The Case Against Public Health Insurance, in Five Minutes or Your Money Back

Of the many problems of living within sight of the U.S. Capitol and the seat of federal power, perhaps the worst is the tendency for serious, philosophical public policy debates to turn into wonkish statistics battles and scare-mongering. And nowhere in this town of wonks, wags and pols is this phenomenon more egregious than the fight over health care reform, and whether to create a "public option" to reduce the ranks of the uninsured. Given that this argument concerns a fairly momentous crossroads for our country, it would be nice to hear the opposing sides make their cases in clear-cut, conceptual terms that everyone can understand and evaluate. Right?

But alas. Where we need simple, objective facts, we get bewildering, and often contradictory, statistics, which can be distorted in any number of ways. Where we need broad, guiding principles, we get anecdotal horror stories intended to curtail debate.

Liberal proponents trot out a sob story about some poor single mom in Iowa bankrupted by 80 jillion dollars in hospital bills because she didn't have insurance when a piano fell on her. Conservatives counter with the story of some poor old man in Canada who had to wait a decade for a routine hip replacement because his country's public health bureaucracy wouldn't approve the procedure. Then some pointy-headed accountants from the Congressional Budget Office butt in with their estimates of what government health care will cost if hospitals are reimbursed at the current Medicaid rates, or at Medicaid rates plus 8.95 percent, or...

And the problem is, none of these anecdotes are false. None of the statistics are bogus. But they exist as individual trees in a vast forest, forever obscuring our view of What Really Matters. We could use a Health Insurance 101 curriculum, to serve as a starting point and a reality check for the politicians in Congress who, even as you read this, are busy debating how much control the government should exert over your physical well-being. Since no such remedial class seems to exist, I humbly offer the following as food for thought.

What the hell is insurance, exactly? Anybody with an age in two digits and an IQ in three digits will haughtily tell you they know all about something so part and parcel of boring adulthood, but judging by the tenor of today's health insurance debate, I'm inclined to think many could use a refresher.

In plain economic terms, "insurance" is a means of lowering risk. You insure yourself against things you hope won't happen, such as car crashes, house fires and sudden death. Insurance allows people to protect themselves from unlikely, but unpredictable, events that could very well ruin them financially. And insurers provide this protection when they judge that the premiums their customers pay will outweigh the costs of cleaning up after the rare but disastrous events they promise to insure against.

This is why drivers pay hundreds of dollars per month for car insurance, and why people with beach-front property pay thousands of dollars per year for hurricane insurance: They know a crash or a storm is unlikely, but they acknowledge that such things do happen. Insurers apply the exact same analysis: They'd rather not have to pay a claim, but they know they will have to sometimes. When the crash or the storm doesn't happen, everyone's happy.

The key here is that insurance is something that both you and your insurer hope you'll never need. Drivers with car insurance don't run red lights at 120 miles per hour, because they know insurance won't do them much good if they're dead. Thus arises another important feature of insurance: It should encourage people to avoid doing stupid things. This is the reason good drivers pay less for car insurance, and why nonsmokers pay less for life insurance. Insurers reward their customers in return for acting responsibly and lowering the risk of events the insurer doesn't want to pay for.

Then there's health insurance, which throws these basic principles out the window. In most employer-sponsored plans, each participant pays the same monthly premium, regardless of their likely health care costs. And in the current government-run health insurance programs (i.e., Medicare, Medicaid, SCHIP), beneficiaries receive coverage soley based on their age or economic status. In both cases, the insurer gives the insured no financial incentive to do the unpleasant things that minimize health costs, such as exercising, eating well or avoiding smoking. It should not be surprising that people respond by not doing these things. Meanwhile, health care costs explode.

So we have a health care system in which people ruin their health, because they have been given a blank check to do so. The negative effects of Marlboroughs, Big Macs and La-Z-Boy recliners are small, incremental, and difficult to see, so many Americans indulge in one or more of them with reckless abandon. When they need to see a doctor because of a lifestyle-related condition (think lung cancer, heart disease, Type II diabetes), they incur only a fraction of the cost, if they have insurance (with the notable exception of bogus policies that don't cover what they're supposed to cover).

Economically, this makes no sense. Consumers don't see the true costs of their purchases, because doctors, hospitals and pharmacies send the bills to a third party, the insurance company (or the government). Of course, many Americans understand the effects of smoking, junk food and sloth; they avoid these things, and thereby support their less-conscientious co-workers and neighbors. Insurance companies actually compete for healthy customers, because they offset the unhealthy customers, who pay the same rates but need lots of costly care.

Unfortunately, the healthy still need insurance, to do what insurance is supposed to do: avoid the costs of unpredictable disasters, such as getting run over by a bus and needing expensive surgery. In the process, they pick up the tab for the avoidable expenses regularly incurred by the people who eat too much, drink too much and smoke too much. This is nothing more than a legalized protection racket that preys on anyone who pays more in premiums than they receive in needed health care.

Somehow, health insurance has morphed from "protection against things I try to avoid anyway" to "the way I get someone else to pay for the consequences of my bad decisions." Remember this as liberals in Congress, along with our president, lobby to expand this perverse system further and put government more fully in charge of it.