March 31, 2010

"Repeal and Replace" - Filling In the Outline

Hatched by Dafydd

C.K. MacLeod of Zombie Contentions posted a fascinating discussion of the larger context of the fight against ObamaCare; his point is that we cannot win the argument to repeal ObamaCare until and unless we are prepared to argue exactly what should replace it:

As on other issues historically identified with the left, a reflexive rejection of progressive premises tends to impair any simultaneous argument for alternative solutions. This contradiction underlies tension between “Reformlicans” and “Repealicans” that will likely worsen over time. Most of us realize that “Repeal + Reform” is a much larger coalition than Repeal or Reform separately, but concessions that seem obviously rational to some, as validating aspects of the just-passed bill initially seemed to Senator John Cornyn, may leave others nonplussed. Conversely, forms of direct opposition -- such as unstinting criticism of Stupak, support for constitutional challenges, disputing the concept of health care as a “right” -- carry some risk of re-casting Republicans as “enemies of health care.” Even the persuasive argument that ObamaCare will overwhelm the system with new demand implies that millions of Americans are presently under-served on a matter of life and death, and calls into question the critic’s commitment to their welfare.

Jonathan Tobin, writing at Commentary in his Contentions blog (and quoted by Zombie Contentions) argues that the fight is not merely to overturn ObamaCare, or even the other specific manifestations of Obamunism such as Cap and Tax, Card Check, and bank seizures; rather, we must attack the entire leftist "narrative," the overarching philosophy of thuggish domestic imperialism (my phrase) that has animated government takeovers of society since the days of Otto von Bismark, creator of the modern welfare state and arguably the first European-style social democrat, in contradistinction to Socialism, Marxism, and the much later Naziism.

As Tobin puts it:

The challenge for conservatives is more than merely pointing out ObamaCare’s shortcomings, its enormous costs, and its impact on a huge American industry. The challenge is also more than demonstrating how the health care that ordinary Americans get -- and which the vast majority currently think is good -- will decline. Conservatives’ real job is to attack the liberal narrative. What they must point out is that, rather than the next inevitable step toward greater justice, Obama’s “reform” is, in fact, a move away from individual freedom and toward the same nanny welfare state that Americans thought they had put to rest. Rather than a progressive innovation, ObamaCare is a retrograde move that seeks to drag American politics and the economy back to the mistaken emphasis on government power of the mid-20th century. Like so much of the welfare economics and failed liberal policies of that era, ObamaCare has the potential to do far more harm than good. Policies that are driven merely by good intentions and a belief in expanding government power can help derail the engine of American wealth creation and freedom -- just as the devastating mistakes of “Great Society” liberalism did in the past.

The critique of these two gentlemen is vitally important; yet it tells us only the what and why, not the more important how: How do we craft a counter-narrative, an arc of fiscal liberty that resonates with the freedom-loving American people, yet clearly explains how sound government policy that encourages free-market thinking can nevertheless reduce the irreducible problems that many Americans see as inevitable under Capitalism.

I believe those "irreducible problems" are in reality category mistakes on the part of an electorate misschooled for decades by liberal educators; they believe that it's a failure on the part of Capitalism that some people go bankrupt, or lose their houses, or find themselves unable to pay for medical care after refusing to purchase medical insurance... whereas those are actually features, not bugs. Without the right to fail, there is no right to succeed; the nanny who protects you from your own stupid decisions also "protects" you from your own bold investment. Or as Dennis Prager puts it, "the bigger the government, the smaller the citizen."

But stated so starkly, that is not a winning argument, to say the least. Many people are frightened by the lack of a "safety net." So what are we to do?

