Market-Based Solution to Health Care? Put Your Money Where Your Mouth Is

Republicans, like Democrats, have some good ideas and some bad ideas on reforming health care in America. I'll address some Republican ideas here, but I'll discuss the Democratic ones also in a follow-up tomorrow. The good ideas include equalizing the tax benefit for individually purchased and work-place provided insurance, reducing health care costs, and improving transparency within the system. The bad ones involve looking for market-based solutions to the health care problem.

Mitt Romney, John McCain, and many other Republicans have proposed health care solutions that rely on opening up the market across state lines as a way of encouraging competition. Of course this would have the appearance of increasing competition between insurance companies, but states would suffer a decreased capacity to regulate. Unless this is accompanied by a significant increase in federal regulations, something that McCain's plan seems to omit entirely, it would lead to all insurance companies consolidating in a state with lax regulations (like the credit card companies in Delaware) and amount to a massive deregulation of the insurance market.

There's nothing wrong with competition. In fact, incentivizing insurance companies and health care providers to compete is a good idea, but it's not enough on it's own. Even if competition across state lines did occur, it would be a total mess. Insurance companies negotiate reduced prices with health care providers, which is why HMOs and PPOs require or encourage you to go to doctors that are in their network. By purchasing insurance from a company based in Florida, a person in Washington will always be out of network and the health care costs to the consumer would sky rocket. Of course the insurance company would love being able to rake in premiums and never pay anything out. I've seen this first hand when contractors that I worked with received health insurance through their employer, who was based in New Jersey.

All forms of insurance are quite similar to gambling with a much less fun payoff. You pay your premiums every month and if you need medical attention, you cash in. Insurance companies should be thought of like casinos, they are going to try to stack the odds in such a way to maximize their profits. Like casinos, they need regulation to ensure that they aren't stacking the deck unfairly.

But their is an underlying hypocracy to their proposal. All of these political figures argue against nationalized health care, but they don't seem to have a problem participating in it. Members of Congress are part of a government supplied health care system that shields them from heavy costs. In effect, this is socialized health care, but they don't seem to mind when it's covering their families. Pat Buchanan argued that government provide health care would result in "bureaucrats deciding what care each of us shall receive, when we may receive it, and whether we even ought to have it." He seems totally out of touch with the fact that we already have that through insurance companies.

But of course politicians are out of touch, they aren't buying insurance on the open market like they are telling the rest of us to do. In effect, they are telling us "do what we say, not what we do. "All members of Congress that are advocating a market-based solution should put their money where there mouth is and cancel their government-provide health care, opt out of medicare, and buy insurance on the open market.