The Investor’s Business Daily (IBD), reliably Republican in its opinions, embraces Romneycare as "a victory for market-based reform." The recent Massachusetts legislation that mandates health care insurance for everyone in the state is "a big step forward." They fancy "that the plan relies on consumers in a market, undeveloped as it is, rather than seeking to replace private insurance and dictate private care through government fiat."
As I showed in my previous article on this subject, IBD’s assessment is wildly inaccurate. What the IBD applauds is a thorough government entanglement with health care businesses that leaves intact a few empty shells that suggest a "market." A reasonably accurate term for this procedure is fascism. There is no market reform in this because there is no market left standing. When the IBD says that "Mittcare" is "a far cry from Hillarycare," it is saying that fascism is preferable to the communism it sees in Hillarycare, namely, health care owned and operated by state enterprises.
IBD is so certain that health-care fascism is a good thing that it advocates it as a "rough model for market-based, consumer-driven reform of health care nationwide." While some of this is a knee-jerk "us versus them" (Republican vs. Democrat) attitude and some part of it is the IBD’s liking for fascism per se, a good part of it is driven by plain old errors of economic thought. IBD really does erroneously believe that the market needs reforming and that Republicans (and government bureaucrats) are just the engineers to oil and tune up the market machine.
The adverse selection misconception
What’s wrong with the insurance market in the IBD economics book? "By making young and healthy people buy insurance, it directly attacks the problem of adverse selection — the buying of insurance only by the highest-risk customers (or in the case of health insurance, the sickest and the oldest)."
Adverse selection is a fact of life. In the insurance game, it refers to a tendency of the worse risks to take out insurance, unbeknownst to the insurance company. No insurance company wants to or can insure a pool of 1,000 men with heart conditions against heart attacks. Insurance requires diversification, not concentration of risks. One of the skills requisite to running a successful insurance company is risk assessment and control. The insurer requires a doctor’s exam or medical histories. It asks if the applicant smokes. In a free market it asks whatever questions it believes help it distinguish a good risk from a bad risk. In a free market, it charges differential rates depending on the risks of various pools of individuals. It discriminates. It does all these things to overcome adverse selection. It cannot do otherwise and still offer insurance. High-risk customers have to pay higher premiums in a free market for insurance. If a risk is too high for the company and/or if the consumers refuse to pay the high premiums for that risk, then no insurance will be offered for that peril.
It is shocking that a major newspaper like IBD, which advocates market-oriented solutions, does not understand what free markets in insurance accomplish. They are the means by which individuals and businesses discover what risks are insurable, the means by which prices are kept low and quality high, and the means by which innovators find better ways of assessing risks and broadening insurance offerings. They are not a means to subsidize the sick, poor, and old. They are not charities.
If insurance companies have adverse selection problems and do not offer particular lines of insurance, the state has no right to favor insurance companies or high-risk groups by forcing healthy individuals to subsidize the unhealthy. This is simply a barely-concealed scheme of welfare. The IBD, which is against personal welfare, favors this scheme of corporate welfare, because it provides a ready source of forced revenue for insurance companies with the state acting as the intermediary (connector) between the hapless healthy consumers and premium-payers and the companies that receive the funds. With the state as its sugar-daddy and enforcer, insurers will cry adverse-selection all the way to the bank. They will lose all incentive to solve adverse selection problems. They will stop acting as insurance companies do in free markets. They will even accept the inane provision in Romneycare that they not exclude anyone from a policy by using any variable (such as age, sex, or medical condition) that in fact helps alleviate adverse selection!
In short, what IBD conceives as a market failure issue is nothing of the sort. What they advertise as a market-driven solution to this problem is the very opposite. Their confusion on adverse selection is near total. Their preference for corporate welfare, for corporate-state alliance, for fascism is clear. Not that IBD is anything special. Their preference is mirrored in the Democratic and the Republican parties that have passed law after law that merge business and political interests.
Ending unreimbursed health care
IBD likes the idea of forcing everyone to have insurance coverage, even if claims are paid for by taxpayers through state subsidies because it eliminates "the free-riding that forces taxpayers and providers to pick up the tab for unreimbursed care they provide to the uninsured." The financial issue here is that hospitals and emergency rooms are forced to treat all comers, but they cannot collect from those who are uninsured. (Also the uninsured have an incentive to over-use emergency rooms.)
One source of this money problem is that by Federal law (and state laws) hospitals that participate in Medicare must accept all emergency patients. Some laws require companies with health care plans to pay into a fund that subsidizes emergency patients. Like all laws that rob Peter to pay Paul, these laws are bad in all respects. They use offensive coercion. They undermine personal responsibility. They undermine familial, religious, or other bonds of brotherhood to handle medical problems of people in need. They undermine flexible private means of addressing problems in which those on the spot have information about particular people and situations. They undermine the workings and scope of private physician action. They undermine the idea of voluntary social obligations. They lead to further problems that encourage further regulations that spread and undermine other parts of health care markets. They undermine the idea of rights by presenting emergency health care as a "right." They encourage members of society to demand what is not rightfully theirs as their "right." No one has a right to free medical care, emergency or otherwise.
