The Story On Medical Insurance

The story on medical insurance starts with how WW II wage and price controls led defense contractors to offer health insurance as additional, unregulated income to attract workers from other industries since the wage and price controls prohibited paying higher wages. Congress exempted health insurance from taxation too, making it all the more attractive. Once labor unions—which the New Deal turned into government-enforced labor cartels—got a taste of tax-free health insurance they began to demand not just more of it, but an ever-increasing share of their income in it. The pro-union government policies of the 1950s and especially 1960s, and reduced competition from the European companies laid low by the war, meant that large American corporations gave in to these demands.

By the late 1960s, when government started inflating the money supply to pay for the Great Society social programs and the Vietnam War without overtly raising taxes (inflation is a covert tax on your money), large, tax-free health insurance polices had become the norm for Big Labor. All that money being diverted into health care had the predictable effect of raising health care prices relative to the prices of other goods and service. When the stagflation of the 1970s pushed millions of Americans into higher tax brackets while lowering their real (inflation-adjusted) pre-tax earnings, they looked at Big Labor and started demanding the same sorts of benefits. When these other Americans got a taste of tax-free medical insurance, they wanted more too. It took a while, but where once very few people had health insurance and nobody needed it for a simple annual physical, decades later almost every takes it for granted and believes they need it. (I have actually survived without it, but that’s another story.) All that additional spending on health care naturally raised health care prices relative to other goods and services even more than Big Labor’s health benefits did.

As tax-free health insurance became more widespread, it also mutated from health insurance into prepaid medical care. Unlike real insurance, where if you use it you end up paying higher rates, with much so-called health insurance, if you don’t use it, you lose it, and within certain parameters you do not pay more. I, for instance, have exhausted both the office visit benefit and the diagnostic benefit of the half-hearted health insurance that I buy through my private university as a part-timer there. My rates will not rise as a result of my using my benefits. If I were, on the other hand, to smash up my 12-year-old car, I would get almost no money from the insurance company (because of the age of the car and because the policy, as real insurance, has a large deductible) and they would almost certainly raise my rates (assuming I’m at fault). (In Denver I had a minor accident where I caught the side-stripping of my car on the wall of a parking garage. Repairing it cost just under that the amount for which Colorado law would allow them to raise my premiums, so they cancelled my policy instead! Thank you state of Colorado for pricing me out of the market! The state of VA did the same thing for private health insurance for me which is part of why I went without insurance entirely for a while—actually a couple of whiles.)

The widespread development of prepaid heath care has predictably driven up prices of medical care relative to prices of other goods and services. It’s very much like the impact of student loans: a cat chasing its tail; the faster it runs, the faster the tail runs away from it.

Health insurance also suffers from state as well as federal regulation. If you have several preexisting conditions, for instance, the natural response of an insurance company would be to 1. Exclude the preexisting conditions or 2. Charge more for preexisting conditions. When I first went to apply for an individual health insurance plan, I had three pre-existing conditions. Aetna, which so far as I can tell seems to be the best of the over-regulated lot of big health insurance (pre-paid health) companies, increases the base premium by 25% for each preexisting condition. So for my three conditions they would have been willing to write me a policy with a premium 75% higher than the base. I would have paid it too, as my family was willing to help out (I couldn’t have afforded even the base at that time). My family was willing to cough up the $450 per month to have me insured. The state of Virginia, however, in its infinite liberal compassion, “protected” me from “price gouging” by limiting insurance companies to a 50% increase in the premium over the base. Aetna couldn’t legally charge me for all three preexisting conditions, so the VA price control, rather than protecting me, simply priced me out of the market. Instead of having a policy at 175% of base, I had no policy at 150% of base. Neat, huh?

And at the federal level during the Clinton years liberals came up with a “solution” for my lack of heath care: they passed a law (called HIPPA) allowing states to create state monopolies for “high-risk” patients. The law allows either a fascist monopoly, wherein the state government grants the monopoly to a state-regulated private company, or a communist monopoly, wherein the state offers the insurance itself. In VA we have the fascist version, and VA happened to have granted the monopoly to Aetna. So VA wouldn’t let Aetna offer me a normal policy for $450/month, but it would let Aetna offer me a high-risk policy for $4500/month. I kid you not.

