Wednesday, October 24, 2007

Armstrong Responds to Beauprez

Ari Armstrong has written a detailed response to Bob Beauprez's recent advocacy of insurance mandates. Here is an extended excerpt:
Beauprez's many confusions and distortions call for a more detailed reply.

Beauprez's comparisons to auto insurance and homeowners insurance do not hold. The reason that "motorists are required to have auto insurance" if they wish to use government-run roads (even though many do not obey that law) is that the roads are socialized. It is telling that Beauprez holds up a socialized industry as the standard for medicine. Yet people are not forced to buy auto insurance if they do not use government-run roads. Beauprez wants to force everyone to buy health insurance.

If a lender requires the borrower to purchase homeowners insurance as a condition of the loan, that is properly a matter of voluntary contract, not political controls. But Beauprez is not talking about any sort of voluntary agreement with respect to health insurance: he is talking about legislating new political controls that force everyone to buy health insurance.

Beauprez continues:
Of the 15-17% of the population that is uninsured, the U.S. Census Bureau reports that 56% are 18-34 year old young adults. It is impossible to know for certain, but many of these are no doubt uninsured by choice. Believing they are either permanently healthy, bullet proof, or both, they choose to spend their money on other things than health insurance. If they do get really sick or injured they know that they can go to any emergency room and get treatment whether they can pay or not because of federal law known as Emergency Medical Treatment and Active Labor Act (EMTALA). Some are certainly uninsured because they cannot afford the cost of insurance, but most could afford at least a portion of a monthly premium.

The reality is that when someone doesn't have insurance the cost of their health care is shifted to those that do in higher premiums, and to taxpayers who fund government programs. Cost shifting from the growing number of uninsured to the insured is a huge reality. The biggest challenge hospitals face is to adjust prices to insurance companies for paying customers to cover losses for services to non-paying uninsured patients they are required by law to treat. That invariably is reflected in higher insurance premiums.
It is simply not true that "when someone doesn't have insurance the cost of their health care is shifted to those that do in higher premiums, and to taxpayers who fund government programs."

Beauprez insults my wife and me, who were uninsured for several years. During that time, we paid for routine medical care out of pocket. Not once did we ask any other party to pay for our medical care. Yet Beauprez unjustly insinuates that we were freeloaders.

Why were we uninsured? Was it because, as Beauprez claims, we thought we "are either permanently healthy, bullet proof, or both?" No, Bob, it was not because we were stupid or deluded. I don't need some failed politician to inform me of my motives, thank you very much.

The reason that we chose not to purchase health insurance at that time was that employer-paid insurance was a horrible deal for us. Because of government controls, such insurance acts to transfer wealth away from healthier workers to those with higher costs. We were having a hard enough time paying bills without financing other people's health care to boot.

We made a calculated decision not to purchase health insurance. We looked at our realistic health risks given our age and state of health, took steps to independently maintain our health, planned to buy health care out of pocket, and considered how to handle possible (but unlikely) high-cost treatments.

In other words, our motive was the exact opposite of what Beauprez alleges. We were not trying to push our health-care costs onto others. Instead, we were paying our own way while refusing to finance the health care of others.

Here's how politicians have turned employer-paid insurance into a wealth-transfer scheme. Politicians have entrenched high-cost, non-portable, employer-paid health insurance through federal tax distortions. Because of the tax distortion, such insurance serves as pre-paid medical care, not actual insurance to cover unexpected, high-cost treatment. Our hope with term life insurance, auto insurance, and home insurance is to never need to make a claim. We happily pay our routine auto and home expenses out of pocket. Why, then, do most people expect health insurance to cover all or nearly all of their health costs? It is because of the tax distortion. That's fundamentally why health insurance is so bloody expensive.

And, of course, when practically every purchase of medical care goes through insurance, that adds a lot of processing costs.

When insurance acts as pre-paid medicine, it transfers wealth to insurance companies and to those who often visit the doctor (whether the visits are needed or not). It costs everyone who visits the doctor only occasionally.

Politicians have also required that employer-paid insurance accept all comers, regardless of health, within tightly controlled rates. That's the equivalent of forcing a life-insurance company to charge the same rate for the same policy for a healthy 25 year old and an 80 year old with cancer. What happens is that some people put off buying insurance until they get sick. This increases the rates for everyone (as Beauprez suggests).

In addition, politicians have added all sorts of additional controls that act to transfer health-insurance dollars to members of special interests. In a comment beneath Beauprez's article, Brian T. Schwartz writes:
The rationale for compulsory insurance is the "cost shift from uncompensated care" provided to the under- and uninsured, "which makes private insurance more expensive."

Yet, Health Affairs reports that such uncompensated care is "only 2.8 percent of total personal health care spending." ...

Indeed, politicians have already succumbed to special interests by forcing insurance plans to cover many benefits that you may not need. These mandated benefits laws increase your premiums by 21 to 54 percent. (Council for Affordable Health Insurance,
So is the result of mandated health insurance to reduce "cost shifting?" On one hand, some people who would otherwise shift their costs onto others would be forced to instead purchase insurance. (However, those most likely to shift their costs onto others are also the ones most likely to avoid the mandate.) But on the other hand, insurance mandates increase "cost shifting" by forcing those with low medical costs to subsidize those with high medical costs. Notably, if some people pay only "a portion of a monthly premium," as Beauprez suggests, then that means somebody else must pick up the rest of the tab.

One result it to screw young, working families, at the very point in their lives when they're trying to pay off debts, keep up on bills, start families, and buy homes.

The only just way to reduce "cost shifting" is to remove the political controls that cause it. Beauprez's plan is to "solve" the cost-shifting caused by political controls by adding new political controls that will expand cost-shifting.

Beauprez also claims, "Insured are far more likely to avail themselves of preventative care, get treatment earlier, and avoid serious acuity and expense."

Beauprez's claim is false. When my wife and I were uninsured, we knew that if we didn't take care of ourselves, we'd face higher expenses down the road. We made sure that we ate healthy foods, exercised, avoided unnecessary risks, and checked up on our health. Now that we have high-deductible insurance that we hope never to need, our incentives are basically the same. On the other hand, when people are "insured" for everything, they have less incentive to minimize their long-term health costs.

Again, the problem is political force that allows the uninsured to demand medical care at the expense of others. The proper solution is to repeal those controls, not impose new controls that force people to buy insurance.

Some of Beauprez's proposals (none of which are original to him) are fine, such as reducing the tax distortion that has entrenched employer-paid insurance. But his call for mandatory health insurance overwhelms anything positive he might have to say. "Both Ways Bob" simply does not understand the nature of individual rights, the meaning of free markets, or the proper purpose of government.

It is typical for such conservatives as Beauprez to follow a call for more political force, more state interference in the market, with a sentence like this:

"Any objective observer with even minimal experience with our free market system understands that private competition with limited government interference works."