Tag Archives: government

Some Thoughts on “Health” Insurance

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Dr Alan Blinder demonstrates an amazing lack of understanding of insurance and of welfare for a Princeton professor and erstwhile vice-chairman of the Fed.  “Health-care reform,” he writes, “the impossible dream that seemed to become a reality in 2010, is now in mortal danger.”

As he acknowledges, this is no small matter, impacting as it impacts one-sixth of our nation’s economy.  He also correctly recalls a bit of history: “our country was founded on the idea that the rights to life, liberty and the pursuit of happiness are inalienable.”

Then he demonstrates his lack of understanding of any of this by adding this false premise to his argument:

Access to affordable health care is surely essential to two of these three rights, maybe to all three.

Then he conflates the Patient Protection and Affordable Care Act—a mandated health “insurance” program that’s much broader in its sweep than just the Individual Mandate—with affordable health care itself.

As John Adams so rightly put it, Happiness is this:

All men are born free and independent, and have certain natural, essential, and unalienable rights, among which may be reckoned the right of enjoying and defending their lives and liberties; that of acquiring, possessing, and protecting property; in fine, that of seeking and obtaining their safety and happiness.

There’s nothing in there that puts government at the forefront of doing for us—we’re responsible for our own outcomes.  Of course there’s also nothing in there that prevents government from helping, either, and there is a proper role for government in this arena.

Let’s look at Blinder’s view of that role.

We are…the only rich country that fails to insure all its citizens.  The Patient Protection and Affordable Care Act of 2010 seeks to end that.

Aside from the fact that it isn’t government’s role to inure us from the exigencies of life, this position confuses insurance with welfare.  Insurance is a voluntary contract between two parties: one with a risk he wishes to mitigate and the other willing to accept some or all of that risk for a fee.  But the exchange doesn’t work unless the fee charged actually is commensurate with the risk—that is, the insurer must be able at least to break even over time and across many such contracts for the exchanges to be feasible.  To make a business of this, the insurer must be able to make an actual profit.  This applies even to governments as “insurer.”  Adam Smith understood this.

…the tax code incents employer…. For another, we have somehow decided that the state should provide anyone age 65 or older with health insurance, while everyone younger should fend for themselves. I’d hate to have to explain either of those choices to the proverbial man from Mars.

So the right answer to this is to increase taxes and other costs in order to force us all into a program that not all of us want.  Interesting, that.  Another answer would be simply to flatten the tax code and to remove the incentives, health-related subsidies, deductions, et al., from the code for both employer and employee.  Of course, to best work, this also would require government to get out of  the way of the health insurance and health care providing industries (mind, these are separate industries), and place them into actually competitive environments, for instance, allowing health insurance policies to be sold across state boundaries.  There are other pro-competitive moves needed, also, but they’re outside the scope of  this post.

The “everyone younger fending for themselves” bit is a distortion of the actual situation.  I’ll come back to that.  We may have thought it a good idea for government to provide seniors with health insurance 50 years ago, when there were 5, 6, and 7 workers for each senior/retiree, but as we’re learning today, we cannot afford it any longer (if we ever should have tried to) either economically or demographically.  That’s because, like Social Security, the senior health insurance programs—Medicare and Medicaid—are not programs where those seniors’ Federal Medicare (and Medicaid) taxes were sequestered against their eventual attainment of senior-ness for their own use, but were paid out to current seniors in a pay-as-you-go manner.

Which brings me back to “everyone younger.”  Today’s far fewer younger (there are only a bit over 3 workers per retiree today) are not allowed to fend for themselves—they’d be better off if they were.  Instead, their take-home pay is reduced by those medical payroll taxes, which are immediately transferred to others; these younger are not allowed to put that money into their own retirement health program.  Indeed, the government limits who is allowed to have their own Health Savings Accounts to those wealthy enough to afford Very High Deductibles in their insurance policies, and this same government caps how much “everyone younger” is allowed to put into one of those accounts in any given year.  Blinder’s precious health care reform does nothing to redress this.

Finally, metaphor aside, I care not a farthing for what the man from Mars might wonder—my business is mine, not his.  Nor is it the business of any earthly government.

Why does the law require people to purchase health insurance?

Like most forms of insurance, health insurance is plagued by potential adverse selection.  Pick any price, and riskier customers—the people more likely to file claims—will find the insurance policy more attractive than less-risky customers.  So in health insurance, in particular, insurance companies expend huge resources trying to screen the bad risks out and the good risks in.  One obvious way is to exclude people with pre-existing conditions, but there are others.  All this effort adds to national health expenditures, improves insurers’ profits, and hurts the bad risks (e.g., sick people).

