There has been a lot of talk, especially among certain prominent politicians, about the so-called "Healthcare Crisis" that is looming over so many uninsured and under-insured Americans. They tell us that something must be done to prevent this crisis from causing financial ruin for millions of Americans. They promise "failure" if we do not come together and agree to have the government fix the "crisis".
Our leadership believes that Americans should have access to affordable, quality health care and peace of mind about long-term financial security. We will ask our members and the public to demand solutions (dividedwefail.org).
Well, I feel it is the duty of freedom-loving Americans to certainly demand solutions...but not in the way they would have you believe is necessary. First, it begins with a need to understand the healthcare system and the economic principle of insurance.
Insurance groups people into pools based on risk so that it can estimate probability and costs. If insurance companies didn't group people according to risk, they would have to assume ultimate risk for all of their customers. Thus, customers who would rarely if ever use the insurance (the losers in this case) would end up paying the same premium as those who are more likely to use it (the "winners" as it were in this case). However, because of competition, insurance firms gather information about their customers in order to assess their risk. Customers at lower risk can be pooled into a lower-risk category and can pay lower premiums.
Now, there are certain things that are not insurable. Suicide, for instance. This is because suicide is wholly dependent on the actions of the insured. Suicide doesn't happen by accident. If insurance companies covered suicide, who would get coverage for it? I wouldn't. I wouldn't want to pay for it. This would not be a viable venture for an insurance company anyhow. This would be equivalent to insuring my house against arson, that is, burning down my own house myself. At any rate, actions or events that hold personal responsibility cannot be insured against because the firm cannot calculate that in their estimates of risk.
At least, that is what we would expect in a free-market. This is not the way things are today. For instance, there are many people who are put in the same risk pools who in fact belong in different pools. They have different risks, and yet they are grouped together and made to pay the same premiums. In addition, there are many people who are insured for things which are, by definition, uninsurable. Insurance has hereby become a system of income redistribution resulting from regulation.
There are several examples of these regulatory distortions imposed on the Federal and State levels upon insurance companies. In these cases, insurance companies must offer coverage for these things to their customers:
49 States mandate treatment for alcoholism by insurance companies
At least 27 States mandate treatment for drug addiction
Chiropractors in at least 45 States
Psychologists in at least 36 States
Social workers in at least 22 States
Hairpieces have to be included in Minnesota
Marriage counseling in California
In more than 12 States, companies cannot ask any AIDS-related questions
In D.C. HIV testing is prohibited for insurers
the list goes on....
The effect of these regulations is certainly not at all what was intended by legislators. The most important effect has been that insurance companies are forced to raise their premiums because they cannot assess the risks of certain individuals and cannot group others according to their risks. Therefore, customers who do not have these risks are forced to help pay for the risks of others in their artificially-high premiums.
What is the effect of this? Well, if I am being forced to pay for coverage that I do not need, I may choose to not be insured at all (after all, I haven't gone to the doctor in years). Those who remain insured are then charged higher premiums, and the problem compounds. And yet, as an uninsured person, I am then somehow part of this "Healthcare Crisis" which many propose to fix by imposing more regulation...the precise thing that caused me to be uninsured in the first place.
How do you solve the problem of people dropping their insurance? Well, a certain politician proposed a solution: mandate health insurance! Others say "single-payer" government insurance would solve the crisis. But what would be the economic effect(s) of these policies? Can we foresee them? How can we possibly solve this problem with the proposed solutions? What other solutions are there?