In 1995 I spent a month in Georgia with Newt Gingrich to help him write his book, To Renew America, shortly after he had been elected Speaker of the House. At the time Newt was promoting the idea that a large part of the healthcare problem could be solved by setting up a national repository of computerized medical records.
Computers were just coming in at that point and we also spent a lot of time with word processing. It turned out Newt was completely at sea with the new technology. Every time he saved a file it would disappear into the ether. I was one step ahead of him in learning the trade and got to pose as the expert, patiently retracing his steps through the directories until we found the missing file. I also had to show him how to use his microwave. It was all good fun but I couldn't escape the irony — here was Newt posing as a tech genius ready to solve all the nation's problems with computers and he didn't have the faintest idea how they worked.
I don't mean to single out Newt here and I'm sure he's much better at it now. But the point is this: Washington is full of such people — good talkers who sound as if they know what they’re talking about but are basically just winging it. Think of the Congressmen or Senators at the committee hearings with their aides frantically handing them memos and whispering in their ear. Newspaper reporters know all about this. They do it all the time themselves. As Dave Barry says, newspaper reporting is the art of writing about things you know nothing about.
Still, there are limits. As Secretary of Defense Donald Rumsfeld used to say, there are known unknowns and unknown unknowns. So there are also Senators and Congressmen who know they don’t know what they are talking about and others who don't know that they don't know what they are talking about. You can include former House Speaker Nancy Pelosi and Vermont Senator Bernie Sanders in the latter category. I worked for two years in the offices of Senator Lamar Alexander and although he spoke out on many subjects, he was always careful to make sure he was standing on firm ground. When someone comes along like Tennessee Senator Bob Corker, a successful developer who truly understands finance, he quickly becomes a legend on Capitol Hill.
Washington is a town full of chuckleheads — people who don’t know what they’re talking about but are good at sounding as if they do. Eloquence is their strong suit. New York Senator Chuck Schumer still brags about his 800 College Board scores as if that makes him an expert on everything. There is nothing new about this. Studies of primitive tribes have shown that people who emerge as leaders are as likely to be good talkers as they are skilled in things such as the art of war. And who but a bunch of such chuckleheads could have imagined you could rearrange the nation’s entire healthcare economy by putting up a single website? Only a politician who has never accomplished anything in the private sector but has watched others in action and decided the whole thing is easy could have such a notion.
In his great book, Socialism, written in 1921, Ludwig von Mises quotes Lenin, who wrote somewhere that taking over an industrial economy was going to be easy — all you have to do is make the bookkeeping entries and record the profits. Von Mises compares the socialist understanding of economic essentials to that of "the errand boy, whose only idea of the work of the entrepreneur is that he covers pieces of paper with letters and figures." The same could be said for President Obama and all the Democrats in Congress who have decided they can take over the nation’s health insurance industry and run it in their spare time.
The effort to redo healthcare begins with the assumption that the insurance business is essentially illegitimate. It is only run “for profits” and not for the good of the people. After all, there are almost 40 million Americans without health insurance. If the government were running the system, everybody would have health insurance and be happy as well. This is an old story and can be applied to any business. Take out “the profits” and everything will run smoothly for the benefit of all.
That 40 million people do not have health insurance is not a “failure” of the industry. Is the cell phone industry a failure because everybody doesn’t have a cell phone? Is the auto industry a failure because everybody doesn’t own a car? And could those problems be solved by the government taking over the industry and setting up “exchanges” where anyone could supposedly buy a car at a price they wanted? Such a system would soon be borrowing from China to stay afloat.
There are three reasons people don’t buy health insurance: 1) they are young and healthy and don’t want it; 2) they are too poor to buy it; or 3) they have serious health problems that makes them unattractive customers for insurance companies. All three of these problems could be solved by very modest efforts that would not involve having the federal government carpet-bomb the entire insurance industry.
