Healthcare reform becomes official this week, as many of the provisions of the legislation kick in. One provision requires insurers to accept children with preexisting conditions while capping what they can charge, undoing a standard industry practice. Several insurers have indicated that they will stop selling child-only policies. Industry officials are having a field day criticizing insurance industry greed.
Maybe these officials haven’t noticed, but insurers are greedy and there is nothing anyone in the Obama administration can do about it. Maybe it needs repeating. Insurers are greedy, have always been greedy, and always will be greedy. So are all investor-owned companies. People don’t invest in health insurance companies (or any other investor-owned companies) for charity. They invest in them to make money. (Investors tend to be greedy too, and that includes the pension funds that most working Americans rely upon for their comfortable retirements.)
Greed lends a certain degree of predictability to policy making. If the government requires a company to alter a product in such a way that it cannot make money selling it, then the company will refuse to sell that product. Usually our legislators have enough wisdom to understand that they cannot banish greed, but not this time. Didn’t anyone tell President Obama that insurers have relied on preexisting condition exclusions to make child-only policies profitable? (A disproportionate percentage of individuals who seek child-only policies do so because of preexisting conditions and this appears to be a far worse problem in the child-only insurance market than in the adult market.) If the government bans these exclusions, insurers will naturally stop selling the policies. Why is anyone shocked when managers do the bidding of their owners?
By choosing to heavily regulate the insurance market, President Obama has shown the same policy ambivalence that seems to mark his entire administration. Here he wants to sustain privately financed healthcare and simultaneously achieve the end results of government financed healthcare. He can’t have it both ways. If he really wanted a privately financed system, he should have done so with the least amount of intervention and let the profit motive work for the greater good, as it does in most markets. Economists have shown how to do this: End the tax subsidy, provide financial incentives for insurers to cover the very ill (risk adjustments? separate high risk pools?) and accept that some individuals will still fall through the cracks and have to rely on safety net providers. If he really wanted the end results of government financed healthcare, then he should have jettisoned the market-based insurance system altogether. We know how to do this to, by following Canada’s lead. Socialized medicine is not without its benefits, and perhaps markets don’t have all that much to offer in healthcare anyway. (That is a debate for another blog, or one hundred blogs.) Pick a side! Healthcare reform is devilish, but the devil you know is better than the one you don’t.
There is, of course, a far more cynical explanation for what is going on. Perhaps President Obama really does prefer socialized medicine, but realizes that he has neither legislative support nor the support of voters. (I doubt I am the first to offer this conjecture.) So he gives us a plan that is sure to fail and lays the blame at the feet of private insurers. Heck, most Americans rank private insurers right down there with tobacco executives, so this populist approach could have traction. After Obama gets done thrashing insurers over these child-only policies, Americans might further lower their opinion of insurers, ranking them right alongside Congress.
David Dranove is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including The Economic Evolution of American Healthcare and Code Red. He has a Ph.D. in Economics from Stanford University.