Editor’s note: Following his recovery from an illness, long-time Herald columnist James McCusker resumes his weekly column.
What do you get if you create an evolving system but forget to include a Darwinian survival element? A brightly colored, winged hippo.
Darwin and economics are closely related. In fact, Darwin’s “survival of the fittest” idea came from an economics book of his day.
Fixing our own flying hippo, the health care insurance system, has proven itself to be both messy and necessary. It is necessary because the portion created by the Affordable Care Act, known as Obamacare, is said to be collapsing. And it is messy because our health care insurance system is at least as much a product of chance as it is the product of planning or design.
It is always tempting to assume that a problem would be easy to solve if politics weren’t a factor. But if there were some magical way to eliminate politics from the health care insurance picture what we would be left with would still be an unholy mess.
The origins of the system explain part of the reason why it is so difficult to fix, and they can be traced back to World War II or, more accurately, to the steps that the government was taking to reduce the inflationary force of the war’s demand for goods and services.
The American workplace was changing rapidly to keep pace with each increase in mobilization. Many women stepped up to fill the jobs left behind by men in uniform overseas. But while “Rosie the Riveter” and the many other women workers helped, the number of jobs still grew faster than the labor force.
The result was a fierce level of competition among employers for workers. And since the government had frozen both wages and prices, employers had to be more imaginative to lure job prospects.
A War Labor Board decision declaring that wage and price controls didn’t apply to fringe benefits opened the door to using health care insurance as a hiring incentive.
Two more government decisions after the war gave Employer Sponsored health care Insurance a new, peacetime life and a maverick identity in the American economy. First, the National Labor Relations Board ruled that health benefits were subject to collective bargaining; and second, the IRS ruled that health insurance premiums paid by employers were not taxable income for the worker.
It was a good system, and economically stable because even though it did not have a Darwinian survival element itself, it was linked to an employer who did. Tying health care insurance to an individual’s job was not a big problem until two things happened in America’s workplace: unions lost their hold on the labor force; and both technology and global competition made jobs less stable.
The costs of health care coverage tend to be considerably higher for individuals compared with large groups, so for an individual losing his or her job, health care insurance would cost more, just when there was less money coming in.
The health care insurance we have now has problems that must be addressed, but we should do so with our eyes open. We cannot expect an economic system that occupies nearly a quarter of our total economic output to continue malfunctioning without having negative effects.
The first reason that our health care systems do not behave as economic systems should is that there are inadequate forces limiting costs — at least, of the type that exist in a normal supply-demand system. The result is a relentless growth in health care costs. Until this is addressed honestly, our system reforms, revisions and replacements are at best unstable and, at worst, doomed.
The second, and more immediately powerful, reason is that our system does not distinguish between demand and effective demand. Demand is simply wanting something; effective demand is wanting something and having the means to pay for it.
Superimposed on the system, also, is a very human behavior pattern. We have the best of intentions to cut costs but we are prisoners of the heart-rending stories of serious illness. One of our goals in reforming the health care insurance system should be to minimize unnecessary treatments so that when our hearts go out we’ve got the money to back it up.
Email James McCusker at otisrep@aol.com.
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