Sunday, October 4, 2009

Blue laws

Commenter Beard has left a long response to my recent post “Weeping, wailing, gnashing, and clueless”. I - as usual - started responding and ended up with a post-length response.

Beard begins by saying:

From this comment, I assume that you'd prefer the government to keep out of the anti-trust business as well. Right?

The whole point of capitalism is for there to be a competitive marketplace, in which sellers compete for the attention of buyers by improving value of their product. Right? This means that if a company, or a small group of companies, figures out a way to game the system and maximize profits without improving value, then they are violating the reason why we are so fond of capitalism. Anti-trust laws were created for exactly this reason. By leveling the playing field, the government can ensure that the capitalist system is a competitive one, not a collusive one that simply exploits the customer and maximizes profits.

He (I’m making a gender assumption here based on handle) then goes on to discuss how insurance companies make a profit - taking in more revenue than they pay out - and how they can game the system by selling health insurance only to healthy people and by refusing to pay claims if their insured have the temerity to actually become ill. He goes on:

Given the structure of corporations, if not prevented by law, they will do these things, just like a 2-year-old will try to swipe candy from the supermarket if you don't make him put it back.

Therefore, we need to level the playing field, establishing rules by which insurance companies must play. Limiting the government's role in the health care process is like unleashing the 2-year-old in the candy store with no rules. This will not end well.

He then notes that customers can also game the system and concludes by advocating a single-payer system.

So let’s begin. My wanting to limit the government’s role in the health care process is not equivalent to my wanting to eliminate the government’s role in the health care process. I believe capitalism is the best engine ever devised for improving people’s material well-being. I also believe that unrestrained capitalism is a nightmare. Thus I’m a big fan of anti-trust regulation for the same reason Beard supports it: to level the playing field.

The issue of how much government regulation is necessary to produce that level playing field is an ongoing one and is one of the continuing points of dispute between the Left (which usually believes more is better) and the Right (which supposedly believes less is better but also has a Main Street segment that looks unfavorably on Big Business that is too big). It seems to me that the trick is to have enough government regulation to keep the playing field level while avoiding regulation that itself tilts the field (this is the crux of Zingales’ distinction between being pro-market and being pro-business) or that shuts down the game completely (makes doing business so difficult the industry dies).

So I have no objection to government (at some level) regulating the health insurance industry. However, the belief that the regulations embedded in health care/insurance reform are benign government moves designed solely to level the playing field is not shared by all observers. Furthermore, we must consider that the proposals embedded in various health care/insurance reform proposals go far beyond mere government regulation. In those proposals we also see:

- government protection of and/or support for some industries. Under the Baucus bill some health care industries suffer from excise taxes on their products while others do not. In the Rich article I reference in my original post, Rich points specifically to a lobbyist’s success in convincing the government to protect drug prices. These are hardly examples of anti-trust regulation designed to level the playing field.

- government competition with industry. This is what the Public Option explicitly is. We can have endless discussions about whether the Public Option will compete fairly against private insurers (Greg Mankiw’s points still need addressing) but even if through some miracle it does compete fairly, it is still competition. Similarly, the government -initiated and backed co-ops are competition and there is no pretense they will compete fairly. Government competing with private industry goes far beyond field-leveling regulation.

- government destruction of an industry. The Single-Payer plan will destroy the private health insurance industry. Under the Single-Payer bill I know of, private health insurance companies will be restricted to providing insurance for non-essential medical care:


(a) In General- It is unlawful for a private health insurer to sell health insurance coverage that duplicates the benefits provided under this Act.

(b) Construction- Nothing in this Act shall be construed as prohibiting the sale of health insurance coverage for any additional benefits not covered by this Act, such as for cosmetic surgery or other services and items that are not medically necessary.

I am unable to figure out how an insurance company could make money selling policies to cover face-lifts.

Even if we assume a Medicare For All that allows people to buy supplemental insurance - that is, the government provides a certain menu of health services and private insurers provide the rest - I hold out little hope for the private health insurance industry. Assuming government health insurance is decent there would be little room for private insurers. Perhaps a very small industry could survive by selling policies that allow access to unproven and very expensive treatments but I doubt it.

