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The case against this health-care reform

December 24, 2009

Although I’m rooting for this bill to be approved as fast as possible (because I’m convinced that the uncertainty that the legislative process is creating is damaging the economy in a really inopportune time), I still think it is deeply flawed. I have two main objections. The first relies on the observation that there is only one way to cut cost in health-care, namely to have people pay out-of-pocket for most of their care. Let’s not kid ourselves, we didn’t get state-of-the art automobiles, the internet as it is today, and sophisticated electronics thanks to industrial-policy, i.e. central-planning. Nope, industrial-policy gave us mortgage securities and credit-default swaps through the heavy interventionist hand of the central bank, Fannie and Freddie and myriads other laws and regulations. The reason why we can purchase an amazing piece of technology called Toyota Sienna, say, is because of competition for people’s dollars. So genuine competition not only brings prices down, but delivers a more technologically advanced product, and also creates business-models and production strategies that cut inefficiencies, cut costs and raise productivity (doing more with less).

Unfortunately, the current health-care bill that is being debated on the Hill is following the crony-capitalism model of the housing policy of recent memory. It entrenches too-big-too-fail insurance behemoths, essentially privatizing their profits and socializing their costs. There is no market-friendly innovation in the 2000+ “letters (sic!) of the law” currently under debate. It’s all pro-business fake regulation that raises barriers to entry for alternative competing models. Cost-cutting is deferred to imaginary future cuts to Medicare, cuts that politicians have passed on over and over again in recent years. So if the point of this “reform” was to “bend the cost curve”, well that’s going to be a “fail” of epic proportions.

The second objection I have is that this legislation is a hand-out to the relatively rich that will ultimately be paid by the very poor. Under the current system in the US the very poor are covered by various safety nets such as Medicaid and free emergency care etc…, while the richest segment of the population, i.e. senior citizens (the folks who have had a life-time to accumulate savings and capital) also get free medical-care through Medicare. Then there is another segment of young, healthy and usually well-off people who prefer not to buy insurance. The latter will now be forced to purchase something they rather not purchase. Their money will leave their pockets and go directly into nice protected bank accounts of insurance companies CEOs and wealthy doctors. That’s money that these young healthy people will never see again because the way the system is set-up, doctors have no incentive to compete on the price-tag of their services.

The subtler unintended consequence, however, is the effect that the current bill will have on future immigrants. Namely on very poor people who are coming to the US to work and boost their productivity. The various mandates included in the current legislation will provide on insurmountable wall, much harder to crack than the current high-tech wall bordering with Mexico. Also the higher taxes needed to finance this boondoggle will make the anti-immigration case stronger than ever at the political level. It’s a classic case of raising picket-fences around the US to pamper our relatively rich at the expense of truly desperate people who are in search of living opportunities.

In sum, the bill raises costs, forgoes innovations, both in medical services and in their delivery, makes crony capitalists crony-er, politics more corrupt, and shuts-out poor future Americans. It’s despicable from any angle you look at it.

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