The essential bargain made in 2010 starts by using the individual mandate to create a huge pool consisting of (almost) all Americans under age 65—just as Medicare now does for the 65-and-over population.  With that pool created, the law can then require private insurers to cover (almost) everyone, including those with pre-existing conditions.  In return, insurers get a lot more customers and a lot less adverse selection. They also save a ton of money on screening.

Here is Blinder’s misunderstanding of insurance made manifest.  I’ll leave aside the sophistry in his claim of a bargain in 2010, unique in its utter rejection by the American people.  It’s certainly true that customers with risks will seek to lay them off, for a fee, onto an entity willing to accept that fee for assuming that risk.  But as I said above, for the exchange to work, the fee must be commensurate with the risk.  Moreover, both the customers and the insurers must be able to enter freely into their own agreements, without government mandates of premiums or coverages.  Both parties must be free to exercise their own pursuits.  This necessarily pushes the risks into homogeneous groups—like risks are accepted for like fees.  This is not “adverse selection,” but economically sound segregation of the risks and the fees that are economically sound for transferring those risks.

The effort about which Binder worries is driven by the need to find ways to fund risk assumptions when those risks are mixed, which means the insurers must find ways to get low risk customers to pay higher fees than warranted in order to pay for the losses to higher risks that are getting too-small fees.  A properly free market will inevitably result in higher fees for higher risks, but then coverage will exist for those higher risks.  Moreover, were consumers able to buy their own health insurance policies in the interstate commerce of a free market, so that they could take their policies with them from job to job, the incidence of Binder’s pre-existing conditions would be greatly mitigated.  And the ability of an insurer to claim a fee commensurate with the realized risk of a real pre-existing condition would produce policies for these conditions, rather than a blanket effort not to cover at all.

But this demands that customers be allowed to exercise their own choices under their inalienable rights, not those choices convenient to government.  See below.

Thus, the answer to Blinder’s question of “Why does the law require…?” is, “Because the law requires it.  There is no economic reason.”

“Rights are nice, but…,” he wrote early on in his op-ed.  This is the key; this is the truth behind Blinder’s argument.  Individual rights are nice to have, but when they become inconvenient to government, he says, it’s entirely appropriate for government to limit—even abrogate—them.  It’s entirely permissible, too, Blinder holds, because rights flow from government; they are not inherent in our being.  Our rights to life, liberty and the pursuit of happiness are conveniences of government, inalienable only for so long as government permits it.  This is how government is able to arrogate to itself what is inextricably bound up in those rights—our obligations to be the primary source of our own welfare so as not to present ourselves as burdens on others’ rights to their lives, liberties, and pursuit of their happinesses.

The result is that, under the present “reform,” under PPACA, people with low risk—those young and healthy, who also have other uses for their money and so do not want health coverage—are forced, in a loss of their individual freedom, to subsidize the insurance of those with high risk.  PPACA in essence, by forcing an inherently uneconomic mixing of risk pools, converts what should be a free market risk transfer industry into a privately funded, Federally mandated welfare program.  This is another aspect of the erosion of our individual liberties.

No.  Our rights are not “nice;” that’s a non sequitur.  Our rights simply are.  They are as bound up in our existence as are our very lives.

There is a legitimate argument to be made for improving our nation’s health care industry as it stood ante 2010.  It is cynical, if not outright dishonest, to insist that PPACA is the only way to achieve this.  This is particularly so with the empirically demonstrated destructiveness of the program these last couple of years as it starts to come on line—even before its taxes start to come on line.

In the meantime, the proper role for government is to create an environment within which we are free to pursue our own ends, our own happiness.  This requires a free market, not a centrally managed one.

Taxes and a Do-Nothing President

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“At the end of the year, some $500 billion in tax breaks expire all at once, hitting American households with an average tax increase of $3,800—if Congress doesn’t act,” reports Jim Angle of Fox News.

Here are, to channel the late Jack Brickhouse, the unhappy totals:

  • $165 billion increase from the expiration of the Bush tax cuts, pushing tax rates from a bottom rate and top rate of 10% and 35% to 15% and 39.6%, respectively,
  • cut the child tax credit by fully half, from $1,000 a child to $500,
  • the marriage penalty returns,
  • tax on dividends, which many seniors rely on, would soar from 15% to as high as 39.6%,
  • a temporary fix to the alternative minimum tax disappears/expires.  The AMT originally was aimed at millionaires, but now it would hit 34 million taxpayers,
  • separate $124 billion cut in the payroll tax would end.

Moreover, as Curtis Dubay of the Heritage Foundation points out,

Taxmageddon falls 70 percent on middle and low income families.  That’s because 60% of the Bush tax cuts were for middle- and low-income taxpayers.

Thus, the Reid/Obama tax increases are set to hammer all Americans, but especially President Obama’s “non-rich.”