First and foremost, everything we have learned about systems tells us that centralization has its limits. This is what the Soviet Union learned in 70 years of trying to “plan” an economy for 250 million people. Think of what happens when you get to the top of a skyscraper and watch the traffic moving below. The first reaction, especially among young children, is to ask, “How do they keep from bumping into each other?” If you are a planner or a member of the Obama Administration, your immediate reaction is to set up some kind of top-down system where you relay instructions to every individual driver telling them what to do next.
However, if you are an intelligent individual with a basic trust in other people, you realize that each of those individual cars has a driver with basic human instincts for survival and a desire to get where he is going. Just give these drivers a standard format for driving — stay on the right side of the road, stop for red lights — and they will organize themselves into a traffic pattern without further instructions from a centralized authority.
By setting up one central website to run the nation’s entire health insurance system, the Obama administration is basically trying to run a city by telling every driver where, when, and how to drive their car. “Don’t worry, Amazon has done it. We can to it, too. Just call in some guys from Silicon Valley to help. They’ll figure it out.”
So the first salvo of this top-down system is to tell everybody that the insurance they are buying now on the marketplace is “substandard.” James Carville, a top-down authoritarian if there ever was one, says, “People are going around selling any old thing and calling it ‘insurance.’ That’s not good enough.” So federal mandates on what insurance must include are required. That’s why millions of people have just lost their policies.
But does giving power to the federal government to dictate what people must buy make these products more suitable to people’s needs? Not at all. In fact it is just the opposite. Moving this decision-making power to Washington only enlarges the same mistakes that state governments have been making for the last 50 years, State regulation of insurance policies — granted by an antitrust exemption in the McCarran-Ferguson Act of 1947 — has managed to create a system where only 5 percent of the population buys insurance in the private market while 60 percent of the population is covered by company-sponsored ERISA plans designed specifically to avoid state regulation.
When the government starts writing insurance policies, the process is quickly captured by the providers of health services who want to make sure their particularly specialty is included. Once something is “covered by insurance,” people are infinitely more willing to avail themselves of that service. Also it means providers don’t have to spend all their time trying to get patients to pay their bills.
Doctors and hospitals are always covered (although they will lobby over the size of their fees), but what about psychiatrists, psychologists, social workers, dieticians, podiatrists, chiropractors, massage therapists, pastoral counselors, Rolfing therapists, homeopathic remedies and so on? Each of these has had coverage mandated in one or more of the states. That is what has made private insurance so impossibly expensive — and why ERISA plans have thrived precisely by avoiding all this extra baggage.
Chiropractors are the bellwether. Some people think chiropractic is quackery, others swear it helps with back pain and other conditions. Do you get to decide for yourself? Not in half the states, where chiropractic has already been mandated. In New York, Democratic governors fought off the chiropractors for 30 years until Republican George Pataki arrived in 1995 and the chiropractors convinced him their business was a gem of free enterprise. The new governor pushed a mandate through the legislature. In gratitude, the chiropractors gave him a testimonial dinner that they still talk about in Albany.
Will chiropractors do the same thing in Washington? “We completely support section 2706, the non-discrimination clause, which says that if a practice is now covered by state law it must be covered by the new federal law as well,” says a spokeswoman for the American Chiropractic Association. Soon they’ll be working on a blanket mandate covering all 50 states.
To see where this is leading you need only read the New York Times’ November 8 page-one lead story, “Rules to Require Equal Coverage for Mental Ills.”
WASHINGTON — The Obama administration on Friday will complete a generation-long effort to require insurers to cover care for mental health and addiction just like physical illnesses when it issues long-awaited regulations defining parity in benefits and treatment.
The rules, which will apply to almost all forms of insurance, will have far-reaching consequences for many Americans. In the White House, the regulations are also seen as critical to President Obama’s program for curbing gun violence by addressing an issue on which there is bipartisan agreement: Making treatment more available to those with mental illness could reduce killings, including mass murders.