On the other hand, it is true that we could consider the destruction of an entire industry an example of leveling the playing field. A bit scorched earth, perhaps, but leveling nonetheless.

So those are my thoughts on how the proposed health care/insurance reforms don’t exactly fall into the realm of government regulation for anti-trust purposes designed to achieve a level playing field. The other point I want to make is that my post was about the Federal government’s role in the health care process. Insurance companies are already regulated, primarily at the State level. Some States - like my New Jersey - regulate them very heavily. Others regulate them very lightly. I see no reason why insurance company regulation needs to move to the Federal level. Nor do I see any reason why government provision of health insurance - through a Public Option, government-initiated co-ops, or a Single-Payer system - needs to be implemented at the Federal level. If State A wants a Single-Payer system, they should develop one. Similarly, State B may want a Public Option; State C may want individual mandates; State D may want pre-existing condition exclusions removed; State E may want government-backed co-ops; and State F may want the wild, wild west when it comes to insurance company regulation. There’s no reason to impose a one size fits all policy across all 50 States and 300 million or so people.

In his health care speech on September 9, Obama referenced Alabama:

So let me set the record straight. My guiding principle is, and always has been, that consumers do better when there is choice and competition. Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, almost 90% is controlled by just one company. Without competition, the price of insurance goes up and the quality goes down. And it makes it easier for insurance companies to treat their customers badly – by cherry-picking the healthiest individuals and trying to drop the sickest; by overcharging small businesses who have no leverage; and by jacking up rates.

My basic reaction to his claims about Alabama is “so what”. Alabama has a democratically elected State government. The citizens of Alabama, via their State government, can decide if they want to use government resources to provide competition via a public option or to provide incentives for other insurance companies to enter the market; they don’t need the Federal government to tell them health insurance is being mishandled in their State. Furthermore, the Great State of Alabama - like the Great State of New Jersey - can decide what type of regulation it wants to impose on the health insurance companies operating within its borders. State governments are just as capable as the Federal government of outlawing practices like cherry-picking and overcharging. Obama’s statement is, at bedrock, a remarkable display of arrogance: States (perhaps especially “backward” States like Alabama) are not competent to manage their own affairs and must be both chastised and assisted by the Federal government.

Finally, I want to consider Beard’s final words:

... it is far more straight-forward to simply go to the SIngle Payer system, covering everyone by law, and just pay for it with taxes. Good example of taxes paying for tangible value for every taxpayer.

I have no reason to believe that a Single-Payer system will provide me with tangible value. I am very happy with my health insurance and my health care; I have never had a procedure so much as questioned much less denied. Since it is impossible for my health insurance to get any better, I am virtually assured that under a Single-Payer system I will receive an inferior product. So while I am perfectly willing to throw some tax money in the pot to help those who cannot afford health care and/or health insurance purchase it, I am not willing to jeopardize my health care to do so. Considering the reportedly high levels of satisfaction with health care in this country, I don’t imagine I’m the only person who feels that way.



The Reality Check - Raises some interesting points about the difference between a business being insured by a health insurer and that business being self-insured and merely using a health insurer to do the paperwork. Now that’s a whole other can of worms in this debate.

Blue Cross a good monopoly - Some further information - good and bad - about Alabama Blue Cross Blue Shield. It’s worth nothing that Alabama Blue is a non-profit. You know - like the Public Option and the government-initiated co-ops.

Fact-Checking the President on Health Insurance - Some info about Alabama Blue among other things.


Beard said...

Hi, Elise, Nice to get the conversation going. And yes, the pronoun "he" is appropriate.

Sounds like we agree on the notion that "well-regulated market capitalism" is a good method for improving people's well being. I wouldn't necessarily go so far as to say "the best engine ever devised", and I think there are arenas where it is inappropriate, but it's a good mechanism and we as a society should figure out how to use it well.

