Posted by: Dan | September 4, 2009

Competition is the New Socialism

While it’s not related to what I prefer to talk about – birds, biology, science – the health insurance reform debate raging in American politics is something that I have been following very closely. And one of the things that strikes me is the shrill screaming by those referring to themselves as Libertarians, about how socialist ‘Obamacare’ is.

Socialism. You know, the epithet for “various theories of economic organization advocating state, worker or public ownership and administration of the means of production and allocation of resources, and a society characterized by equal access to resources for all individuals with an egalitarian method of compensation.” That one. Never mind the fact that no one, not Obama, Pelosi or anyone else, has proposed the public ownership of the healthcare provider industry (i.e., doctors, hospitals, etc.) or the health insurance industry (a public option being the key part), they still make this claim.

Never mind the fact that there is a significant demand for health insurance coverage. The National Coalition on Health Care points out that:

  • Several studies estimate the number of uninsured Americans. According to the U.S. Census Bureau, nearly 46 million Americans, or 18 percent of the population under the age of 65, were without health insurance in 2007, their latest data available.
  • Even if employees are offered coverage on the job, they can’t always afford their portion of the premium. Health insurance premiums have increased 119 percent for employers since 1999 and employee spending for health insurance coverage (employee’s share of family coverage) has increased 117 percent between 1999 and 2008.
  • Rapidly rising health insurance premiums are the main reason cited by all small firms for not offering coverage. Health insurance premiums are rising at extraordinary rates. The average annual increase in inflation has been 2.5 percent while health insurance premiums for small firms have escalated an average of 12 percent annually.

Employers shoulder a huge burden given the rising prices, which I could also cite, with small businesses struggling the most. The costs are simply too high.

Macroeconomic supply and demand theory defines this problem as one where demand is high and supply is insufficient to meet that demand, if I remember correctly. Now, I’m definitely a layperson in economics and have only taken one semester of economics in college and one year in high school. But I know that low supply for something like insurance doesn’t quite make sense, unless insurance companies don’t see a profit in meeting that demand, or they choose not to see enough of a profit. I don’t know what goes on in executive boardrooms of insurance companies, or on the ledgers of their financial reports, but matching this kind of demand with a supply should not be this difficult. It’s insurance for crying out loud, and the problem isn’t that they ran out of insurance in the warehouses – people simply cannot afford this “commodity.”

As a result, whether it be because they have health insurance or they have a condition that is burning a hole in their wallets, or both, millions of Americans are going bankrupt. In fact, more Americans go bankrupt in the United States than for any other reason (Himmelstein, D, E., et al, 2009). And naturally, wealthy Americans can afford to pay medical bills out-of-pocket, so it is the people that actually have to work for a living who are most threatened. To address this problem, most progressives want more equitable access to health care, because being a honest and hard-working member of society does not guard one against accidents, diseases, or pre-existing conditions. The only place they can get this access in an environment of high costs is to either have the government mandate that private insurers cover them, or for the government to insure the people itself. Either solution sounds ‘socialist’ charity to a conservative, apparently.

If it’s socialism that people are afraid of however, then by all means let’s go the capitalist route in trying to bring down cost. I’ll put this in a way that conservatives should be able to understand: Let’s introduce some competition, even if we have to create a little of our own by offering health insurance at more reasonable costs and free of instances of dropped coverage (i.e., the public option). I know I’ve heard a lot of conservative friends voice concerns that the public option will compete unfairly with private insurers – but these same people are the ones who are pro-capitalism. Competition is good, except when it’s not, apparently.

The benefits of competition, wherever it comes from, are generally agreed up – prices drop and the consumer has more choices, not to mention the fact that the competitors (in this case, private insurers) must innovate and restructure to bring down cost but maintain some level of profit.

The problem with competition from a government-run entity however, are that the government has the capacity to choose how low to reduce insurance costs. They can lower prices to such a degree that private insurers cannot earn a profit anymore. That’s not much of a problem however, because the government-run competitor can also choose to lower costs to a level that is still easy for private insurers to compete with and earn a pleasant profit. Not to mention, the private insurers can always offer a greater quality of their ‘product,’ justifying why the costs to consumers are higher. And, with the amount of lobbyist money being spent by the insurance industry on this issue, the politicians hashing out the reform will have a hefty incentive to go easy on those private insurers.

So, competition might make health insurance executives and their investors (and the insurance industry as a whole) a little less wealthy, but in return, it will reduce the expenses of just about every other industry in the American economy.

That’s socialism?!

Reference: Himmelstein, D, E., et al, “Medical Bankruptcy in the United States, 2007: Results of a National Study, American Journal of Medicine, May 2009.


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