Fortunately, Capitalism coupled with liberty is such a powerful engine of wealth creation that it can coexist with some degree of statism without harm; too much government control, however, will stifle creativity and innovation, causing the creation of wealth to sputter out, like a candle under airtight glass. Our challenge is to craft solutions to what most Americans see as problems that satisfy the following three conditions:

  1. Rely on free-market economics for the core resolution.
  2. Include some "safety-net" provisions to allay the fears of those Americans who do not have 100% confidence in their own ability to provide for their families in bad economic times.
  3. Design those provisions to be self-limiting, so that they cannot grow exponentially -- as leftist schemes like the New Deal, the Great Society, or Obamunism invariably do -- metastasize, and eventually overwhelm the capitalist core.

Free-market solutions to "market" failures, real and imagined

The first step is educational: The market cannot "fail;" the market is nothing but the conglomeration of all the transactions by all the buyers and sellers; it's like saying that the law of gravity failed because you caught hold of something before falling off a cliff.

But a "free market" can fail if freedom is curtailed by external force... i.e., by the government. The controlled or "fair market" that is left will be a grotesquely distorted caricature of a free market, without the ghostly power to guide buyer to seller by an invisible hand. The free market defines the standard: To the extent that government policy alters the natural outcome of a transaction, that policy has failed -- at least for the loser in that transaction; it has correspondingly succeeded wonderfully for the winner. (Watch Oskar Schindler in action in the opening minutes of Schindler's List for an excellent illustration of the principle.)

Let's step away from ObamaCare for a moment and talk about a different instance of the same dynamic. In the case of the housing collapse, the perverse government intervention driven by leftist activists like Rep. Barney Frank (D-MA, 100%) and Sen. Chris Dodd (D-CT, 100%), and by groups like ACORN and Rainbow PUSH, caused a few people became undeserving winners -- those who "bought" houses they couldn't really afford, but were shielded by overly liberal, biased laws from suffering the consequences; some became deserved winners -- everyone who was in good financial shape and was able to profit and "move up" when housing prices dropped... along with those politicians who schemed to enact the laws in the first place, then took advantage of their political odor of "good deeds;" and a whole bunch of ordinary folks on the margin became deserved or undeserved losers in the resulting financial catastrophe.

(The words deserved and undeserved are shorn of their usual moral implications in this case; I mean only that "deserved" means the person consciously took actions that led to failure or success; "undeserved" means success or failure was largely the result of external forces beyond the individual's control.)

The collapse of the housing bubble was a classic illustration of how government manipulation, even with "good intentions," generally causes a market to spin wildly out of control... and "the best-laid schemes o' mice an 'men gang aft agley," as Bobby Burns wrote; the control economy is overtaken by events.

(Speaking of appropriate classical references -- that Burns poem, "To a Mouse, on Turning Her Up In Her Nest With the Plough," is all about a "wee, sleekit, cow'rin, tim'rous beastie" who is evicted from her mousehole, despite all her careful planning, due to the unwelcome intervention of a large, unfeeling, external power beyond her control... to wit, a coulter or one of the blades of a plough.)

The lesson here is that any economic "reform" should hew as closely as possible to letting the market run its course; the collective decision of millions of intelligent people, each looking out for himself and his own, is almost always smarter than the brokered decision of a few weisenheimers in Washington. Thus on health care reform, we should restore a market that had already been terribly distorted by hamfisted government meddling long before Obama was elected:

  • Decouple insurance from employment, so that the connection between who gets the benefits of insurance and who pays for it is as close as possible. For example, the GOP plan could allow individuals to deduct insurance payments from their income for federal tax purposes, but not allow businesses to deduct as expenses any portion of an insurance policy they pay for their employees.

    Since a business can deduct salary as an expense, that would encourage employers not to pay for insurance... but instead to put that money into higher wages, and let the employees pay their own insurance out of it.

  • Dramatically reform tort law, particularly medical malpractice cases, to reduce lawsuit abuse.
  • Remove all rules restricting cross-state sales of health insurance.
  • Remove all "mandated" coverage and allow companies to offer any mix of policies they want, from bare-bones, minimalist catastrophic-care plus a medical savings account all the way up to a "Cadillac" plan, without any special government taxation or regulation to push insurers one way or another.
  • Allow insurance companies to charge more for customers with pre-existing conditions, then use some less distorting means of getting insurance for those unfortunates. (See the "safety net" section below).
  • Allow insurance companies to offer "group" health insurance based upon any set of customers they can imagine.
  • Remove all barriers to entry by smaller, specialized insurance carriers, subject only to requiring them to maintain sufficient capital to pay off their caims -- or require the insurers to carry insurance for an unexpected spate of claims (like from a natural disaster).