[Parenthetically, I think it would be valuable to collect and preserve points of agreement on serious and contentious issues. Building on fragments of the best ideas around is how science works. It would be nice to do it with policy as well.]

I think you are stereotyping the Left as believing that more government regulation is unconditionally better. It's easy to get this impression by watching arguments between the Left and the current anti-regulation Right, but the modern Left is not a major believer in the intrinsic goodness of government either. (Pay attention during the Vietnam war?)

Few idealists (including me) can be very enthusiastic about any specific version of the health care bill as currently negotiated. The usual metaphors about legislation and sausage-making seem to apply. Lots of special interests are getting paid off to get votes. Whatever Olympia Snowe wants, she gets.

Nonetheless, I would support this bill, since I think that failure to pass something called "health care reform" would doom this effort for another decade or more, and it's too important to get away from the status quo. Hopefully, we can fix the problems piecemeal later. As an idealist, I dislike that approach, but I have seen the quest for the Perfect defeat the actual Good too many times in the past.

Government destruction of an industry sounds bad, and should not be done casually, but I don't have a problem if it is worthwhile. For example, several centuries ago, the establishment of public fire departments destroyed the private, subscription-based, fire department industry. That industry was simply an inefficient way to provide a public good, but improved competition among private fire departments would not have reached a good state. Benjamin Franklin realized that a public, tax-supported fire department would be far more efficient and would give far better protection, even though it would destroy that private industry.

At the same time, you quote Section 104 of somebody's proposed Single-Payer bill, that prohibits private competition with a government Single-Payer system. I would certainly oppose that restriction. Just like private schools appeal to some people when public schools are available, it should be possible for private insurers to compete with the public plan by offering better services. Possibly premium service at premium prices. Or even premium services at low prices, by farming out medical services to third world countries. It's already done, and it seems legitimate. Better have some quality control and fraud prevention, but doing a good job of competing shouldn't be illegal.

More comments later, maybe.

Elise said...

I'd be interested in hearing what you think is a better engine for improving material well-being than capitalism.

I did not say that the Left generally believes more government regulation is better. I said the Left believes more Federal government regulation of business is better and I stand by that claim. The Left’s distrust of Federal government involvement in security functions is another matter. And, yes, that distaste makes me very puzzled about why they want to turn so much additional power over to the Federal government. (See the discussion here and in the older post referenced.)

I take precisely the opposite stance from you when it comes to passing a huge, overarching, flawed bill and fixing it later. I figure something will go horribly wrong and the bigger the bill, the bigger the mess. So to me it makes far more sense to pass increments. Start by making insurance available to everyone. See how this goes. If it goes well, see if there’s a next step; if not, try something else.

Your analogy between the destruction of the private insurance industry and the destruction of private fire companies is interesting but unpersuasive. First, it requires that everyone accept that a Single-Payer is “worthwhile” because it would “be far more efficient and would give far better protection”. That’s actually a big part of what the fight over Single-Payer is about so you can’t just assume everyone shares your convictions in that realm. Second - and far more important - your argument presupposes that fire protection is the same type of public good as health care. Our society doesn’t agree on that either. (I’ve got a post working in my head about this called “Neither fish nor fowl”.) In other words, you can’t really convince opponents of Single-Payer that destroying an industry is a good idea based on assumptions not everyone shares.

(As a side note, if Single-Payers are really interested in efficiency, we should be considering Singapore’s system, not Canada’s. And did you know that Canadian provinces have the right to opt out of the national system?)

Finally, the bill from which I quote Section 104 is not “somebody’s” proposed single-payer bill. As far as I have been able to determine it is THE Single-Payer bill. (Which, incidentally, I thought Pelosi was going to allow an up-and-down vote on in September. Looks like that never happened.) My research on this is admittedly limited and haphazard but if both Reclusive Leftist and Blue Lyon tell me this is THE Single-Payer bill, I believe them. Sounds like you’re talking more about Singer’s proposal. I don’t think that’s even on the legislative radar but I’m willing to be proved wrong.

Beard said...

You ask about "a better engine for improving material well-being than capitalism".