Yet this could have been avoided.  During the debt limit ceiling raise kerfuffle of last summer, President Obama had a golden opportunity to fix these things, but in a Chicago shuffle, he tried to steamroll the Republicans with a last minute (literally) demand for an additional $1 trillion tax increase, and he blew up the negotiations altogether.  Obama and Majority Leader Reid (D, UT) had a chance to fix these things later in the fall, but they demanded tax increases as a quid pro quo for extending an expiring payroll tax reduction.  This winter, Obama and Reid got tax increases in exchange for extending an expiring (again!) payroll tax reduction—the one set to expire at the end of this year along with all those other items.

Obama and Reid have spent all of these last three years demanding tax increases to “pay for” tax reductions elsewhere, and spending cuts anywhere—in the name of “fairness.”

What’s also galling, though, is that payroll tax reduction for which the Republicans held out so zealously.  This is the same gang that insists (rightly) that our Social Security system is bankrupt and desperately needs reform—yet they’re insistent on reducing even further that system’s funding with this payroll tax reduction of theirs.  Ignoring the fact that the Democrats were on record as agreeing that a 2% reduction in (payroll) tax rates was good for Americans, ignoring further that Obama had proposed a 3% reduction for both individual Americans and businesses in those payroll taxes, the Republicans chose not to insist, instead, on a 3% (or even a 2%) income tax reduction for all Americans and our businesses.  They just held out for gutting Social Security.

Now Obama is set to get his tax increases in the name of his concept of fairness.  Happy New Year.

Taxes and Fair Share

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At the start of the week, the Senate failed a cloture vote on President Obama’s Buffet Rule by a 51-45 vote, with Senator Susan Collins (R, ME) voting for on the excuse that the measure should be openly debated (never minding that President Obama has been debating it on his latest campaign tours), and Senator Mark Pryor (D, AR) voting against on the theory that such a measure should be part of a debate on general tax reform.

I won’t occupy bandwidth repeating commentary about Obama’s “it’s only fair” mantra.  However, via Villainous Company, comes another view of what’s fair—the following graphic, based on tax rates from 2007 and published in 2010.

Interesting, this.  The only folks paying roughly their “fair share,” if we’re willing to consider what’s fair to be paying a share of the nation’s income taxes roughly akin to the share of national income represented by one’s own income grouping, is those rich folks in the second 10% income group—those whose income puts them in the band of top 10% down to top 20% of income—and the truly destitute—those folks in the very bottom 20%.  The Stinking Rich, those top 10%-ers, are paying far more than their fair share.  And most everyone else below those top 20% are paying increasingly less than their fair share.

But President Obama and his Progressives want to pile on and make his ugly rich pay even further beyond their fair share.  With lots of words about creating yet another entitlement program, a program of transferring tax money from those who pay a lot to those who pay a little.  But with not a word about cutting spending to fit within the revenues already accruing to his administration.  With not a word about reforming existing entitlements like Social Security, Medicaid, and Medicare.

Hmm….

One Can Hope

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My post today comes almost entirely from an opinion supporting the DC Circuit Court of Appeals’ opinion upholding a lower court ruling denying a dairy farmer’s objection to milk price regulation as applied to his farms.  From the per curiam (i.e., from the court itself—the majority opinion is unsigned, although dissents and concurrences, if they exist, are signed) opinion in Hettinga v United States comes the summary of the farmer’s beef:

Plaintiff-appellants Hein and Ellen Hettinga appeal the dismissal of their constitutional challenges to two provisions of the Milk Regulatory Equity Act of 2005 (“MREA”), Pub. L. No. 109-215, 120 Stat. 328 (2006) (codified at 7 U.S.C. § 608c). The Hettingas alleged that the provisions, which subjected certain large producer-handlers of milk to contribution requirements applicable to all milk handlers, constituted a bill of attainder and violated the Equal Protection and Due Process Clauses.

The Hettingas’ dairy farms were the only farms in the United States that were affected by the MREA; however, the Appellate Court upheld the application of MREA over the Hettingas’ constitutionally grounded objections.

From Circuit Judge Janice Rogers Brown’s, with whom Chief Judge David B Sentelle agreed (forced) concurrence:

…their consternation at being confronted with the gap between the rhetoric of free markets and the reality of ubiquitous regulation. The Hettingas’ collision with the MREA—the latest iteration of the venerable AMAA—reveals an ugly truth: America’s cowboy capitalism was long ago disarmed by a democratic process increasingly dominated by powerful groups with economic interests antithetical to competitors and consumers. And the courts, from which the victims of burdensome regulation sought protection, have been negotiating the terms of surrender since the 1930s.

More from her opinion:

As the dissent predicted in Nebbia, the judiciary’s refusal to consider the wisdom of legislative acts—at least to inquire whether its purpose and the means proposed are “within legislative power”—would lead to only one result: “[R]ights guaranteed by the Constitution [would] exist only so long as supposed public interest does not require their extinction.” In short order that baleful prophecy received the court’s imprimatur. In Carolene Products (yet another case involving protectionist legislation), the court ratified minimalist review of economic regulations, holding that a rational basis for economic legislation would be presumed and more searching inquiry would be reserved for intrusions on political rights.

