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Republican Health Care Proposals Run Up Against Basic Economics and Can Never Succeed

The Republican push for Trumpcare has done a masterful job of exposing the very real limitations of the for-profit system. (Photo: National Nurses United/flickr/cc)

Republicans are trying to defy three basic economic factors with their health insurance proposals: 1) the large costs inherent in private insurance, 2) the market (supply and demand) model cannot be applied to health insurance, and 3) insurance works on an actuarial basis.

First, let us enumerate the many costs of private insurance.

1)  Profits must be good enough to satisfy shareholders.

2)  Outlandish salaries of CEO's and other executives.

3)  Costs of advertising.

4)  Cost of a large staff of screeners who doctors must consult to get prior approval for a procedure.

5)  Cost to doctors of time when calling for approvals from insurance company screeners, and of hiring a clerk who can keep up with the provisions of the many different insurance companies.

6)  Puts the businesses who sell overseas at a comparative disadvantage.  Foreign businesses do not have to buy health insurance for their employees.

7)  Productivity is diminished when workers are too sick work.

8)  Preventative medicine can catch diseases at the early stages and save the cost of more expensive procedures later (and also save lives).  Private insurance usually does not provide for this.

9)  Without a mandatory requirement that everyone must get health insurance, the costs of medical care (in emergency rooms) of those who did not get insurance is borne by the insurance companies and hospitals.  Insurance companies cover this cost by charging higher premiums to those with insurance, and government (taxpayers) must help by subsidizing hospitals.

All of these costs add up to an enormous amount of money that could go to providing health care.

Second, the free market, supply-demand, model does not work in the case of health insurance. The demand for health care is inelastic; if price goes up, demand remains constant.  People cannot do without health care unless they are willing to suffer or gamble that they will never get sick. For decades, health insurance premiums have increased substantially each year.  Insurance companies can do this because they do not have to worry about demand.

Third, all insurance works on an actuarial basis.  A large pool of purchasers, which includes the normal amount of those who are sick and those who are well (but may become sick), is necessary to calculate actuarial tables and thus estimate costs.   Without a mandatory requirement that everyone purchase insurance—without a large pool of subscribers—insurance companies have to raise premiums and deductibles to meet the costs of the non-representative group of subscribers.  (One of the reasons why Obamacare is failing is that not enough people enrolled—the fines for not getting insurance were too low. 

The individual mandate is required if the system is to work.  Not having an individual mandate means that free-loading is encouraged.  Those without insurance will eventually have to use emergency rooms provided by others.   

 The obvious answer is Medicare for All.  All of the costs mentioned above would be eliminated. The pool would be extremely large (everyone) and thus risk would be spread widely. This means much lower prices.  Medicaid would be folded into the plan, thus saving taxpayers' a lot of money.  Of course, some of this money would have to go toward paying Medicare premiums.  (It would be like Social Security which is a national pension plan to which everyone contributes during their working years.)  Medicare is national health insurance that everyone contributes to (even those over 65 if they want Plan B).  Health care premiums paid to the government should go into a "lock box"—kept separate and invested.

The only thing standing in the way of this common sense proposal is conservative ideology—the hatred of government. Though it should be noted that another standard part of the conservative ideology is saving money, often called "fiscal responsibility."  Medicare for All would save an enormous amount of money and would cover everyone.

David E. RePass

David E. RePass a retired political scientist whose writing have appeared in the American Political Science Review, The Forum, and The Hill. His op-eds have appeared in the New York Times and other newspapers.

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