Free-Market Health Insurance Is Not the Enemy

Richard Ralston, executive director of Americans for Free Choice in Medicine, has written the following OpEd on free market health insurance:

Free-Market Health Insurance Is Not the Enemy
By Richard E. Ralston
February 4, 2008

Much of the current debate about health care is between those who want the government to wipe all insurance companies out of existence and those who instead want the government to force everyone to buy regulated private insurance. Both sides ignore the fundamental context for any discussion of health care in America: individual rights and personal choice.

Individuals have the right to incorporate and invest in businesses that provide an important service, like health insurance. Individuals and businesses have the right to make provisions for their medical expenses by seeking the insurance firms that best meet their needs—or not. That is the essential point to remember: governments should never be allowed to destroy such rights—as irrelevant details in the face of the application of naked government power.

Insurance companies do not pay all of every claim, but neither does Medicare. Yet History indicates that Medicare and Medicaid spending is out of control. The administrative costs (that those programs actually count) are a lower percentage of payout because that payout is rising rapidly. When the government is unconcerned with fraud and the rise in total spending, the administrative cost of burning money can be quite low.

Private health insurance is an expensive mess at the moment because we do not have anything approaching a free market in insurance. In that context, contending over claims with an insurance company can be painful. That situation will not be improved if everyone is required to buy private insurance from firms that know that they have to do so.

You cannot buy fire insurance for your home after it catches fire. You cannot buy automobile insurance to pay for your car repairs after the accident occurs. That is not due to greed and the profit motive, but to reality and common sense, and it is not a reason to abolish fire and auto insurance companies. Health insurance coverage for major illness or injuries is seldom available after they have occurred and are being treated. That is a serious problem for many people without insurance, but not a reason to outlaw private insurance.

Inexpensive insurance is impossible for individuals to find in most states—because it is forbidden by law. State regulators do not allow for basic or catastrophic insurance but pile on coverage requirements, which drives up the cost of premiums. State regulators do not allow competition from insurance companies in other states, which drives up the cost of insurance. States and the U.S. government require individuals who struggle to buy their own insurance to pay income and payroll taxes on the funds they use to buy insurance, which further drives up the cost of insurance.

Those who admire the supposed efficiency of government insurance do not count the administrative costs of paying taxes for individuals and businesses, the administrative cost of the IRS and its 100,000+ employees to collect those taxes, the cost on providers of contending with 130,000 pages of Medicare regulations, or the cost of fraud and the lack of cost control. The need to make a profit to stay in business requires insurance companies to restrain costs and weed out fraud.

It is not true, though it is often said, that most industrialized countries have eliminated private insurance. Some have, like Canada, although even there laws prohibiting private insurance have been declared unconstitutional by the Canadian Supreme Court. But most countries with a large government role in medical care have still found it necessary to use private insurance companies to administer care. Examples include Germany, the Netherlands, and Switzerland. Private insurance is still permitted in the United Kingdom, and more than 6,000,000 people there (including more than one-third of the physicians) choose to buy insurance rather than rely exclusively on the National Health Service.

Even though we are contending with the limitations of highly regulated and limited insurance, the last thing we need is to mandate that everyone buy private insurance or eliminate all choices in a single government system. What we need is a free market in private insurance.

Richard E. Ralston is Executive Director of Americans for Free Choice in Medicine.