The practical effect of rational basis review of economic regulation is the absence of any check on the group interests that all too often control the democratic process. It allows the legislature free rein to subjugate the common good and individual liberty to the electoral calculus of politicians, the whim of majorities, or the self-interest of factions.

She adds [her emphasis]:

…the Constitution created the countermajoritarian difficulty in order to thwart more potent threats to the Republic: the political temptation to exploit the public appetite for other people’s money—either by buying consent with broad-based entitlements or selling subsidies, licensing restrictions, tariffs, or price fixing regimes to benefit narrow special interests.

And

As another court has noted, federal regulation of milk pricing “is premised on dissatisfaction with the results of competition.” Alto Dairy v. Veneman, 336 F.3d 560, 562 (7th Cir. 2003). “M]ilk price discrimination is intended to redistribute wealth from consumers to producers of milk.” Id.

In the end, Judge Brown is quite blunt:

Civil society, “once it grows addicted to redistribution, changes its character and comes to require the state to ‘feed its habit.'”

Are we seeing a pattern begin to emerge?  Is not the Patient Protection and Affordable Care Act the outcome of a similar political temptation to…buy consent with a broad-based entitlement and subsidy?  Is not PPACA a similar attempt to redistribute wealth from healthy consumers to the unhealthy—or those who are timorous about their future after a lifetime of their own health-related choices?

And by extension is not all New Deal and later Commerce Clause regulation similar pandering and playing on dissatisfaction with competitive outcomes in order to preserve the status of incumbents?  After all, the Commerce Clause was intended to regularize the commerce of the several states among each other and to give Federal control over international trade.  And nothing more.

And Judge Brown also is right about the legal argument of “rational basis review.”  There’s nothing at all rational about it.  Arguments for or against any regulation, or any law, must proceed from how well that regulation or law preserves individual liberties and responsibilities, not from how well the regulation or law asserts dominance of any group over the individual.

 

h/t Power Line, and both a hat tip and a bow to DC Circuit Judge Janice Rogers Brown.

Taxes, Fairness, and Equality

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President makes a big deal of his Progressive concept of “fairness,” and he makes no bones about his desire to use taxes to impose his fairness on the rest of us.  He also says plainly that his tax moves are “gimmicks” intended solely to impose his fairness, and they are not at all intended to be any sort of mechanism for improving our economy.  Fairness over growth—and he channels Theodore Roosevelt in the process.

Let’s explore this Progressive concept and an alternative concept of what is fair.

Candidate Obama said in a 2008 interview with Charlie Gibson,

Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.

Last week, President Obama said,

There are others who are saying: “Well, this is just a gimmick. Just taxing millionaires and billionaires, just imposing the Buffett Rule, won’t do enough to close the deficit.”  Well, I agree. … I’d just point out that the Buffett Rule is something that will get us moving in the right direction towards fairness….

What the Progressives want is equal outcomes, all in the name of “fairness.”  Progressives insist that there comes a time when we’ve “made enough money,” and after that, we should “spread the wealth around.”  But is this truly fair?

What our Declaration of Independence talks about is

…all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness[.]

What John Adams talked about was

All men are born free and independent, and have certain natural, essential, and unalienable rights, among which may be reckoned the right of enjoying and defending their lives and liberties; that of acquiring, possessing, and protecting property; in fine, that of seeking and obtaining their safety and happiness.

What Theodore Roosevelt talked about, what he opened his “New Nationalism” speech with, was a desire for

an economic system under which each man shall be guaranteed the opportunity to show the best that there is in him

These all add up to equal opportunity.

“Fair share” is President Obama’s refrain.  Everyone should pay it.  Yet the top 10% of Americans by income paid nearly 70% of the total personal income taxes collected by the Federal government in 2008.  The bottom 50% paid nearly 3% of the total that year.  Further, the rich may be getting richer, but they’re also paying increasingly more in income taxes.  In 1999, those top 10% paid a little over 66%, and the bottom 50% paid 4%, of the total.

Under what economic system, though, is it most possible for a man to “show the best that there is in him,” to fully realize the potential in the opportunities open to him: a system where the most successful have their success truncated by having a government-defined excess trimmed off and given to another man, a system where the less successful are given, without effort of their own, a part of the earnings of another?

Or a system where each man can, indeed, achieve his fullest potential independently of the possible outcomes for others, even when that results in unequal outcomes?  After all, unequal outcomes are inevitable since while each of us is equal in our rights, equal before our Creator, we are not at all equal in our innate talent, our work ethic, our degree of interest in this or that endeavor.