Healthcare: US on the brink of a systemic game-changer

US Congress will probably push for an outright vote on the US healthcare bill today just before the Christmas long weekend.  This Bloomberg piece sums up what’s going on on Capitol Hill. 

In the preliminary procedural stages the bill has passed comfortably to get to this stage with Democrats banding together and using their House and Senate majorities.  As Mark Steyn says, when it comes to something as large as state-controlled healthcare, the petty skirmishes among Democrats tend to whither away rather easily.  This is one of those political battles with long term systemic consequences. 

It doesn’t really matter what’s in the bill right now, its mere passage puts the US on the slippery slope toward NHS-style healthocracy, which is really a political game-changer.

One reader over at the Mises Blog rather astutely points out the similarities with that other major legislative game-changer 96 years ago – the signing into law on 23 Dec 1913 of the Federal Reserve Act.

“Notice that, like health care, they passed just before Christmas when most people are preoccupied with the holidays.”

Indeed, the healthcare bill has slid its way through with an Orwellian mercuriality given it has nearly 2,000 pages worth of stuff to say about profoundly altering the relationship between individual and state.  Part of this in fact, ironically, has to do with its very size – the bill is all but impossible to properly read, let alone appraise with any degree of insight, which we had more to say about here. 

But that’s the point:  Make the bill so cumbersome and broad initially that at first it seems like a nullity even if it passes.  But embedded within are the seeds for legislation creep, that insidious incrementalism that characterises too many of our worst government policies.

Peter Schiff does a great job of dissecting the issue:

Dropping the Bomb on Health Care

As business owners undergo the yearly ritual of passing through eye-popping health insurance premium increases to their employees, it’s easy to understand why any attempt at health insurance reform would be met with some degree of hope. Unfortunately, President Obama and his Democratic allies in Congress are about to take a very bad system and make it unimaginably worse.

While ramming their new legislation through Congress, the Democrats have taken great pains to point out that they do not intend to “socialize medicine.” But make no mistake, that’s where we’re headed. Even if some naïve centrists believe that their efforts have denied the Left a total victory, the practical implications of the current legislation sow the seeds for complete capitulation.

This first round of reform could be labeled as the ‘neutron bomb’ of the insurance industry: it leaves some of the private apparatus standing, but it irradiates whatever remains of the industry’s market viability.

The bill’s centerpiece is a clause prohibiting insurers from denying coverage based on a pre-existing medical condition. However noble and marketable an idea, this proscription removes the very basis upon which any insurance model operates profitably.

A system of insurance requires that premiums be collected from a pool of low-risk people so that funds are available in case a high-risk event befalls a particular person. In that way, premiums can be low and coverage can be widely available, even if the benefits offered are hypothetically unlimited.

For example, homeowners buy fire insurance even though their houses are very unlikely to burn down. Recognizing that a fire could wipe them out financially, most homeowners endure the cost of coverage even if they never expect to collect. The same model applies to health insurance in a free market.

However, the health care bill removes the need for healthy individuals to carry insurance. Knowing that they could always find coverage if it were eventually needed, people would simply forgo paying expensive premiums while they are healthy, and then sign on when they need it. But insurance companies cannot survive if all of their policyholders are filing claims!

Correctly anticipating this incentive, the Senate bill imposes an annual fine which gradually escalates to $750 for those who fail to buy coverage. So what? I would gladly pay $750 in order to avoid the $8,000 per year I pay now for personal health insurance. Currently, I’m relatively healthy for a 46 year old and I don’t anticipate making a big claim. But if I do, under the new rules I can always get ‘insurance’ after the fact. Heck, if I can stay healthy for the next couple of decades, I’ll save a fortune. Think about how much easier the decision would be if I were 20 years younger! Since most people are capable of figuring this out, the entire insurance industry would collapse under such a system.

There can be no question that $750 annual maximum penalty is a mere placeholder. It is the camel’s nose under the tent. When the non-discrimination provision kicks in, the only way these companies could remain solvent would be for Congress to raise the fine to the point where the penalty is greater than the gain of skipping coverage.

For me, that would have to be roughly $8,000 per year. Introducing such a fine right now would have surely killed the bill. So, the wily wonks in Washington have chosen to move slower, knowing that once the first step is taken, the second becomes inevitable.

However, there is another, more devious possibility. Perhaps our elected officials actually intend to bite the hands that feed them. They could double-cross insurance companies by not raising the fine in five years, thereby forcing the industry into bankruptcy as millions of healthy people opt-out. During the ensuing ‘insurance crisis,’ our courageous leaders could ride to the rescue with a nationalized, single-payer system.

The real tragedy is that the current bill does nothing to restrain the forces that are propelling healthcare costs into the stratosphere, namely: regulatory bans of insurance competition, the out-of-control medical malpractice industry, federal programs and subsidies, and a tax code that favors a third-party payment system – which alienates the patient from the cost of his care.

To consider that many in Washington have the nerve to market this multi-trillion dollar monstrosity as a “deficit reduction bill” is to realize that our representatives have lost all touch with reality. For those keeping score, the government made similarly rosy projections in the mid-1960’s when Medicare was first introduced. The inflation-adjusted cost of that program already exceeds the original estimate by a factor of ten. That’s probably where we are headed this time around.

We’re standing on the brink of massive systemic game-changer in US healthcare that will profoundly alter the relationship between citizen and state and will be another wound to economic liberty.  Unfortunately, South Africa has an uncanny habit of following American trends with not too much of a lag.  Does this set the stage for an inevitable health game-changer on these shores?  Let’s hope not.