Sebelius' confusion about health industry competition

Secretary Sebelius paints a very biased, ill-informed picture of the Health Care Reform debate. Her view is unfortunately very clearly clouded by her experience on the Insurance Board, and she is out of her element when she tries to invoke economic arguments.  And she also doesn't seem to be interested in hearing from all the citizens that she is supposed to represent.  I believe that, as a public servant, she should not sweep all those who disagree with the plan under the rug, assuming they've been brainwashed by scare tactics or enlisted by organized protestors. I disagree with the plan, and I'm an economist who's looked at the plan and the industry data. I'm also a single mom who is responsible for providing health care for me and my daughters. And no one is paying me to say the things I say here on this blog.

The most dramatically naive error in logic that Ms. Sebelius has made during this debate is her claim that government- run health insurance would provide more competition than the current insurance industry does! She is right in saying that competition is good -- it increases choice and reduces prices for consumers. But she is flat-out wrong in her suggestion that a public option "competes" in any sense of the word with insurance companies. Consider the following response she gave to NPR's Melissa Block when she asked if Sebelius thought the insurance companies were villains.  Sebelius answered: "This isn't rocket science. It is a lot cheaper to collect a premium and not pay claims than it is to collect a premium and pay claims.  ... The [insurance] companies would also get competition from a public plan..." http://www.npr.org/blogs/health/2009/08/hhss_sebelius_on_whats_been_lo.html#

This is pure fantasy.  The government does not compete alongside other suppliers in a market; it makes up the rules of the game, takes money from one segment of society and spends it on the goods and services in another (ones that it chooses, not us), and rules by law, not free choice. This is the antithesis of competition.  

Comments

[Jonathan]

As "a single mom who is responsible for providing health care for me and my daughters," you should consider reading Taunter's Unconscionable Math article: http://tauntermedia.com/2009/07/28/unconscionable-math/

This should scare anyone that is buying personal health insurance (not under a group policy). It also strongly supports Sebelius' comment.

[Sherry Jarrell]

Hi Jonathan,

Thanks for your comment. I did read the article. It makes its point about the difference between conditional and unconditional probabilities well. But that point is too narrow to really help sort out this very complex issue: it ignores the impact on the current state of the health insurance industry of HMOs, malpractice lawsuits, Medicare, and companies offering health insurance to their employees instead of just paying higher wages. And, as importantly, it ignores how insurance policies are priced.

Insurance companies must make profits, in my view. Enough profits for them to remain in business. If they don't, then they go out of business, and the good or service is unavailable.

Why not just have the government use our tax dollars to provide the service? Because of the lack of freedom, invasion of privacy, and the incredible political power over the individual this would involve. And government-backed access to medical care is so much less efficient and more costly than market-provided insurance; it's just harder to see the costs and easier to not "feel" the costs when they are collected in the form of tax revenues.

And I'm afraid there would be just as much rescission with a public plan as with the current set-up because there are not infinite resources. The problem with the public plan is that the insured has no recourse; if your coverage is taken away, you can't go to another insurance company, you can't negotiate up front for a different policy, and you can't sue. If the government is the provider, and you don't like their decision, you are stuck. If the market is the provider, and you don't like the decision, you have options.

I believe that the insurance landscape would look very different today had the government not stepped in with Medicaid and Medicare and similar programs. There would be policies available at all levels of wellness and illness and those policies would be priced accordingly. Nothing would be "given" to anyone to buy their vote; we'd all have the freedom to purchase health insurance if we valued it enough. Or, we could choose to not purchase it, and pay for medical care if and when we got sick. If we were down on our luck, unemployed, had no savings, or just spent our money on other things...well, that's called freedom. Freedom gives you the right to make your own decisions, good ones and bad ones.

My two cents. Your view is much appreciated!

[www.facebook.com/profile.php?id=528033439]

"... I think private insurers should be able to compete. They do it all the time. I mean, if you think about ... UPS and FedEx are doing just fine, right? ... It's the Post Office that's always having problems." - BHO

EXACTLY!!! The Post Office does struggle and so will new government programs.

[George Robertson]

Dr. Jarrell,

I enjoy your comments and I appreciate your efforts to educate the public to the benefits of the free market. I think the debate of the economics of this matter ignores one important point; President Obama and the Democrats in Congress are trying to hide the cost of providing insurance to those who don't have it by bringing a larger segment of the public into their plan. I also believe the entire effort is primarily targeted toward those who have no insurance to capture them as a voting block that will foster a longer term in power than the Democrats could expect by not doing so. If the true cost of insuring the uninsured were isolated and presented to the American public the outrage would be even greater than we are now seeing. This helps explain why the arguments in favor of the "plan" are so weak and seemingly ill informed. They don't want to argue for or divulge their true objective.