There is another aspect to the rise of medical prices relative to other goods and services. As real incomes per person rise, as they have done in every year in the industrialized countries since the Industrial Revolution except during recessions and depressions (so that the average real income has risen about 25 times, or 2400%, in the US since 1700), people can afford not just to buy more and better food, clothing, shelter, transportation, health care and entertainment, but shift more of their income from food, clothing and shelter to transportation, health care and entertainment. Even for a compulsive overeater in the grips of the disease there’s some sort of point of satiation (called a bliss point in economics), where more food or better quality food doesn’t appeal to the person. While the bliss points for clothing and shelter might range much higher, it’s still true that as income levels have skyrocketed over the past 200+ years, people have shifted proportionately from good, clothing and shelter to transportation, entertainment and medical care. The improvements in medical care have been profound. At the turn of the 19th century, average life expectancy in America was about 55 years. Most likely you and I, had we survived to age 49, wouldn’t plan on lasting much longer. My 81-year-old mother most likely would have been long in her grave. My dad probably would have died 30 years ago rather than 3 years ago. The leading cause of death among woman was childbirth. People would have regarded the tragic death of my high school friend Margie from pregnancy complications as commonplace, not the rare tragedy that it was thanks to our not having socialism destroy medical innovation in America. Men on average lived longer than women, even though women rarely smoked. (Indeed one of the perverse effects of 1960s/1970s feminism, which took smoking as a symbol of liberation, was to reduce the average number of years by which women had come to outlive men, although the gap remained around 7 years or so last I checked.) We pay more for medical care in part because we get far more than we used to, just as we pay more for entertainment because we get far more than we used to.

I don’t hear too many complaints about entertainers making too much money or about the un-affordability of sporting events—and certainly not to the degree where most liberals want the government to seize control of such things. Americans voluntarily choose to spend billions of dollars annually on entertainment instead of health care. At the same time it’s natural that as we get higher incomes we spend an increasing share of treatments that extend our lives and improve its quality. People now routinely spend millions on relief from ailments like allergies and arthritis with which people once just suffered. Cancer used to be an automatic death sentence when I was a kid, so much so that I can recall the days when people were actually afraid to say the word lest just saying it might invoke the disease. Now millions routinely live for years with various types of cancer. Probably some day the treatments that now sometimes cure and often at least slow the cancer will seem crude and barbaric, and we will have much better treatments. The more people spend on these things—whether treatments to remove allergies or treatments to cure cancer—the better they’ll get if scientists and companies are left to do research and respond to patient demands rather than political demands.

The British National Health Service provides a good, brief example of what happens when government seizes control of health care: Britain actually has fewer hospital beds now than it did before government seized control of health care, and for years after we had dialysis routinely in America, British doctors lied to patients with kidney failure, telling the patients that there was nothing medical science could do for them. That’s what socialist medical care—whether fascist or communist—does to doctors: it turns them into liars for the state and stifles medical innovation. The irony under socialist health care is that it forces nearly everyone to have the same lousy care—everyone except the politicians who give themselves better health care, and the very rich who can afford to spent the money to travel to a more market-oriented health care system, like ours (or like ours was before ObamaCare) and pay for good health care.

It’s a perverse trait of humans that if someone invents something that we really, really love we often resent them for it and demand that government seize control of it and give it to use for free. Public transportation in the big cities, for instance, started out entirely private. People found it so useful that they soon clamored to have government first regulate its prices, and then seize control of it entirely. We see the same sort of thing happening now with health care. Sure, government’s labor, taxation and monetary policies have artificially inflated the price of medical care relative to all other goods, but ultimately it’s the wondrous and constantly-improving state of medical care that sets our bliss point for medical care astronomically high, so that as our incomes rise it will continue to be natural for us to spend an increasing share of our income on health care just as we do on entertainment. Setting aside the inflation of medical prices from bad government policy, it’s actually a good thing that we can afford to pay spend increasingly-larger shares of our income on increasingly-better health care.