Health Care Debate

At the time I'm writing this the nation is hotly debating President Obama's health care reform ideas. One of the most contentious ideas is whether or not we should have a public option (government-provided health care).

I think we should give serious consideration to this idea--but not yet. Yes, the need is absolutely dire, but we'd be getting the cart before the horse in a dangerous way.

If we started providing complete or partial health coverage under the current U.S. health system the government would quickly bankrupt itself. Before we discuss a public option we need to completely address the cost structure of health care, which means driving costs out of care at all levels and capping the profit motive of private insurers (similar to utility company regulations). If ever all of these costs are brought under some sense of rational control, then let's discuss forms of government-provided coverage.

I'm not advocating socialism. Health (especially health insurance) is not a free-market business. The laws of supply and demand are very skewed here. How much will you pay to save your life? All you have, of course. So the built-in incentive to insurance companies is to charge as much as they can and provide as little as they can. Good business if we're talking about radios, cars, or cups of coffee because the market will counter the raw profit motive and create a price point. As prices rise, at some price a normal person will decide not to buy the fancy coffee. When enough people agree at that price, a price point is created and the seller will not be able to charge more without losing business. Not so in medicine. I propose that what appears to be a market price point in health insurance is in fact a wealth indication of people who can afford the insurance directly or happen to work at a decent-sized company that offers benefits. In that equation people will pay all they can until they can pay no more--there is no elastic point where an average person opts not to pay more for insurance. As prices rise they will pay more until they simply can't, then fall out of the system. The large insurance companies are playing a very twisted games of macro economics with no balancing power resting on the consumer side of the table to make a true market price. To put it more crisply, they are setting a wealth-indexed price point, not a market driven price point.

Where do these wealth-indexed profits go today? To the shareholders and executives of the insurance companies. More specifically they leave the health care system and provide no benefit to the insured or the medical community.

I believe there is some analogy to the electricity industry, e.g. how much would you pay for power? Maybe not everything you have, but certainly as much as you could. So to keep electricity from becoming a wealth-indexed commodity and see entire poorer regions of cities go dark governments set the price point (or they used to prior to deregulation). Why can't we do this for health insurance? It should be regulated to be a barely-profitable venture--just enough so some will want to be in the business. As a nice side effect this should also create a very stable investment vehicle for the risk-adverse.

Get all that put together--then let's talk about the government's involvement in health provisioning.