Once the perverse incentives foisted upon the health-care system by do-gooder liberals and control-freak liberal fascists are repealed, many more insurance customers will pick the kind of plans that require them to pay their doctors directly for most routine procedures -- introducing a market incentive to be a more careful health-care shopper. Likewise, the reduced need for "defensive medicine" will reduce the number of unnecessary tests and procedures whose only purpose is to set up a legal defense to the inevitable lawsuit if anything goes wrong... even if the patient was properly informed of that risk.

Therefore, the price of medical care, hence insurance, will drop markedly. And with cheaper insurance, more people will buy it -- supply and demand. Finally, none of these solutions even begins to approach the horrific cost of ObamaCare, both in money siphoned off by the federal goverment (from Medicare, student loans, general tax collections, and from the states) and in liberty.

A market-friendly safety net for the market

On a recent broadcast of Dennis Prager's show, his guest, a female psychologist, opined that unless a woman first feels safe, she cannot feel loving. I reckon it's similar with ordinary, non-ideological Americans: Unless they first feel safe, they cannot feel self-reliant. As self-reliance is the distilled essence of Americanism, our policies must first reassure the people that they will not be abandoned beside the road when they get into trouble, especially when due to simple bad luck.

But by the reverse of the same coin, we cannot allow a "safety net" to take the place of the free market itself; a safety net does not generate weath, nor even save money. It is, by definition, a distortion on the market, hence a drag on the system.

But while the free market work wonderfully in aggregate, it can be very cruel to many people to whom Fate deals a bad hand. A good example is a person born with a congential heart defect: He didn't do anything foolish or wrong, but what insurer would want to write him a health-care policy?

Typically, with group policies, insurers will not cover medical problems related to a known pre-existing condition for some period of time, often six months to one year; thereafter, they will. The feds could encourage this across the industry by levying a very small tax on each policy (passed along to the consumer) that would pay to subsidize the increase in premiums demanded by insurers of those customers who have pre-existing conditions; the subsidy would not apply to pre-existing conditions that are caused by damaging or risky behavior, such as smoking or excessive drinking. All proceeds of this tax must, by the law, be spent on premium subsidies; that becomes important in the third section below.

Insurers have the option to offer policies to such people or not, and to charge what they will; but since the market of people with pre-existing conditions is large, and the premium would be partially covered by the feds, there will always be some insurers willing to offer that coverage. (My guess: Every major insurer would cover them, since the higher premiums take into account the increased risk; it would be a lucrative business.)

This is clearly a distortion of the market; but it's a minor perturbance for the vast majority, and it resolves what most Americans see as a serious problem... without any "mandate" to buy coverage or government control of insurance policies or medical treatment. (No rationing, no death panels.) This is sort of "market-friendly safety net" I mean.

Limited vs. self-limiting

Finally, the safety net features must be self-limiting: The government cannot be allowed to profit or benefit from increasing the premium tax; if they do, then the feds will raise rates every time they need to cut the deficit. Even worse is when such cancerous growth is built right into the system, as with Medicare and Social Security. Thus, the bill itself must include provisions requiring all premium taxes to be used only for subsidizing the medical insurance of those with pre-existing conditions.

(It's true that Congress could change the law to suck some of that money away; but they can already do that. This bill wouldn't make it any easier, and it might make it harder -- since individuals would actually be able to see their tax rise, making them more willing to vote out the crooks who raised it.)

ObamaCare has a number of enacted limits; but it also has huge incentives for future Congresses to remove or violate those limitations, restrictions, and consumer protections; because when they do, they will be able to keep far more of the money for themselvs.

