A Gift to the Insurance Industry
22 March 2010
The Insurance Industry Attains to a State of Grace
If grace is an unmerited gift, then certainly today the insurance industry must have attained to a state of grace, for it has received an unmerited gift of truly stupendous proportions. Health care legislation has been passed that will require individuals to purchase health insurance and will require businesses to offer health insurance to employees. In other words, an enormous amount of money is about to flood into the medical-industrial complex, to which the insurance industry is central, and which will be the primary recipient of this government-mandated largess.
What must the insurance industry do in order to earn this gift? Nothing. Nothing whatsoever. That is what makes this government directive the purest form of grace. An industry that has been profiteering off the misery of mass man is now, by legislative fiat, to be enriched beyond anything that the market free of coercion would provide.
The Loyalties of the Democrats
Shrill and unthoughtful commentators sometimes say that Democrats tend to side against the business community in their political dealings, but more thoughtful commentators have observed that the Democrats’ primarily loyalty is to big business while Republican loyalties tend to go with small business and entrepreneurs. Thus in the past Democratic policies have favored enormous big businesses of the sort that appear in the Dow Jones index, companies like 3M and GM. The UAW has always been a stalwart supporter of Democratic candidates. But the big businesses of the past are no longer the big businesses of the present. GM, once a force to reckon with in the economy, is bankrupt.
Not only has industry changed, but workers have changed too. The constituency of the Democratic party tends to be better educated and better paid, and that means that they tend to have pencil-pushing desk jobs, the sort of jobs one might find, for example, in the insurance industry. Thus a gift of magnanimous proportions to the insurance industry from a Democratically controlled federal government ought not to be a surprise.
The only way to truly provide improved health care in the US at a lower cost would be to create a universal single payer system that would put the health insurance companies out of business. I would have no problem with this, but the Democrats are not going to take on the insurance industry because that is their constituency.
A single payer system could be made to work. But the American people, like peoples in democratic societies, are about to get exactly what they deserve. As they say, be careful what you wish for because you just might get it. And one ought also to be careful what one wishes not to have, because one may well not get it. Because of the hysterical antipathy to a universal single payer health care system that would be relatively simple and straight-forward, we will instead get a Rube Goldberg health care system that will cost a lot of money and not make people any healthier than they are now.
The Moral Hazards of Health Care Legislation
When an economic policy encourages irresponsible behavior, such as insulating people from the consequences of risk-taking, economists call this moral hazard, and we find that there is substantial moral hazard in the newly passed health care legislation. The provisions of the legislation, while well-intended, like all good intentions will have unintended consequences.
Individuals will be forced, under penalty of law, to purchase health insurance, and businesses will be forced, under penalty of law, to offer health insurance to their employees. What this means in actual fact is that young people and healthy people who have, to date, opted out of the medical-industrial complex, will be forced to put themselves at the mercy of that system. And what this means is that they will have to pay for a service that they neither want nor need.
A Tax upon the Healthy
Everything that your mother told you is true: you should eat well, exercise, and get plenty of rest. Simple as it sounds, that is the foundation of a healthy life. Forcing individuals to buy health care, however, will mean that the healthy will subsidize the unhealthy. Those who eat small portions of healthy food, exercise regularly, and get enough sleep will subsidize those who eat large portions of unhealthy food, live sedentary lives, and fail to get the rest that they need.
In other economic calculations we could say that this creates an incentive to eat unhealthy foods, to overeat, to become a couch potato, and to deprive oneself of sleep. However, when it comes to how individuals live their lives, this calculation no longer applies. People who live active and healthy lives enjoy the intrinsic benefits of their health and are not likely to begin neglecting themselves and their health because they have an economic incentive to do so. So the healthy will continue to live healthy lives, the unhealthy will continue to live unhealthy lives, and the the former will be forced, under penalty of law, to subsidize the unhealthy lives of the latter.
Since the healthy will not be able to opt out, and since they won’t take advantage of the medical-industrial complex in order to enjoy the dubious benefits of an unhealthy life, the new health care legislation constitutes a de facto tax upon the healthy. In other words, the incomes of the healthy will be redistributed to the unhealthy. It is difficult to imagine a worse social policy than this.
The Apotheosis of the Medical-Industrial Complex
The medical-industrial complex in the United States, which to date had been something that a law-abiding citizen could avoid, is now set to become an-embracing, all-pervasive reality in the lives of all US citizens. If you fail to make your contribution to the enrichment of the insurance industry, you will be fined according to the level of your income. Such a penalty will require an enforcement regime that has access to both the medical records and the financial records of every US citizen. Perhaps one will have to present one’s papers to the authorities to prove that one has paid one’s premiums. A whole new class of insurance industry commissars, apparatchiks, and nomenklatura will be created.
In his classic Principles of Political Economy (Volume 2, Book V, Chapter II, section 5), John Stuart Mill wrote these words in criticism of landlords:
The ordinary progress of a society which increases in wealth is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were, in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches?
Landlords, while still powerful, are no longer the bête noire of the economy, but I would suggest that the insurance industry neatly fills their ample shoes. What Mill wrote of landlords can now be reformulated, mutatis mutandis, for the insurance industry:
The ordinary progress of a society which increases in wealth is at all times tending to augment the incomes of insurance companies; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were, in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches?
John Stuart Mill could not have imagined, in the very different climate of nineteenth century England, how timely his appeal to “social justice” would sound today, but I find that the advocates to today’s conception of social justice seem to have little say in the matter of enriching the insurance industry. It seems now that the insurance executives, aided and abetted by professed supporters of social justice, can now gently recline for a nap and can expect to grow fat while they sleep.
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