California: Canada, here we come!

Well, I've been silent a while, partially because I didn't want to talk about Iraq anymore. The level of unreality on the situation leaves me only speechless.

So, thank you, Governor Schwarzeneggar!

I have, in a previous post, stated that emergency medical service is in fact an appropriate area of government action, but I specified that the municipality or the county should take care of that. I see that there is a certain obscurantism in that position, because limiting the steady upward spiral of government expenditures in that area requires a brutal, merciless triage process that weeds out the non-emergencies. So I have to commend Schwarzeneggar for recognizing the fundamental problem with universal health care by default and trying to staunch the flow of dollars through that most costly of rat-holes.

Pity he's thinking as a European. Or one of our brethren in Massachussetts.

I've also said before that health care is a myth, that it doesn't exist. There are medical products, medical services, and individual choices on nutrition and lifestyle. The products and services are commodities, produced and provided by private citizens, not rights dispensed by the state or obligations extracted from citizens. These products and services are priced at the level that the market (distorted as it is by subsidies and price supports like Medicare, Medicaid, and other government programs), or provided on a charitable basis, at the discretion of the individuals who can provide them. The state has already constrained the ability of medical facilities to be profitable, by requiring provision of service.

What would your grocer do if the state compelled him to give food for free to those who could not demonstrate an ability to pay for it? Or your local hotelier who could not turn away the homeless, nor charge them for their stays?

Health insurance companies are similarly private entities, and they already operate under various state laws requiring them to dispense services without charging what those services are worth. What Schwarzeneggar has proposed is going to essentially destroy private insurance in California, and create a single-payer system. (hence the title of this entry)

We have a laboratory of this, after all; dozens of them. In modern history, several states have initiated price controls, most notably the Soviet Union. The result was the virtual disappearance of goods under price control. It was only when those controls were lifted that products reappeared, and prices stabilized, albeit at a level higher than that set by the controls.

So back to the insurers. I've said before that actuarial work is the root of all evil, but it is the means by which insurers compete: setting premiums that insure that the company shall receive more in premium payments than it shall pay out in claims. State governments already require companies to provide coverage without raising the premium for it, and health insurance premiums for everybody served by those companies rise to compensate for the anticipated outflow. As long as the insurance companies can charge high premiums in general, there is equilibrium in the system. And, of course, if the state requires individuals to purchase health insurance, and pay through taxes for the premiums of others, companies can keep premiums high. Sure, they have to compete, but the companies are shielded from true competition by having a guaranteed market and no limit on premiums. So what'll happen first is that individual and state expenditures on insurance premiums will go up. I predict that within five years, they'll actually outstrip current expenditures for emergency room services. They'll be masked, of course, because individuals will pay the majority of that burden through high premiums, while paying higher taxes to subsidize the policies of others.

At that point, I predict that California will launch an investigation into premium levels, culminating in effective price caps. That's when it'll get fun. Large national companies might try to shift the costs of complying with California's regulations to its other markets, and those companies may be able to stay in the market -- but given the size of California, that effort might not be worth it. Smaller insurers shall have to simply stop serving California. So, of course, with decreased competition will come all the hallmarks of monopolistic or oligopolistic market sectors: crappy service, high fees, etc.

So, I predict, within ten years, California shall be obliged to offer at least a competing insurance system. By then, only the largest companies are likely to be in the market, and they simply shan't be able to compete with a state-run system.

(Of course, if this guy is right, the whole thing'll collapse and it'll be a free market again. Or, at least, as free as it is now.)

Ta-daa! Single-payer. My previous posts should make it obvious that I would view this development as bad, but you may think it's a good idea. All I can say in summary is tell you to study how it all works in Canada. For my part, when the state compels an individual to surrender his labor assets for the benefit of somebody else, that's tyranny.