We need a new approach where the "default" is the free market, not government control.

In the final analysis...

The Republican plan to replace ObamaCare must be a free-market "solution," not a competing version of big-government Obamunism; it must include a safety net... but a market-driven one not in opposition to, but in harmony with, the free market; and its elements must be self-limiting, at all times refusing and removing any way for the United States Treasury to get rich quick, at taxpayer expense, via health reform.

Hatched by Dafydd on this day, March 31, 2010, at the time of 7:33 PM

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The following hissed in response by: Dick E

Allow insurance companies to offer "group" health insurance based upon any set of customers they can imagine.

What is preventing them from doing so now? Answer: Nothing.

Related question: Why would they want to? Answer: They wouldn’t.

Insurers would much rather evaluate each risk individually and decide which applicants they wish to insure and at what prices.

The group plans that now exist are purchased by employers and unions because they want to provide a benefit at lower cost than the average participant can negotiate on their own. A group plan offers the insurance company an opportunity to get a block of business based on a group of participants that has come together for reasons other than purchasing insurance. The substantial commitment by both employer and employee tends to reduce underwriting distortions that could occur if people formed groups for the sole purpose of purchasing medical coverage -- or if groups were created from, say, holders of a particular credit card or buyers of a particular product.

The above hissed in response by: Dick E [TypeKey Profile Page] at April 3, 2010 12:34 AM

The following hissed in response by: Dick E

A few issues:

1. In the scenario you describe, what happens to an existing policyholder who was healthy at policy inception, but who develops a serious problem later in life? I assume you would want to protect such a person from being dropped -- other than for nonpayment of premium.

How much would their premium be? It wasn’t a “pre-existing” condition before, so would the tax subsidy apply?

Or would the insurance company be compelled to charge the same premium as for others without health problems? Our state -- and, I assume, others -- now compels this.

[This paragraph is a personal rant that really doesn’t bear on the points you make. Sorry, but: The problem is, once you get sick, the state’s compulsion applies only to your current insurance company. You’re “locked in”; no one else will write you a policy. Why’s this a problem? Well, suppose your illness is something rare that only a few clinics in the country are really competent to treat. Your health plan has always met your needs before, and you’ve been a faithful, premium-paying customer for years. But now they insist you go to one of the schlubs in their network. You’d like to switch to another plan that will send you to someone who is a real specialist, but no company will write a policy for somebody with a serious pre-existing condition. End of rant.]

2. Then there’s the matter of the variety of conditions someone might have. A congenital heart defect could tempt an insurer (with a tax subsidy) to roll the dice; the person will most likely require greater-than-normal expenditures some day, but they might drop dead in a week.

There are other, much more difficult situations. For example, consider Idiopathic Pulmonary Fibrosis. IPF is a lung disease of unknown cause (hence “idiopathic”). The typical prognosis from onset of symptoms to death is three to five years. There is no therapy for IPF; the only treatment is a lung transplant, which can extend life and improve its quality for many years.

So imagine someone with IPF walking in to an insurance company and applying for new coverage. Odds are very high that this person will incur many hundreds of thousands of dollars in medical expenses within a very few years. And if they have and survive a transplant, their lifelong medical expenses will be very high. How does the free market price such a policy -- even with the tax subsidy you propose?

What about Type 1 Diabetes? Type 2? Asthma? Cancer?

3. Your proposal could have the perverse effect of causing some people to avoid buying health insurance. After all, those chump policyholders are paying a tax that’s supposed to keep my premium down if I get sick and really need the insurance. (The tax probably wouldn’t lower premiums enough for the very sick to get cheap coverage, but the disincentive would still be there.)

4. In today’s free market, companies simply refuse to write individual policies for serious pre-existing conditions. They don’t want to take the risk. They could offer the six to twelve month deferred coverage typical for group plans, but they choose not to. And I don’t see how the tax you propose would change this.

