Daily Archives: 28 March 2013

Competition and Cadillac Insurance

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Under Obamacare, writes Emily Chasan in The Wall Street Journal, employers will be required by 2018 to pay a tax of 40% on health care plans that President Barack Obama and his minion, Health and Human Services Secretary Kathleen Sebelius, decide for themselves are somehow “excessively rich” in the benefits they pay out.

The excuse these two and other Progressives make for this is that these Cadillac plans, with their low deductibles and “generous” medical coverage, will encourage overuse of our health-care system.  Sure.  Everyone needs to be covered.  But only to a government-approved degree.  And never mind that those low deductibles make the policy purchasers ineligible for Health Savings Accounts—Progressives don’t want Americans to have those, anyway.

But these folks also ignore—or don’t understand—another aspect of their interference.  Competition in a free market for health insurance, including an ability for insurers to charge risk-based premiums, and for health services would address that “overuse” concern much more efficiently than a 2000 page law with its tens of thousands of pages of HHS rules ever could.  Such an environment would directly impact the costs born both by suppliers and their customers/patients.

The competition would drive down the prices charged, and risk-based premiums within that environment would enable insurers to bill for the coverage offered in accordance with the actual likelihood of payout.  Yes, some high-risk coverages would get more expensive, but the vast majority of coverages, by not having to be priced so as to subsidize those high risks, would get a lot cheaper.

Also, customers and patients would gravitate to the combination of policy coverage and medical service usage that actually interested them, instead of having to buy a government-approved policy that included things only a bureaucrat could love.  An equilibrium would develop that had customers and patients getting the policies and services they wanted at prices that suited them with insurers and providers offering those services and policies at prices that would let them stay in business.

There’s no need of a tax to manage demand and supply.  Americans are fully capable of doing that for themselves in a free, competitive market.

House and Income

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I decided to look at real incomes, in terms of what we actually can buy with our paychecks, compared to the purchasing power our grandparents had.  Here’s a coarse summary.

Median household income in 1950 was $3,300/yr (~$18,500 in 2009 dollars).  The median new house price then was $12,800 (~$73,200 in 2009 dollars), and that house was 980 sq ft small.  It took four years of that 1950 income to buy the house (assuming an all cash payment).

In 2009 (post housing bubble burst, with its more plausible prices than those of the peak in 2006-ish), median household income was $49,800, the median price of a new house was $215,000, and that house encompassed 2300 sq ft.  It took a shade over four years of that 2009 income to buy the house (again assuming an all cash payment).

That doesn’t seem like a big change, which itself might be surprising.  What actually was bought when that house was bought, though?  We’ve already seen that the same four years of income bought a much bigger house in 2009.

That 1950 house often came with central heating—in the form of a furnace in the basement that was manually fed with coal or wood.  Really upscale homes had a supply of heating oil.

The 2009 house routinely came with central heating—gas or electric, and automatically controlled with a thermostat, often programmable.  More upscale homes had multiple thermostats to control the temperatures of individual areas of the house.  The 2009 house also came with central air conditioning, controlled from that same thermostat setup.  1950 houses didn’t have air conditioning at all beyond open windows and fans.

The 2009 house also came pre-wired for multiple telephones (one to a house in 1950, with add-on wiring, often), and frequently it was pre-wired for Ethernet—which didn’t exist in 1950.  The 2009 home also came with a dishwasher and a refrigerator already installed.  Ovens—electric or automatically lighting gas—separate from the ranges (cooktops, also electric or automatically lighting gas) were common, as were built-in microwaves.

In 1950, fridges were extra, and the dishwasher was wifey, junior, or sis.  Microwaves didn’t exist, and the cooking was done, typically, on a gas stove, which combined the oven and the range; although electric stoves were available.  That gas range and oven were lit with a match, too, which led to more than one set of singed eyebrows when lighting off the oven.

Of course, no one paid cash for their house in 1950 or 2009.  In 1950 a typical mortgage came with 25% down, and the loan was for 16-20 years.  In 2009, mortgages could be had for 0% down, although 10%-20% were typical, and 30-year mortgages were routine.