $25 claim. No one paying for insurance out of pocket would think that’s a good deal. But if you hide the costs and throw in some tax benefits, such coverage will be bought and sold.
Nevertheless, it is not insurance but rather prepayment for future services, with administrative costs added to the tab.
Encouraging Waste
Much of what we call health insurance is of that nature. In a textbook example of rent-seeking, state governments aggravate the situation by mandating coverage for a variety of elective services — coverage that most people would not choose to buy. What we call health insurance is a lie perpetrated and sustained by the political system. But it’s not only dishonest; it’s also wasteful, because it perversely encourages people to buy medical and other services without regard for cost. As the economists say, demand curves slope downward: The lower the (visible) price the larger the quantity purchased.
If you want to know the fundamental reason for medical price inflation in the United States, there it is. Consumers are untethered from cost constraints. This is true for most people because most people get their coverage through their employers, Medicare, and Medicaid. It may seem humane to free consumers from cost constraints, but it is unsustainable as long as scarcity is a feature of our world. Costs can be hidden and shifted, but they cannot be eliminated. That is why rationing lies at the end of what is misleadingly called “health care reform.” Anyone who says otherwise is wrong. (For a response to the false claim that the market rations too, see my article “The Market Doesn’t Ration Health Care.”)
Thus the system that earlier generations of planners constructed creates artificially high prices for services and “insurance,” pricing younger and lower-income people out of that market. A new group of planners now comes along claiming to want to help those harmed by the previous groups. New burdens will be piled atop old. None of the offending interventions will be repealed. That’s how government works. (There is no time to describe how government also constrains supply through occupational licensing, the FDA, and other ways, increasing prices further.)
We need not question anyone’s motives. It should be enough to point out that the logic of government control of medical care and insurance must, sooner or later, entail interference in our most personal affairs. How can we be letting this happen?
Pingback by Health Insurance Scam | The Freeman | Ideas On Liberty | You Insurance on 13 November 2009:
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Comment by Bestmedicalcover on 13 November 2009:
Generally abortion is an act but sometimes it happens. It’s a debatable topic.
Comment by Theresa on 13 November 2009:
So, we need the transparency of the market. I wish Congress would bring in their silly flip-boards with charts that show insurance costs to individuals, insurance premiums for doctors, data on how often doctors are sued, data on how doctor’s insurance premiums have sky-rocketed.
Then, some basic definition of terms–insurance, volitional acts, (that was a great point made in by Richman!) price information, etc.
Abortion happens when you go and pay for one; otherwise we call it a natural miscarriage. It’s the difference between murdering someone or having them die in your arms.
Comment by Steve Hogan on 13 November 2009:
I suspect that Obama understands the difference between real insurance and the fraud he’s proposing, but he peddles it because it serves his interests. Namely, to increase his power over others. It’s cynical, yet true.
Pelosi, on the hand, is dumber than a lamp post. She wouldn’t get it even if you sat her down and had her read Mr. Richman’s simple yet elegant explanation. The fact that someone as dense as Nancy Pelosi could rise to become the bloody Speaker of the House tells you all you need to know as to why our country is beyond help.
Comment by Sovereign Soul on 13 November 2009:
WHY all the dickering over the details included in the bill — abortion, serving illegals, mandating fines for those who will not comply, etc.? WHERE IN OUR CONSTITUTION does the fovernment, Federal or State, gain ANY authorization to interfere with the choices RESERVED TO THE CITIZENS?
These discussions are about as illogical as would be arguments as to the methods of “acceptable” behaviour while engaging in rape. They assume that “rape” is OK IF it includes this or excludes that.
Comment by Dr. Steve on 13 November 2009:
Acceptable behavior while engaging in rape. What an analogy. I’ve got to remember that one.
Steve, what have you got against lamp posts?
Pingback by TGIF: Health Insurance Scam | Anything Peaceful on 14 November 2009:
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Comment by Larry Ruane on 14 November 2009:
Excellent article. Not just abortion, but what about having a baby? That is also a volitional act. Here is a great lecture by Hoppe on the topic of insurance: http://mises.org/media/1010
Comment by ep on 14 November 2009:
To Theresa above:
Some basic definition of terms–
That which you refer to as “natural miscarriage” is indeed termed “spontaneous abortion.” This may also be termed as “incomplete abortion” or “missed abortion” in which setting as
doctor may complete the abortion by surgically removing the remaining “products of conception.” Happens every day.
Comment by Brian on 14 November 2009:
If Congress does indeed pass a bill — and Obama signs it into law — compelling healthy young people to purchase so-called health insurance, what are the prospects of legal challenges on grounds of unconstitutionality? Given that such a law would amount to a tax on being alive, what are the chances it would be struck down by the Supreme Court ?
Comment by Alexius on 14 November 2009:
I agree that talking about the minutiae of the bill obscures the issue. What can we do to stop them from grabbing authority they don’t possess?
But, if we are going to talk about the “small” stuff, then I must completely disagree that abortion is for a voluntary act. No one decides to try to get pregnant and then seeks an abortion. Riding a bike is a voluntary act but if you get into an accident and get hurt you expect medical coverage, right? Eating bacon and eggs every morning is voluntary but you want coverage for the heart attack, don’t you? Take a walk, twist an ankle?
But why not discuss the underlying problem that when you force people into a system they may end up paying for stuff they didn’t want to. What next? No coverage for birth control pills? No coverage for the gyn exam to get the birth control pill prescription? What if you don’t believe in any kind of medical treatment? Can you force others not to seek attention? No coverage for meat eaters? The list is endless.
Once you have everyone paying for everyone’s choices, everyone seems to think they have a say. So how about no one paying for anyone else and everyone minding their own business?
Pingback by Health Insurance Scam « thak’s cool links on 14 November 2009:
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Comment by lukas on 16 November 2009:
Once again: An unwanted pregnancy is very much a happening. Insurance doesn’t cover happenings, it covers (volitional) actions the insuree might want to take in response to a happening. There are many instances that illustrate that what we call “health insurance” is, for the most part, prepayment of medical services. Abortion coverage is not one of them.
Comment by Sheldon Richman on 16 November 2009:
Lukas, “unwanted pregnancy,” as a matter for insurance, is so plagued by problems of asymmetrical information that an insurance company may not want to “insure” against it unless the premium amounted to prepayment for abortion services and overhead. To see the problem, one need only note that a pregnancy can be wanted at one moment and unwanted at the next moment. A woman might not want to become pregnant yet take no precautions against it. I have strong doubts that in a free market insurance companies would venture into this sort of coverage. It is too subjective an area. Self-insurance would be the common-sense way to finance abortion, especially since early-term abortion is not expensive, even today with all the medical protectionism that goes on.
Of course, I am willing to have the free market correct me. But none of this can justify government’s mandating insurance for abortion or anything else.
Pingback by Health Incentive Plans | The Incidental Economist on 23 November 2009:
[...] appears in “health insurance plans” misses a key point and leads to some confusion. Perhaps the most accurate name would be ”health insurance and incentive plans” but [...]
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Comment by Rolanda Delce on 6 September 2011:
Where do you get your ideas for the posts like “Health Insurance Scam | The Freeman | Ideas On Liberty”? I have a blog on similar subject but I’m running out of ideas for new posts
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Comment by Health Insurance Compare on 22 November 2011:
Great article, Certainly room for debate.
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