5. So how would the subsidy affect individual policies? Let me take a stab at it: Say there’s a modest-sized health insurer that collects $10 million a month in premiums. You don’t specify, but let’s say the “very small tax” is 1%, or $100,000 per month. So, what if they decide to write just one policy for a known IPF patient. Then they decide to insure a Type 1 Diabetic, a few Type 2’s and some cancer patients -- say pancreas, liver, brain. If you’re going to keep premiums for these folks below, say $2,000 a month, then just a few of these would use up the entire tax subsidy; there would be nothing left for comparatively benign conditions like high cholesterol. And the company can’t add more pre-existing condition policies until they grow their overall policy base so that the $100,000 per month increases.

6. As for “damaging or risky behavior,” what would be excluded? Lung cancer? COPD? Cirrhosis of the liver? None of these are invariably self inflicted.

The above hissed in response by: Dick E [TypeKey Profile Page] at April 3, 2010 12:39 AM

The following hissed in response by: Dick E

Don’t get me wrong, Dafydd. I really like your thought process on this issue. It may be that, if covering pre-existing conditions is to be part of the Republican health care plan, we need fresh ideas from people who are neither health industry professionals nor politicians.

The above hissed in response by: Dick E [TypeKey Profile Page] at April 4, 2010 12:16 AM

The following hissed in response by: Dafydd ab Hugh

Dick E:

You're so deep into the weeds, all I can see are your eyebrows!

Either I haven't done a good job of conveying my thesis, or else you have a pre-existing mental set that precludes you from seeing it <g>.

I'm only setting down markers for the general outline of a "replacement" health-insurance reform that is more (not perfectly) free-market than anything the Democrats have to offer... but which still covers the most important points to ordinary blokes:

  • Portability, so you don't lose your insurance when you change jobs;
  • Some mechanism for covering pre-existing conditions, so people with asthma or a heart defect aren't told they can't get insurance, so if they have a medical problem, they can just go off in a corner and "decrease the surplus population;"
  • Tort reform;
  • No mandated coverage -- let market competition decide what coverage is available;
  • Don't interfere with insurance companies' ability to sell insurance to anyone;
  • More personal responsibility, which means lower premiums;
  • No massive tax increase.

I'm not attempting to construct a detailed law establishing just how each company handles customers with pre-existing medical conditions; first, I'm only offering an outline; second, I don't even want Congress to be so specific. Let a thousand flowers bloom.

My thesis is that we cannot beat something with nothing... and the corollary, equally true, is that we cannot beat large ball with small ball.

That is, we can take a minimalist approach with the stuff nobody wants (like mandates, tax hikes, and rate increases); but for the stuff that nearly everybody wants -- including coverage of pre-existing conditions in some form that doesn't utterly destroy the free market -- we will have to accept some Progressivist ideas if we want to bring the American people along with us.

As of 2010, there is no winning constituency for a pure free-market in health care, just as there is none for ObamaCare levels of government control. The moderates, where elections are won or lost, want a little Socialism and a much bigger dollop of Capitalism.

I'm not designing any specific plan for how to handle pre-existing conditions; that job is best performed not by bloggers, not by government officials, but by the policy-writers of individual insurance companies, in competition with their counterparts elsewhere.


The above hissed in response by: Dafydd ab Hugh [TypeKey Profile Page] at April 4, 2010 4:26 AM

The following hissed in response by: Dick E


Your original post did indeed talk about the principle of having a system that is grounded in free market economics. But you then went on to give seven fairly specific ideas about how this might be accomplished. My posts (with the possible exception of the item identified as number 1) responded to your specific proposals. Excuse me for taking you at your word.

The watered down version tendered in your response immediately above offers generalities I have heard from any number of Republican/conservative pundits and politicians. Your original post had meat on it. I chewed.

The problem is, if we don’t come up with an actionable alternative to ObamaCare, we are, in fact, just the “party of no”.

