FREE MARKETS CONT'D

Case Probabilities in Practice

What happens if a company cannot forecast diseases with sufficient accuracy? Then, they cannot forecast their loses. If they cannot do this, they cannot set premium levels that will provide them with profits. It they cannot do this, then they simply won’t go into business.

 

Fig 5

 

The Red Line symbolizes what the company expects to pay out to a customer.

The Green Lines symbolize potential premiums customers will pay to the company.

The Blue Arrows symbolize potential profits.

The Red Arrows symbolize potential loses.

Again, the issue is quite simple. If it is not possible to determine what the red line looks like or where it may be, it is not possible to determine which premiums should customers pay. It a company chooses the lower green line (low premiums) it will have loses, if it chooses the high green line (high premiums) it may be pricing itself out of the market (i.e. too expensive) and go broke.

For these reasons, no company will even attempt to insure illnesses falling within Case Probabilities.

 

Commentary

From these explanations, it is clear that a free market has all the potential issues well under control. There is no need to improve over the market; if there is something that can be done and it is financially viable, the free market is already doing it.

 

CONTROLLED MARKETS

The Theory

When it comes to Health Care for “society” (we have already expressed our view about the use of the term “society” in the lesson Don’t Talk To Us About Society), it is all up in the air.

Anything and everything is a viable excuse that politicians will use to get votes. If they need to purchase them with “Universal” health care, they will do so. If a call to “Human Rights” is necessary, no matter how twisted and absurd, it will be done. If there is a need to bring cute, cuddly and ill children on the chess board and use them as peons, it will be done.

However, at the end of the day, once all the smoke has cleared, we see the naked truth. There is no theory behind it. It is simply a play on human needs and greed. It is despicable in nature because it implies to rob even more from productive people to satisfy political needs.

Let’s be clear. Forced Universal Health Care (FUHC) is robbery, plain and simple. It robs you, me and everybody else. It does so through the multiple means governments have; this is, the un-holy trinity: Tax, Print and Borrow.

Forced Universal Health Care is not economically viable and will make all other health care more expensive. The correct answer to the problem is to free the markets, not more intervention. It is an old story. When you only have a hammer, all problems look like nails. For politicians, when they can legislate, all problems can be solved through regulations. Common sense need not apply.

Most Forced Universal Health Care schemes have the following characteristics:

• They cover everybody
• They cover all pre-existing conditions
• They cover all conditions

We will analyze what happens in real life when these conditions are imposed onto the market.

 

Class Probabilities In Practice

First, let’s assume that there is actually a rational government (what are the chances?) and they implement FUHC in a limited manner. They implement the following conditions:

• Everybody is covered
• Only forecastable pre-existing conditions are acceptable
• Only forecastable conditions are acceptable
• Only “medically necessary” conditions are acceptabl

These conditions would make illnesses’ costs more or less forecastable.

 

Company-based

Furthermore, let’s assume that the FUHC system is forced upon companies with people still paying a small premium. What would the graphs look like now?

From companies’ perspective it would look like this:

 

Fig 6

 

The Green Line symbolizes all the premiums paid by citizens.

The Red Line symbolizes all the expenses companies have.

The Dotted Violet Line symbolizes government subsidies.

The Blue Arrow symbolizes profits.

The Red Arrow symbolizes loses.

In such a “rational” system, people would pay below-market premiums. This is so, because politicians still want to buy votes. However, at some point in their lives, the health care they need will be far more expensive than the premiums they pay. Therefore, companies will begin to have loses. To compensate for that, governments will begin subsidizing companies, this is, to pay for everything that premiums do not cover. Yet, these subsidies will not be market-based and therefore will not be priced properly. They will be politically-priced, which means that they will unstable, irrational and ripe for gaming. Companies will begin to appear offering only the highest profit-margin services. Companies will lobby governments to gain advantages. Companies will decrease service levels and be successful at so doing because competition will be severely dampened.

At the same time that quality of service decreases, governments will have to find a “funding source”. Back to the un-holy trinity: Tax, Print and Borrow. However, there is a twist now. Since there is a gigantic bureaucracy in between the service provider and the customer, total costs are going up. Furthermore, since subsidies are now politically-driven and subject to lobbying, costs are going up. Since all people are now covered, even those that do not want to be, costs are going up.

The bottom line is that even in this “rational” case, the final, total costs to all citizens goes up significantly. And remember this, there is no free lunch. Even if you do not pay taxes and could not care less about government borrowing, in the end, poorer services and inflation will get you. There is no possible escape.

Note: please see the Glossary if you are unfamiliar with certain words.

Continue to Health Insurance In Free And Managed Markets - Part 3