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As business owners undergo the yearly ritual of passing through
eye-popping health insurance premium increases to their employees, it's easy
to understand why any attempt at health insurance reform would be met with
some degree of hope. Unfortunately, President Obama and his Democratic allies
in Congress are about to take a very bad system and make it unimaginably
worse.
While ramming their new legislation through Congress, the
Democrats have taken great pains to point out that they do not intend to
"socialize medicine." But make no mistake, that's where we're
headed. Even if some naïve centrists believe that their efforts have
denied the Left a total victory, the practical implications of the current
legislation sow the seeds for complete capitulation.
This first round of reform could be labeled as the 'neutron
bomb' of the insurance industry: it leaves some of the private apparatus
standing, but it irradiates whatever remains of the industry's market
viability.
The bill's centerpiece is a clause prohibiting insurers from
denying coverage based on a pre-existing medical condition. However noble and
marketable an idea, this proscription removes the very basis upon which any
insurance model operates profitably.
A system of insurance requires that premiums be collected from a
pool of low-risk people so that funds are available in case a high-risk event
befalls a particular person. In that way, premiums can be low and coverage
can be widely available, even if the benefits offered are hypothetically
unlimited.
For example, homeowners buy fire insurance even though their
houses are very unlikely to burn down. Recognizing that a fire could wipe
them out financially, most homeowners endure the cost of coverage even if
they never expect to collect. The same model applies to health insurance in a
free market.
However, the health care bill removes the need for healthy
individuals to carry insurance. Knowing that they could always find coverage
if it were eventually needed, people would simply forgo paying expensive
premiums while they are healthy, and then sign on when they need it. But
insurance companies cannot survive if all of their policyholders are filing
claims!
Correctly anticipating this incentive, the Senate bill imposes
an annual fine which gradually escalates to $750 for those who fail to buy
coverage. So what? I would gladly pay $750 in order to avoid the $8,000 per
year I pay now for personal health insurance. Currently, I'm relatively
healthy for a 46 year old and I don't anticipate making a big claim. But if I
do, under the new rules I can always get 'insurance' after the fact. Heck, if
I can stay healthy for the next couple of decades, I'll save a fortune. Think
about how much easier the decision would be if I were 20 years younger! Since
most people are capable of figuring this out, the entire insurance industry
would collapse under such a system.
There can be no question that $750 annual maximum penalty is a mere
placeholder. It is the camel's nose under the tent. When the
non-discrimination provision kicks in, the only way these companies could
remain solvent would be for Congress to raise the fine to the point where the
penalty is greater than the gain of skipping coverage.
For me, that would have to be roughly $8,000 per year.
Introducing such a fine right now would have surely killed the bill. So, the
wily wonks in Washington have chosen to move slower, knowing that once the
first step is taken, the second becomes inevitable.
However, there is another, more devious possibility. Perhaps our
elected officials actually intend to bite the hands that feed them. They
could double-cross insurance companies by not raising the fine in five years,
thereby forcing the industry into bankruptcy as millions of healthy people
opt-out. During the ensuing 'insurance crisis,' our courageous leaders could
ride to the rescue with a nationalized, single-payer system.
The real tragedy is that the current bill does nothing to restrain
the forces that are propelling healthcare costs into the stratosphere,
namely: regulatory bans of insurance competition, the out-of-control medical
malpractice industry, federal programs and subsidies, and a tax code that
favors a third-party payment system - which alienates the patient from the
cost of his care.
To consider that many in Washington have the nerve to market
this multi-trillion dollar monstrosity as a "deficit reduction
bill" is to realize that our representatives have lost all touch with
reality. For those keeping score, the government made similarly rosy
projections in the mid-1960's when Medicare was first introduced. The
inflation-adjusted cost of that program already exceeds the original estimate
by a factor of ten. That's probably where we are headed this time around.
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inherent dangers they pose for the U.S. economy and U.S. dollar, read Peter
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Peter D. Schiff
President/Chief Global Strategist
Euro Pacific Capital, Inc.
20271 Acacia Street, #200 Newport Beach, CA 92660
Toll-free: 888-377-3722 / Direct: 203-972-9300 Fax: 949-863-7100
www.europac.net
pschiff@europac.net
Also
by Peter Schiff
For a more in depth analysis of the tenuous
position of the American economy, the housing and mortgage markets, and U.S.
dollar denominated investments, read my new book : The Little Book of Bull Moves in Bear Markets" (Wiley,
2008).
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