By far the most difficult concern is finding a way to cover pre-existing conditions. Just about everyone says we need to do this. So far, the only proposals that have gained any traction require mandatory universal coverage. Just saying that such a mandate is a bad idea is not going to cut it. We either need to find a workable alternative or get off the pot.

Even the vaunted Paul Ryan doesn’t handle this very well. He says “when helping Americans with pre-existing conditions obtain coverage, we should focus on innovative state-based solutions, including robust high-risk pools, reinsurance markets and risk-adjustment mechanisms.” That’s pretty vague and probably not going to fly.

You, Sir, have provided at least a couple of creative ideas to address pre-existing conditions -- one here, one or more last year. I haven’t seen a workable proposal yet, but I truly applaud your efforts.

But here’s a horrible thought: What if the Democrats are right? What if the only workable way to cover pre-existing conditions is mandatory universal coverage? If that’s the case, let’s acknowledge it and, with that in mind, strategize what our health care system should look like.

  • Maybe we could offer minimal changes to our current system -- something like your list, minus the pre-existing condition provisions. After all, most people already have insurance, and those who do are generally happy with it. Adding portability would have at least some small effect on pre-existing conditions.
  • Or maybe we could require mandatory catastrophic health insurance; the problem is that politicians would decide what’s included in the definition of “catastrophic”.
  • I really hope we can find another way. So I hope you keep your Poirot-esque “little grey cells” working on this issue.

    The above hissed in response by: Dick E [TypeKey Profile Page] at April 4, 2010 8:26 PM

    The following hissed in response by: Big D

    Er, a few of problems you a have missed:

    1) One of the great distorters of medical costs is medicare. I'd propose that the federals divvy up huge numbers of the elderly into random lots, and have insurers bid to provide coverage. Best offer (low cost, highest benefits) wins the lot. have the seniors fill out service cards - basically rating the service received. Those cards are used in the next round to determine if the insurer is allowed to continue.

    2) The other big distorter is our desire not to step over dead bodies. Our hospitals are required to accept patients at the emergency room regardless of their ability to pay. Want to know why an aspirin costs $2 at a hospital? That's why.

    So how do we avoid the dead body step over? Set up a policy where everyone pays something, even the indigent, the illegals, everyone. You are fingerprinted at the door, your ID checked, and, if necessary, your wages or benefits garnished to pay for some percentage of your medical care (even 5 to 10% would make a huge difference).

    Alternately - set up endowments at selected hospitals (non-profits) to pay for those without coverage.

    3) The government controls the supply of doctors and nurses via student loans, registration and insurance requirements, etc. Loosen this up. Perhaps easy immigration for those that bring medical skills.

    Lastly, I'd like to recommend to you one of my favorite stories. It is by Verga, called "So much for the King". In the story a man who operates a sedan chair for rent is commissioned by the king to carry his wife across Sicily. Before the trip he sees the king pardon a man from execution. This kind act disturbs him greatly - if the king can save a man with a wave of his hand, then can't he also destroy a man the same way? What if he accidentally drops the queen? What if he is attacked by bandits? What if she just has a bad day? He succeeds in transporting the queen, nothing goes wrong, and he is well paid for his troubles. But his nerves are shattered by the experience, the stress.

    This is the crux of my objection to progressives -if you have unlimited power to help those in need, don't you also have the unlimited power to destroy whom you wish? Isn't just the knowledge that such power exists corrosive and distorting to our nation? You don't need to figure out how to make your business profitable - you need to find the king that will make you profitable by decree.

    Also it is the antithesis of the Darwinian constitution - it is pure creationism, with benevolent (and occasionally angry) super beings deciding right from wrong, and punishing those that do not please them.

    The above hissed in response by: Big D [TypeKey Profile Page] at April 6, 2010 10:35 AM

    The following hissed in response by: GW

    A superb post Dafydd - and one I have meant to respond to for days and it tickles several inchoate thoughts that have been banging around in my head for a long time. At any rate, am submitting this one to the Council

    The above hissed in response by: GW [TypeKey Profile Page] at April 6, 2010 1:42 PM

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