Free-Market Solutions Help All, Not Just Some
My op-ed on the new autism mandate ran in the Missouri Record this morning, and the blogosphere has already begun to respond! Perhaps I did not articulate myself clearly enough, because this author’s post reflects some misunderstandings of my argument that I would like to clear up:
The problem with free market, anti-regulation fundamentalists is that their arguments lead to despicable results (witness Rand Paul’s opposition to integrated lunch counters). A prime example shows up on the Missouri Record site, where grad student Caitlin Hartsell argues that if we increase costs to insurance companies by making them pay for autism spectrum disorders, those insurers might increase rates. (Characteristic of free-market extremists, she doesn’t provide numbers, or consider the possibility that the costs could be covered by reducing out-of-control executive compensation packages).
If you have a strong stomach or sense of humor, go read her obsequious offering to her Show-Me Institute bosses, and substitute any malady whatsoever as the subject. Try breast cancer or broken limbs, and you can have an argument in favor of freeing our health insurance companies from the burden of having to pay for, umm, health claims.
Where to begin? I never argued that insurance companies shouldn’t pay for claims; I argued that creating mandates is not the solution.
Competition needs to be increased in the insurance market, thus giving insurance companies a strong incentive to cater to people by providing coverage for things like autism therapy. A better solution than a mandate would be to increase competition by breaking the tie between someone’s employment and their insurance, by giving individuals the same tax breaks for insurance policy purchases that employers receive. This would give people more stability, because they could carry their insurance policies throughout their lives, and through uncertain economic times. If the tax break were offered to individuals rather than just employers, it would also reduce the incentive for them to offer “Cadillac” health plans that inevitably trade a portion of employees’ monetary compensation for expansive coverage that doesn’t meet everyone’s needs or budget requirements.
Unfortunately, the free-market argument is far too often misunderstood, because it focuses on the “unseen” as opposed to the very visible “seen” of children with autism. The author of that blog entry and I may very well hope for the same outcomes, but we disagree on the best way to achieve them. I want very much for children with autism to receive the necessary therapy. I also want children with any number of diseases to obtain proper care and coverage. By subjecting the market to competitive forces, people would have an increased ability to choose health insurance plans that fit their unique needs.
Statistics about the increase are available, but they are disparate, and determining the relevant figures depends on which side of the debate you ask. It will also depend on how regulators choose to interpret the provisions. But when costs increase, there will be people at the margin who are affected. Those most affected are the people whose illnesses or conditions aren’t covered by a mandate — their insurance costs are higher, but they do not receive any benefit.
First off, Ms. Hartsell, let me acknowledge that you outclassed me with your issues-focused response. Why did I feel the need to be an a@@ and label your piece an obsequious offering to your bosses, rather than keeping my disagreement with your policy position? I apologize sincerely, and admire your refusal to sink to the bait.
My respectful policy disagreement remains, however. Your suggestion that the free market is capable of solving such an issue is, in the complete sense of the word, fantastic. It might work in a hypothetical world where fully informed consumers work with honest insurance companies, but neither of those exists in the real world.
In our all-too-real world, consumers don’t shop for coverage that meets their unique needs, and I’m not sure exactly how that would work, anyhow. Would I be faced with a list of potential maladies and check off those I want coverage for, and those I want to risk “going bare” on? Should my auto policy allow for me to assume the risk of getting hit by a Benz, but protect me from Kias? Insurance exists to cover (mostly) unanticipated risks, so the free-market you conjure would result in chaos, MORE denied claims and an unimaginable mountain of paperwork.
In the real world, parents don’t expect to have a kid with autism. In the real world, parents don’t choose their own coverage, and are not in a position to negotiate individually whether they have coverage for breast cancer, broken bones, or autism. In the real world, insurers cover the first two only because history has created fundamental consumer expectations, and, even there, they do their best to chisel sick individuals by claiming all kinds of crazy exclusions.
Our legislators faced an insurance industry that was refusing to cover a cripplingly expensive syndrome that has been, for unknown reasons, expanding like an epidemic. It has bankrupted families and forced others to go without needed treatment. The free market does not currently work in the medical insurance field, and I hope that you would agree that we are far, far away from the fantastical world of informed consumers and honest sellers that you envision. Even if I agreed with you that such a world would be desirable, in the real world, people are suffering now, and our state legislators do not have the power to create your free-market utopia. Your solution is a fascinating idea, but it is not an honest solution to a very real problem.
In the real world, mandating insurance coverage may increase the cost of insurance a tiny bit (though more effective insurance regulation could avoid that). You are correct that many will incur slightly higher costs, and their only benefit will be coverage that they hope they will never need (you say they receive no benefit, but that’s mistaken). It’s theoretically possible that for some employer somewhere, this could be the dime that breaks the camel’s back, and some people could lose employer-funded health insurance.
But my initial point remains – we can address that problem by excluding coverage for breast cancer and broken bones, right?
Comment by Dan — June 11, 2010 @ 5:55 a.m.
Thank you for your response, Dan. I’ll agree that we do not live in an ideal world, but I still contend that market solutions are still best and would improve outcomes.
We do not currently have a free market in health insurance, and that is a large part of the issue here. Consumers are separated from the product and the providers by a “health care wedge” of payments from insurers and the government.
It definitely is a problem that people do not choose their own health insurance. This is a result of the WWII wage freezes and the employer tax break that made including health insurance in compensation packages the wise business move. A better solution to give individuals more autonomy would be to give individuals the same tax break, as explained above.
The “market forces” I’m thinking of can best be achieved by Health Savings Accounts. They are portable and so not tied to an employer, and individuals can choose how to spend their own health care funds. After the high deductible is reached, the insurance can kick in and cover high cost expenses, like autism therapy. People could also insure themselves and their children from future conditions that could potentially increase the cost of their premiums. If individuals are choosing their own health insurance though, insurance companies have a higher incentive to cater to their needs. With the ability to change to another company (as with auto insurance), you would see companies catering to the unique wants of individuals.
“Effective regulation” is as mythical as you believe free-market solutions to be. I recommend reading F.A. Hayek’s essay “The Use of Knowledge in Society,” if you are not already familiar with it. Hayek makes the case that there is no person (or any group of people) able to “know” all of the necessary information in order to properly institute things like effective regulation. Even if it were possible to “know” everything at one point in time, things change so rapidly that the knowledge would quickly become outdated. Most people trust that these regulators have their best interests at heart, but regulators are subject to political forces, too, giving the monied interests an opportunity to affect the outcomes.
The free-market solution does not call for no oversight at all; it just divorces the government from that job. Independent certification could still be obtained. After all, most people would choose an M.D. over a less qualified person, but they could still have the choice to see a physician’s assistant (or someone of lower certification) if they cannot afford health care from an M.D. (In this way, they get something as opposed to nothing.) With competing certification, one would see an improvement in regulation, as the certifying company’s success would depend on maintaining a spotless record, a check the federal government is not subject too.
In essence, free markets are the best way to achieve the ends we all desire: quality with low costs.
Comment by Caitlin Hartsell — June 11, 2010 @ 3:19 p.m.
I guess we could all sit around reading various insurance polocies and trying to figure out which one is best. Most of the time would be spent trying to figure out what hidden loopholes exist in the various policies. But a far better way is to choose someone reliable and count on them. That is why we have state insurance commissions and state laws regulating insurance. This may not conform to conservative academic theorists idea of reality, but it certainly makes the average person’s life better
Comment by dempster holland — August 9, 2010 @ 11:39 a.m.