Dropping the Bomb on Health Care - Peter Schiff's take

I really haven't even paid attention to the health care debate. I'm sure I wouldn't be in favor of whatever it is they are proposing and I don't need the added stress in my life worrying about it. I tend to view government involvement with the healthcare industry as something akin to a couple involved in an adulterous relationship trying to make it 'work'. A couple engaged in such a relationship might be able to manage for a while by hiding from spouses, sneaking out at the right times, erasing emails and the like. There are always little tricks and maneuvers to make the relationship last a bit longer than it should.  But ultimately it is an unholy union that was doomed before it even got started.

I read a post today by Peter Schiff entitled "Dropping the Bomb on Healthcare" (link to post: here). Mr. Schiff is a libertarian minded financial consultant who gained youtube fame by calling the housing bubble on many of the financial networks as early as 2005 (link to YouTube clip here) He provides a very insightful analysis of the looming consequences of the healthcare bill that just made its way through the Senate.  Since I haven't read the bill I'm trusting that the parts he quotes from the bill are accurate. Here's the meat of his posting:

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.

I think Peter just talked me into canceling my insurance if this bill goes through! Although I agree with Peter's analysis, I imagine I am less sanguine about the prospects of a market solution to our health care woes than he is. People do need and deserve health care. Part of the reason the government option is even on the table is that the American people have stopped building the charitable institutions that used to fill this void.  It could be argued that the reason people have stopped supporting the charitable institutions is because government has taken over, making people apathetic.  I think its probably a combination: Government intrusion tends to go hand in hand with our moral decline.