The appropriate method of ending unreimbursed emergency room and hospital care is to repeal laws that make hospitals provide unreimbursed health care that is paid for by anyone other than the patients receiving the services.
What responsibility means
Bad laws wreck society and wreck the character of the people. They wreck the social capital of proper ideas and ways of living, leading to endless strife and conflict. Romneycare is but one further example of a long, long string of bad laws that have wrecked the markets for medical care. IBD dimly recognizes only a tiny fraction of this reality and in a highly qualified and confused way, writing "Some might argue, perhaps rightly, that an insurance mandate is in a sense an infringement on personal freedom. It also requires people to act responsibly and pay their way."
There is no "perhaps rightly" and no "in a sense" about it. A mandate by definition infringes freedom of action.
It is also completely false to say that the Romneycare bill "requires people to act responsibly." Roget makes clear that responsibility means a moral obligation, what ought properly to be done, or what one is duty-bound to do. The old-fashioned idea is that one has ethical duties. One does the right thing because it is the right thing by conscience. Responsibility occurs when one gives one’s word and tries to live up to it, or one assumes an obligation willingly and tries to live up to it. Free markets encourage this type of responsible action because those who act irresponsibly find that others do not wish to deal with them.
Laws and mandates of the state are not the traditional sources of duties or responsibilities. The state wishes you to think so. It wishes to replace traditional virtues with those of duty toward the state. It wants you to consider it your duty to pay taxes or send your children to battle unthinkingly. This is the unconscious rhetoric of IBD.
An insurance mandate of all things now becomes a duty in IBD parlance to live up to and act responsibly. This is a perversion of the word. When state rules, regulations, and bureaus make people live up to some law or other, what is called one’s responsibility is obedience under threat of punishment. There is a forced duty. The obligation is not a social one that depends on trust or voluntary action. It is in the nature of a military role in which one takes orders or else.
By reducing the scope of free market transactions, the Romneycare mandates undermine responsibility with every bureau, council, wealth transfer, and price control that it creates.
How not to argue
Although IBD is not libertarian, the manner in which it argues its position provides a broad lesson in how not to argue. The health care debate, as are many similar debates, is fundamentally a debate over moral issues, over what actions are just and unjust. How is it possible to defend or advance a position in an argument that is essentially moral in nature by abandoning one’s moral principles? It can’t be done. A libertarian cannot persuade anyone that offensive coercion is an unjust principle by advocating an occasional expedient violation in Nicaragua or Haiti or Iraq because it does more good than harm. He will be accused of inconsistency. He will have no firm ground to stand on. His opponents will pull the libertarian further over the line that he himself has already crossed. This is why IBD is on weak grounds to argue that Romneycare should be embraced because it’s better than Hillarycare or alleviates some economic problem that prior regulations have caused.
What sense does it make to allow one’s position to be defined by the extremes of one’s antagonists? None. A libertarian will convince no one by arguing that regulating the production and sale of computer operating systems via government bureaus is a boon to consumers because the closet communists wish to take over the industry. Shall he argue that the American pinks, horror of horrors, will produce and sell systems in government-owned enterprises and that we must therefore embrace a supposedly lesser evil? Once the libertarian argues that some degree of regulation is good because there are others advocating worse methods, he has given up his principle and opened himself to an endless unwinnable debate over how much good to trade off for how much bad. A pox on all their houses. There is no alternative but to argue that the state is an inherently evil institution and that those who utilize it, whether they use it lite or heavy, are using it in unjust ways.
Romneycare is not a victory for free markets. It is a defeat. This is a defeat on a legislative battlefield and more. It is a defeat in the lives of those who will suffer the consequences of poor medical care, which includes many or most of us. It is one more in a long series of defeats for free market medical services.
But it is nowhere near the end of the story. As the gap between demands for medical care and supply widens and as people realize they are paying more and more for less and less, the incentives to abandon the existing health care system grow larger and larger. In the same way that families have turned away from public schools to home schools, they will turn away from existing medical institutions to more accessible, more helpful, and more desirable alternatives. No one can predict the shape of this movement, but the discrepancy between achievable medical care and what people actually receive and what they are paying for provide the profit and gain incentives for such developments to appear. At some point, and this is the long view, the current clutter of state controls will dissolve or be dissolved and disappear. Good riddance!
Michael S. Rozeff [send him mail] is the Louis M. Jacobs Professor of Finance at University at Buffalo.