I'm not proposing a replacement for capitalism. In fact, I think capitalism is a fine mechanism, and good for many things. But it's not the mechanism for achieving all achievable goods.

Let's consider low-cost preventative health-care, including annual physical exams and inoculations against infectious diseases. It seems like a pretty clear truth of the public health field that we are all better off, and more protected from infectious diseases, if the substantial majority of children receive inoculations against the usual infectious diseases.

That is, I and my family are better off if you and your family have had all your shots, even if you are an illegal alien and I am paying for the shots and the people to give them. The cost of providing you with a little preventative medicine is quite low, and the near-universal administration of these shots helps prevent epidemics of serious disease, which might endanger me and my family. Us having our own shots is not fool-proof protection. The cost-benefit ratio seems undeniable.

Perhaps my imagination is a bit thin, but I don't see how capitalism would provide this outcome. There isn't a meaningful market here, and no meaningful sense of competition. This seems to be a public good that must be gotten by a public mandate, publicly funded.

Capitalism is a perfectly fine mechanism for making sure that my computers get ever more powerful, and ever less expensive, year after year. But it doesn't seem to be the tool for achieving this (arguably at least equally desirable) public health goal.

WLindsayWheeler said...

Oh wow, can you change the title of this post!!! The title of this post HAS ABSOLUTELY nothing to do with the content of the post!

Elise, "Blue Laws" refer to the laws of closing of stores and bars on Sunday in respect for the Lord's Day. I read this post and for the life of me, I can't figure out why you titled it "Blue Laws".

Please change the title.

Elise said...

The dominant player in the Alabama health insurance market - and, I suspect, in other markets with only one major health insurer - is Blue Cross Blue Shield. That's one.

Brewer's Dictionary of Phrase and Fable defines "blue laws" thusly:

In the U.S.A. denotes laws such as sumptuary laws and those regulating personal morals or interfering with personal freedom

The murmurings that those who are too fat somehow don't deserve health care unless they shape up sound a lot to me like regulating personal morals. That's two. The government's current health care proposals definitely interfere with personal freedom. That's three.

Brewer's defines "sumptuary laws" thusly:

Laws to limit the expenses of food and dress, or any luxury. [snip] during the two World Wars, with the rationing of food, coals, etc., and the compulsory lowering of the strength of beer and whisky, we [the English] had a temporary return to sumptuary legislation.

The Baucus plan wants to penalize - and thereby limit - "Cadillac" health insurance plans. That's four. Government control of health care will necessarily result in rationing and one of the proposals floated to help pay for all this is to tax soda and junk food. That's five and six.

Sounds like "blue laws" to me.

Elise said...

Beard - You're basically arguing that health care (at least some aspects of it) is a public good like national security or police protection, rather than being a consumer good like food or clothing. That is, health care is a public good because it benefits the entire society to provide health to individual members.

This is a contested claim in the health care debate. I believe that in general there is no material cost to me if the guy down the street does not have health care. Immunizations are probably an exception to this - I'm not familiar enough with the idea of disease reservoirs to say for sure - but that doesn't mean all of health care is a public good.

WLindsayWheeler said...

Yes, I see your reasonings but lets stick to convention. Wikipedia has:

"A blue law is a type of law, typically found in the United States, designed to enforce religious standards, particularly the observance of Sunday as a day of worship or rest, and a restriction on Sunday shopping. Most have been repealed, have been declared unconstitutional, or are simply unenforced, although prohibitions on the sale of alcoholic beverages, and occasionally almost all commerce, on Sundays are still enforced in many areas. Blue laws often prohibit an activity only during certain hours and there are usually exceptions to the prohibition of commerce, like grocery and drug stores. In some places blue laws may be enforced due to religious principles, but others are retained as a matter of tradition or out of convenience."

Sumptuary laws are not blue laws at all. Blue laws are tied to religion. Sumptuary laws are tied to consumtion and/or prohibiting/controling capitalism. Blue laws are tied to specific days. That is traditional.

Elise said...

WLW - You stick with your tradition, I'll stick with mine. Can't get more libertarian than that.