Thursday, September 10, 2009

Turning a win-win into a lose-lose

This paragraph from President Obama's congressional address is worth examining:
Under this plan, it will be against the law for insurance companies to deny you coverage because of a pre-existing condition. As soon as I sign this bill, it will be against the law for insurance companies to drop your coverage when you get sick or water it down when you need it most. They will no longer be able to place some arbitrary cap on the amount of coverage you can receive in a given year or a lifetime. We will place a limit on how much you can be charged for out-of-pocket expenses, because in the United States of America, no one should go broke because they get sick. And insurance companies will be required to cover, with no extra charge, routine checkups and preventive care, like mammograms and colonoscopies – because there’s no reason we shouldn’t be catching diseases like breast cancer and colon cancer before they get worse. That makes sense, it saves money, and it saves lives.
Let's break this down.

He wants to make it against the law for a private company to determine what it's product will look like. How is this a good thing? What happened to the idea of a willing seller and a willing buyer agreeing to a transaction that benefits both of them? This is the very foundation of what has given us the most robust economy in the history of the planet.

Next, he wants to redefine insure to cover things that happened in the past. I wonder if he plans to do this with life insurance as well. Money is a little tight right now, so it would be nice to get a big payoff by spending a few thousand on a retroactive "insurance" policy for my mom, who died several years ago.

Next, he wants to invalidate existing legal contracts. Building on the "willing buyer/willing seller" model, an option has evolved whereby consumers pay less in exchange for allowing companies to dissolve the relationship when underlying circumstances change. Millions of these agreements have been made because both sides benefit from them. Obama vows to break these contracts and force companies to take on risks they didn't agree to and for which they were not compensated. It's hard to see how this won't destroy the insurance industry.

Next, Obama wants to force insurance companies to assume open-ended risk by denying them the option of offering a product with an "arbitrary" cap. He just doesn't get it . Caps aren't arbitrary and they are vitally important. They quantify risks, so that both the consumer and the company can evaluate their needs and come to agreement on a certain product at a certain price.

Next, Obama wants to arbitrarily set a limit on how much a consumer should pay in out-of-pocket expenses. Again, why the need to force everyone into the same pair of pants -- same size, same color. Doesn't it make more sense to let companies offer a variety of options and prices and let consumers choose what works best for them?

Finally, Obama wants to require insurance companies to provide extra coverage at no extra charge. Can you tell this man has never run a business? Everything he does is based on the premise that business are evil, that profits are excessive, and that we can just destroy incentives for entire industries and there will be no consequences for "the people." What he doesn't see is that business aren't these cold, inanimate things. They're people too -- trying to deliver products that people want, at prices that they are willing to pay.

The president is wrong when he says this plan makes sense. It makes no sense at all. You start with a willing buyer and a willing seller. Both sides win. If you create an environment that is hostile to one side, they no longer win. They have nothing to gain, so they walk away. And then both sides lose.

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