Government Insurance or Corporate Insurance

July 20, 2012 in Economics, Government, Home

Insurance: A large group of people pooling their resources together in case of emergency.

That’s similar to the description of government. So what’s the difference? When do we use government or leave it to the free market?

We the people, pool our resources together to create a society that is safe and stable; protecting and investing in life, liberty, and fair competition. To achieve this, sometimes we use our democracy and sometimes we use corporations. There is much debate about the healthcare industry and whether it should be insured by government, corporations or a mixture of both.

The economics behind the health-care industry are unique because customers can’t do much to influence prices. Example: If you are deathly sick you will buy whatever makes you better, no matter the price. Economists call this inelastic demand. Corporations call this a gold mine. Our healthcare prices will always be too inflated if we let hospitals, pharmaceutical, and insurance companies set the prices. 

Another primary economic factor is: the bigger the pool of people, the lower overall risk. The insurance company with the most customers can offer the lowest price. So, it is actually better to have a monopolized or socialized health insurance industry. This explains why currently there are only a  few large insurance companies. These “bigger is better” advantages keep new smaller insurance companies from competing. So, you can easily see that the health-care market isn’t a free market, and it will never be. It is currently a heavily regulated oligarchy. Oligarchies pose many problems, including price fixing and operational inefficiencies that accompany any large organization, whether public or private.

Water companies are government controlled. Imagine if a private company owned our water lines playing by the normal rules of capitalism, they would charge so much that some people wouldn’t be able to afford it. Our basic necessities, left to the free market, would naturally absorb all of our capital and destroy economic stability. It happened in Bolivia. The Politics of Water in Bolivia | The Nation

We also saw an example of price gouging a basic necessity in the energy industry when Enron doubled their electricity prices overnight. It happened right after conservative politicians reduced regulations in the industry. Their enormous profits from their overpriced electricity were used to make risky financial decisions that ultimately destroyed the company and added to the financial collapse of 2007.

The finance industry is another example of a market that needs some restraints. I hope you are beginning to realize the importance of government regulations; the free market needs a “violence police”, as Adam Smith advised, to step in and create rules when obviously needed. I imagine this being a team of economists, like the Council of Economic Advisers that President Obama created.

So, now we know that health insurance is nothing like normal markets. Health insurers will continue to disrupt the economy, unless we use our powers of government to regulate the market. There is a misconception that the free market will naturally always produce the best output, but not even Adam Smith believed that. Sometimes the invisible hand can do great harm to our economy. Good economics is when you identify the negative consequences of the free market in a particular industry, and improve the market. If you want to stop the invisible hand from wrecking the economy, that doesn’t make you anti-capitalist, anti-American, communist, or socialist, it makes you a democrat. Laissez faire”, french for let it be, is a good general rule, but not always the the right decision.

More often than not, government interference would cause more harm than good. That’s why most markets have few rules and controls. The natural rules of economics gives us the ability to see when to interfere and when to let it be. Yet, most of the country refuses to respect the advise coming from the economic community.  

Economist and the CBO say that the affordable care act, including a public insurance option, would reduce the overall money spent on health-care in America.

So, imagine a non profit insurance company jumping into the market to compete; with their only goal to make their patients healthier. Now, because of their lack of profit some say they will be able to offer lower prices and eventually everyone will chose this public option. Others believe that their lack of profit will not supply the organization with enough incentive to run effectively, leading to more inefficiencies and higher prices. So, what ever inefficiencies the non profit company has, they leave room for the private companies to survive and earn profits. It would be interesting to see which option people choose. The best thing to do is to let both exist and let the market determine which is more effective.

Instead, we created a regulatory agency to fix the problems with the health insurance oligarchs. In essence, we have for profit insurance companies that play by the rules we the people collectively agreed are fair for both consumers and corporations. I remind you that some form of rules are needed to sustain economic stability, that is unless we had a government run non profit independent organization to fairly compete against these insurance companies. Then no regulations would be needed, because if the for profit companies charge too much or don’t offer fair policies, then the non profit will take over the market. 

Regulation or the public option are not the only solutions, there’s always a chance America will lower healthcare costs through improved diet, exercise, and preventative care. 

Our government is there for us to use when any company or collection of oligarchs become too powerful, and we should use it to provide ourselves access to the necessities and protection we need.

Here are some other examples of how we use our government to prevent problems and create stability:

  • That levy won’t survive a big storm, so let’s pull our money together to fix it.
  • Terrorists are killing Americans, so let’s pull our money together to go find them…. or to educate that region of the world.
  • Poor road conditions are causing too many accidents, so let’s pull our money together to fix them.
  • Our majority of the elderly are suffering, dying homeless on our streets, never earning enough money to save for retirement, so let’s create a forced saving tax plan that they get back after a certain age.
  • Our free market healthcare industry is heading towards a monopoly, resulting in excessive profits and a higher mortality rate, so let’s add more competition to the market with a public healthcare company.