Do You Make the Same Mistake in Economic Logic as Barack Obama?

“Administration Announces Regulations Requiring New Health Insurance Plans to Provide Free Preventive Care”

A doctor’s letter to the editor – relevant to the Senate debate about repealing ObamaCare – was published in The Wall Street Journal.

Your otherwise informative Informed Patient article on Jan. 18 is encumbered with a headline unbefitting the Journal: “Unexpected Limits of New, Free Preventive Care.” No goods or services are free.

The suspect headline is most certainly due to another, quoted above and from a 2010 press release by the administration of Barack Obama, who had recently forced his version of health-insurance reform through a partisan Congress.

Free-Good Psychology

  • free good. Commodity that has no price because it is not scarce and does not require the use of scarce factors of production to create, e.g. fresh air and sunshine (in certain parts of the world). Things that are given away without charge (e.g. book matches or government services) are not free goods because they have opportunity costs. (Source: The Economist Dictionary of Economics.)

In a groundbreaking book entitled Health Care Turning Point, Professor Roger Battistella of Cornell explains how Obama’s mistake has precedent in out-dated policy from the first half of the 20th century.

The interposition of third parties and rise of well-financed insurance companies in the aftermath of the Great Depression had a dramatic opposite effect [on reducing health-related inflation]. It created the perception that health care had become a free good, an illusion springing from the World War II public policy decision granting employers tax incentives to become the primary provider of health insurance to workers and their families. This dramatically reduced the need for out-of-pocket payments since, at the time, it was normal for employers to pay the full premiums and first-dollar coverage was the norm. This free-good illusion, when combined with the uninterrupted freedom of hospitals and physicians to set their own fees, established a dynamic for excess spending that, with few interruptions, has continued to the present.

Benefit of Consumer-Driven Health Care

Consumers are the best check on runaway inflation in health care caused by free-good illusion. The transfer of ownership in health insurance to individual Americans and families from employers and other third-party suppliers would provide incentive for competing health insurers to offer the greatest value.

A transfer of health insurance ownership would also permit Americans to share in efficiency savings, vital for promoting price consciousness in the prudent use of health services. As consumers assume a watchdog role, they’ll serve as a check on pricing and billing practices by health providers.

Republican Leadership in the Senate

“Republicans in the House of Representatives kept their promise to you by voting to repeal the Democrats’ health spending bill,” Senate Republican Leader Mitch McConnell said, describing his intention for the upper chamber of Congress. “I hope the Senate will soon follow suit with a vote of its own.”

McConnell needs to reassure Americans that contrary to fear mongering by Barack Obama in re-election mode, Senate Republicans aren’t trying to take away benefits, but instead are working to create legislation that would guarantee the security of universal health care protected by the Constitution.

Health Care for Every American

Providing all Americans with the security of health coverage requires executive leadership with competence and character, to recommend the necessary repeal of the Democrats’ costly health-spending bill, the passing of a constitutional amendment that provides a legal basis for an individual mandate, and new legislation for health-care reform that links common-sense innovation for tax-advantaged health savings accounts to standard deductions in a fair and simple income tax.

References

Graham Bannock, Ron Baxter, and Evan Davis, The Economist Dictionary of Economics, Fourth Edition (Princeton: Bloomberg Press, 2003).

Roger M. Battistella, Health Care Turning Point: Why Single Payer Won’t Work (Cambridge: The MIT Press, 2010).

Steve Forbes, Flat Tax Revolution: Using a Postcard to Abolish the IRS (Washington: Regnery, 2005).

HHS Press Office, “News Release,” U.S.Department of Health and Human Services, July 14, 2010.

Advertisements