Wednesday, October 12, 2011

Confusion at the Ventura County Star: Private Sector Socialism?

There's lazy writing, and then there's lazy writing. The first sort happens to everyone to writes regularly, and hopefully is something you try not to repeat but otherwise shrug off. But the second kind of piece stands a chance of haunting you, of becoming the example people choose when they argue that you don't know what you're talking about. For a great illustration of what deeply lazy writing looks like, we need look no further than Timm Herdt's latest offering in the Ventura County Star.

If there's any rule that's almost universally true in policy analysis, it's that everyone's IQ drops 50 points the moment they begin discussing health care. And most bad health policy writing follows the same basic plan: start with a completely unwarranted and misleading assumption, then follow it through to its logical conclusion. In Herdt's case, the basic assumption is that insurance is a socialist concept, and private insurance constitutes "private-sector socialism." He writes: "The concept is elegantly socialistic: Individuals make regular payments into a collective pool of money, and when any among them suffer a loss they can tap into that collective pool for assistance in their time of need." As such, he's ecstatic that Jerry Brown signed SB 946, which requires private insurers to cover behavioral treatments for autism. In his view, it's improper for insurers to refuse to cover a treatment someone thinks is necessary, even though health plans estimate the mandate will add $850 million to the cost of providing health insurance next year. "Whatever the cost, it will have to be borne because it is part of the collective contract upon which insurance is based. . . The model of private-sector socialism just doesn't work when one party regularly cashes the monthly checks from the other, then arbitrarily decides it doesn't have to uphold its part of the bargain."

There's so much muddled thinking here that we hardly know where to begin. Health insurers aren't in business to be Santa Claus; they're in business to profit by agreeing to pay part of the cost of your health care, in exchange for regular payments. The share they're willing to pay, as well as what treatments they're willing to cover, is part of the agreement they make with plan members. Yet Herdt, like the villian in an Ayn Rand novel, would have you believe that the agreement obligates the insurer to pay any claim a member makes, because, you know, to each according to their need. But no insurer in their right mind would enter into such a contract. Herdt also fails to grasp a very basic problem with health insurance that makes his vision of "private-sector socialism" impossible to achieve: moral hazard. The equivalence he attempts to draw between homeowners' and health insurance is laughable: no one buying homeowners' insurance becomes more likely to burn down their home, but almost everyone with health insurance is more likely to make claims on their benefits. When it comes to being able to pay for something you want using someone else's money, few people define their "needs" very strictly. Which is why private-sector socialism doesn't work much better than the traditional variety.


  1. RobOct 12, 2011 01:48 PM
    The real problem with the employer-paid health insurance system we have today is the same problem all third-party-pays systems have: an open loop on costs. The payer is not the same entity as the consumer, encouraging higher costs and greater utilization. Under a state system, it gets worse because there is even less motivation to cut costs -- or else, they start rationing. The economic calculation problem is key to these issues, much as the many liberals want to evade that point.
  2. GSLOct 12, 2011 02:04 PM
    Sort of. The point liberals (and conservatives) really want to avoid is that insurance only functions effectively for particular types of risks. If being insured against a particular cost makes you more likely to incur that cost, the insurer has a problem. For things like car accidents or house fires, third-party payment works pretty well, because only a psychopath would try to use his/her coverage to get money out of the insuring party. The basic problem with health care is that it's a terrible risk to insure against, and the fact that no one can come up with a problem-free system for health insurance is an unavoidable consequence of that. Of course, no one wants to be the Grinch who says so.
  3. RobOct 12, 2011 04:17 PM
    It's that low-deductible insurance is a bad thing because it will get used. The Obamacare model is the Romneycare model is the Swiss model, more or less, and Switzerland has not been terribly successful at restraining cost growth (see exhibit 3).
  4. GSLOct 12, 2011 04:22 PM
    The Swiss, to their credit, are good about coverage mandates (i.e., if you're 25 and healthy you can buy a cheap policy with bare-bones coverage). Romneycare, not so much, but otherwise I agree with you. My guess is that Obamacare will bring considerable new interest in HSAs (as well as a lot more people paying cash).