12 angry principles
In his book Naked Economics Charles Wheelan talks about how clean the rest rooms are at gas stations in South Africa. There is a simple reason for this: when he was there in 1995 (it may have changed in the last 15 years), gas was sold by private companies at prices dictated by the government.
This worked because a) presumably the government was setting prices at a level the stations would still find profitable and b) markets rock. Markets– where firms can enter and exit easily, where there are multiple actors who are prevented from colluding– are the greatest friend consumers have. Whatever it is that consumers want most– within the limits of what the market can satisfy– consumers will get.
Which brings me to health insurance. There is, effectively, for most people, no market for health insurance. None. This is because each state has different rules about how insurance companies can operate. So you’ve got Blue Cross/Blue Shield of California and a similar name for a company in Nevada, and one for Texas, and so on. Shockingly, in most states, for most buyers, there are only 1 or 2 providers. This is not a market. And, by the rules that are set up, firms do not tend to compete based on how much service they give, but rather on how little.
Enter the recent health care bill.
Good news and bad news: The bad news is that if you’ve got health insurance, you’re stuck with it– until you get a new job, or lose your current one. In that case, Congress has you covered. They do this in the following ways (I think I’ve got all the big stuff):
1) expanded eligibility for medicare/medicare. That’s pretty straight forward.
2) No more Medicare prescription drug “donut hole”.
3) SCHIP would be eliminated and most of those children would be moved into medicare.
4) Insurance providers would no longer be able to disqualify people for “preexisting conditions”
5) The practice of “rescission” (retroactively revoking someone’s insurance policy) would be outlawed.
6) Employers who provide expensive health care plans (~$17k for an individual) would start seeing anything over the threshold amount taxed as income.
6a) Currently all employer-provided health care plans are 100% tax deductible. Which means they’re more valuable than the same number of dollars in income. Part 5 would change that.
7) The creation of a “health insurance exchange”, where anyone who is not covered by an employer plan would be able to shop among dozens of competing plans to find one that works. These plans would fall under federal regulations.
8 ) Employers who chose not to offer such a plan will be taxed at 8% of payroll.
9) People who make below 400% of the poverty line will be given a subsidy on a sliding scale with which to buy health insurance.
10) Individuals who chose not to purchase health insurance will be fined up to 2.5% of income
11) Individuals with a religious objection to purchasing health insurance will be exempt.
12) The Federal government will provide a plan that people on the Heath Insurance Exchange can buy into.
Ultimately, this bill aims to create a heath insurance market of several million people were competition is determined along the axises of price and coverage. The, they say, lurks in the fine print. Having said that, the above seem like some very good principles and mark a welcome change from our current system.
