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No magic here

President Obama came to town today to stump for his new health care package in a “town hall meeting” of the type that are quite de rigueur these days. WRAL has the story.

And what appalls me is that this entire health care move seems to be ignoring one simple fact: economics is a zero-sum game.

Example, from the article: “Obama pledged that the health care legislation he is seeking will bar insurance companies from denying coverage because of pre-existing medical conditions.” Why do the insurance companies deny these people coverage? Is it because they’re horrible misers who enjoy seeing people in pain? Of course not.

Covering people with pre-existing conditions is more expensive than a healthy person. Since the insurance company has to take in more money than they give out to stay in business, they have to set a premium that will ensure they don’t lose money on this person. So if they have to take this person with a pre-existing condition, they also take the risk that they’ll have to pay a lot to cover their bills. Currently, they just won’t take the risk and just won’t cover you. If they lose that option, the options become to charge you a very high premium to offset the probable high costs of insuring you, or raise rates for everyone else to cover you.

Politicians probably want the latter option, so they can say that they got you insurance, and blame the rate hikes to everyone else on “those greedy CEOs!”

The money has to come from somewhere. Economics is a zero-sum game.

Another example: supply and demand. Again, from the article: “Insurance companies would have to obey limits on the out-of-pocket costs they could demand, and would not be permitted to charge co-pays or other fees for preventive care such as checkups or mammograms.”

Does anyone really think this will mean that these things will magically become free?

You’re still going to pay, just in a different way. You won’t pay the doctor’s office the copay any more, the insurance company will. And since the insurance company still needs to make a profit, they’ll just raise your rates: probably by an amount as much as the copay. Instead of paying when you go to the doctor, you’ll pay the copay in 12 nice little monthly chunks.

Also, the full version of that first quote is, “Obama pledged that the health care legislation he is seeking will bar insurance companies from denying coverage because of pre-existing medical conditions and include numerous provisions to hold down the cost of care for consumers.

So, price ceilings.

A price ceiling set below the free-market price has several effects. Suppliers find they can no longer charge what they had been charging for their products. As a result, some suppliers drop out of the market. This represents a reduction in the quantity supplied. Meanwhile, consumers find that they can now buy the same product at a lower price. As a result quantity demanded increases. As a result of these two actions, quantity demanded exceeds quantity supplied and a shortage emerges, unless rationing or other forms of consumption controls are enforced.

Gee, I can’t wait.

Note: I’m no big fan of the way healthcare works currently, and it’s obvious that some change is needed. Maybe the government can supply that. But even the government can’t magically change the rules of economics.

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Categories: Uncategorized
  1. strike2012
    October 24, 2009 at 5:03 am

    THE significant difference, I would think you’d see, is the difference between paying (as someone insured by one or another of these companies) all that the market will bear–and in the course of doing so running the risk of suddenly being dropped upon a pretext just in the moment the insurance is needed–and paying a fair price to cover the actual, reasonable costs of ordinary (and occasionally, catastrophic) health care. That is, in essence, the difference between an unrestricted, uncontrolled private insurance model, and something that includes strong controls and a public option.

    Further, as someone who is _scientifically_ educated, instead of _economically_ trained, I would suggest the so-called “laws” of economics are 1) _nothing like_ the laws of physical science (Physics Envy notwithstanding), and 2) aren’t very well founded in a clear understanding of actual natural laws. In fact, in a blog entry on this service some time ago, I made that very point. (http://strike2012.wordpress.com/2009/03/08/the-origin-of-economics-in-antiquated-field-equations/ )

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