You didn’t know you’d be curbing gun violence when you sign up for health insurance, did you? You may even be a little skeptical about your contribution. You might prefer the stop-and-frisk tactics of the New York Police Department that are now under attack, but that’s tough luck. You are now one of the “many Americans” for whom this will have “far-reaching consequences” because you’ll be paying for it. Mandates mean the people who don’t have a disease or condition pay for those who do.
Mental health is something insurance companies approach very gingerly. It is highly subjective and open-ended. Although the poobahs in Washington may be convinced that the next James Eagan Holmes or Adam Lanza will put down his submachine gun and trot over to the local therapist’s offices for a chat about his aggressive fantasies, in fact major utilizers are far more likely to be fifth-year graduate students in Cambridge, Mass. who want to undergo five years of psychoanalysis.
To the Washington chuckleheads, however, health insurance is just another version of food stamps — something that the private sector can’t provide but politicians offer out of the goodness of their hearts. If you have insurance, the insurance company pays all your bills, right? That is why Nancy Pelosi constantly rails against those nasty co-payments, where her constituents are forced to pay $20 for visiting a cancer specialist — as opposed to the $90 they’d pay to have a plumber come to their house. Give the job to the federal government and we’ll all get something for free, right? Thus, the New York Times keeps pounding away with stories like “Under Health Care Act, Millions Eligible for Free Policies,” featuring a affluent-looking middle-aged artist couple in their stylish New Mexico home who will be getting free health insurance under Obamacare. Their children will probably be paying the bills. If the whole thing becomes too expensive — well there’s always that line of credit over in China.
Although the chuckleheads only are vaguely aware of it, the insurance business is based on having healthy people pay the costs incurred by sick people — what’s called “pooling risks.” If someone has diabetes, their costs are paid for by all the people who don’t have diabetes but are willing to bear the costs on the chance that they might get diabetes. Running such an exchange means getting all your actuarial tables right so that income matches outflow. That’s why there’s no harm in selling high-deductible, “catastrophic” insurance to young people — the kind that ObamaCare is calling “substandard.” Although the young people may not pay much in premiums, they won’t be filing many claims either. The insurance companies never make money off this. Their profits come entirely from investing the premiums they’re holding while waiting to pay out claims.
All this means that insurance policies must stay within the realm of credibility. If people are asked to buy things they know they’re never going to use, they will balk at the transaction. Governments aren’t used to this sort of give-and-take of the marketplace so they mandate what people should buy and then mandate that people have to buy it. That’s the system President Obama is trying to foist on us now.
Because the business depends so much on people who don’t make claims, the last thing insurance companies want is somebody who’s already sick and wants to file claims the first day. That’s what insurance people call “selling fire insurance to burning buildings.” Such people can be isolated in special high-risk pools with open subsidies — as has been accomplished in several states.
Yet to Obama and the Democrats, refusing to sell fire insurance to burning buildings is a crime that must be righted. Obamacare’s main “reform” is that insurance companies can no longer exclude people for pre-existing conditions. In fact, they can no longer make any consideration for age or sex, health history or personal habits, which makes the whole underwriting process a joke. Naturally, the sick and aged will flock to such a system while the young and healthy will stay away — which is exactly what is happening. And they think $95 penalty will resolve all this? Only a chucklehead would believe that.
The great irony here is that now that the government has become so involved in running private businesses, it has ended up in business itself. This is what the delivery-boy enthusiasts never see — the possibility of failure as well as success. To anyone in the private sector, the disastrous rollout of Obamacare is a familiar story. Think of the Edsel, the Chevy Chevette, the new improved Coke, Apple’s Lisa computer, the Microsoft Network — any number of products that someone thought couldn’t miss but the public wouldn’t buy. That’s exactly where President Obama and Secretary of Health and Human Services Kathleen Sebelius find themselves now. They’ve created what they thought was a great product that turns out to be a dud.
All this brings to mind the great observation Tocqueville made about Washington:
In America there are so many ways of making money that a man does not usually enter politics until he has failed at everything else.
Even truer today than it was in 1835. Unfortunately, those failures may bring down the nation’s entire healthcare system in learning their mistakes.
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