Free Markets, Free People

cost controls

The Dangers Of Reactive Populism

Not necessarily the danger to the politician – they’re seizing upon something which stirs up the public and trying to cash in on it politically.  But such “cashing in” usually leads to bad law.  And bad law leads to unintended consequences and usually more government intrusion.

President Obama will propose on Monday giving the federal government new power to block excessive rate increases by health insurance companies, as he rolls out comprehensive legislation to revamp the nation’s health care system, White House officials said Sunday.

This “new power” to “block” (i.e control) “excessive” (who gets to define “excessive”?) rate increases is a perfect example of the point.

By focusing on the effort to tighten regulation of insurance costs, a new element not included in either the House or Senate bills, Mr. Obama is seizing on outrage over recent premium increases of up to 39 percent announced by Anthem Blue Cross of California and moving to portray the Democrats’ health overhaul as a way to protect Americans from profiteering insurers.

In reaction to a single insurer in a single state raising the premium because of the loss of subscribers and revenue due to the recession, Obama has seized upon that as a populist reason to call for more government control. The subscribers Anthem needs to balance out those they’re paying for are gone. California has been very hard hit by the recession and Anthem is attempting to survive to continue to pay for those subscribers whose treatments it now covers.

Of course that’s seen as “profiteering” by a government which has managed to run up trillions of dollars in future deficits in the medical care program it runs.

Instead of trotting out a suggestion for more control – in this case cost controls (and we all know how well those work – see Venezuela. See Zimbabwe) – the answer should be competition. Clearly if consumers had a choice they’d leave Anthem and hook up with another insurer less likely to raise their fees.  That possibility would limit most insurers from proposing hikes which would run off those they need to support the pool.  And, if Anthem had the opportunity to broaden its base of subscribers by selling across state lines, it most likely wouldn’t have to raise fees or, at least, not 39%.

Consumers don’t have that choice. Insurers are restricted from selling across state lines. Why? Because bad law says so. This is a situation which can pretty easily be remedied and it can be done with less government. Repeal the laws keeping subscribers from buying from whomever they’d like in the US. We do it with every other type of insurance product you can imagine, health insurance should be no different (consider we do it now with Medigap insurance through vendors such as AARP).

Instead we’re likely to see the opposite happen. And, as usual, we’ll suffer the unintended consequences – less coverage, dropping people at the first sign of a disease which carries substantial cost and, of course, insurance companies which aren’t as financially sound as others going out of business.

The bottom line is Obama still doesn’t understand the unrest and dissatisfaction with the direction of this country (as represented by the Tea Parties) has to do with the size, scope and cost of government. The solution here is simple and something which has been proposed by the GOP for quite some time. The administration’s answer, however, is to do precisely the opposite. Obama’s answer to everything is more government, more control, more spending.

And that’s the wrong answer.