[Sherry Jarrell]

Thanks for your thoughtful comments. Ah, politics! I am not a very politically astute person, but I do think it is absolutely true that the growing dependency of the U.S. private sector on the government is a very costly by-product (possibly "goal," as you say) of this and similar spending programs. The lack of motivation and drive, the assumption that "someone else" will take care of us.... it creeps up on us incrementally, program by program, year by year... and it is unsustainable.

What I think I can add to the debate is some clarity on how markets and businesses and industries really function, and the real impact of regulations, programs, and mandates on our economy, our quality of life, and our standard of living. Sadly, I just don't see many examples where the so-called "experts" get it right. I've seen too many errors in the business press - tv, radio, print, and on-line -- about the very basic facts about supply and demand and what causes what. And I finally had one too many conversations with reporters who allow their own personal bias -- often based on erroneous reporting -- to skew their reporting. Hence this blog.

I have a question for you, in all sincerity. You say that "if the true cost of insuring the uninsured were isolated and presented to the American public..." but I wonder who the American public would trust to come up with a believable estimate? Whose analysis would be trusted? Who is unbiased enough to present these numbers? Particularly on the health care issue, which seems to be as emotionally charged as any, folks seem to be inextricably wedded to their views, for or against.

I've tried to comment on this issue in other forums, as objectively and as respectfully as I could, using all my training and teaching experience to try to remain factual and understandable, yet within minutes someone accuses me of being a paid operative for the insurance industry! I don't have a reason to slant my analysis, and I would hope that that would be clear from my site. If someone like me is not to be trusted, then who is? I'd love to hear your thoughts.

Sherry

[George]

Thank you for your message Sherry. You have touched on a number of interesting and complex issues that I am not sure I am qualified to address, but I will give my honest opinion. The organization of this missive may not be as you expected. The topics touch several phenomenon in our society which I have observed over the years and are of keen interest to me. As a student of History, I see things in that context as my frame of reference. If I overlook something here I would enjoy the opportunity to have additional exchanges with you.

Norman thomas was s devout socialist whose public life coincided with the darkest years of the depression. He has been quoted as saying, "The American people will never knowingly adopt socialism, but under the name of liberalism they will adopt every fragment of the socialist program until one day America will be a socialist nation without ever knowing how it happened." This is the same phenomenon you alluded to in the first paragraph of your message. Lenin, Marx, Mao, all used the disillusionment of the populace to stir the electorate to their causes. Capitalism is in its most fragile state when economic cycles give opportunists leverage with voters. It is a sad truth of these times that the vast majority of those serving in public office are opportunists first and statesmen (persons)second. As such, they cannot and will not make a case for the merits of limited government unless compelled to do so by the electorate.
As long as we are free to vote for the candidate of our choice we cannot blame our elected officials for the state of our nation. I live in a suburb of Washington, DC and I have many opportunities to discuss matters with voters who do not share my views. Many are passionately liberal and I am subjected to the same diatribe you have experienced. Yet beneath the passion I find little understanding beyond the issue at hand. Most of their information about a subject or issue comes from their favorite politician, or a broadcaster of the news. The most revealing situations develop when I ask one of several questions that in my opinion a 10th grade student should be able to answer correctly. For example;

Can you give me the definition of equilibrium price?

What is the main purpose of the Constitution?

Have you read the Federalist Papers?

I won't bore you with the answers as I believe my point is adequately inferred. This leads to my final point.

The authors of the Constitution had a vision of learned representatives who would go to their state capitals or to Washington and act as servants of the national trust in order to preserve the tenants of democracy that are described therein. Apon completion of their term they would return to their more prosperious professions or crafts. This is an important element in the preservation of the Constitution that we have forgotten. To me there is no coincidence that the rise of the professional politician and the dismantling of the principals of our Constitution have coincided with the technological advances that have made the media a dominant force in our society. The public is simply too preoccupied with entertainment to study democracy or economics. The professional politician knows that all that must be done is to keep our citizens comfortable in order to gain reelection. Socialism in the 21st Century is not about freeing the enslaved masses, it is about keeping the masses from thinking about their responsibility to preserve their own freedom.

With these thoughts I shall say farewell Intrepid One. Keep to the task and perhaps we shall enlighten those who will allow, one at a time.

With kindest regards,

George