According to a
New York Times article, one of the greatest difficulties faced by
entrepreneurs is obtaining individual health insurance. The cost of
individual insurance plans can be significantly higher than a group plan
through an employer. Some individual may even be ineligible for health
insurance. Even as a small business it had become increasingly difficult
to find affordable health care plans to offer your employees. If you were
a small business owner you would pay more for the exact same plan a larger company
would pay. When congress passed the Affordable Care Act (ACA) of 2010 it
was designed to lower the cost of health care. One way the ACA sought to lower
the cost of health care was to increase the size of the risk pools. By
increasing the amount of people on an insurance plan, the risk would be spread
out enough that even high risk members and small business owners would be able
to afford health insurance. According to the New York Times article, the
availability of affordable health insurance would allow entrepreneurs to begin
new business ventures and shake free of the shackles of their employers health
insurance.
There are many issues with the American
health system but the most universal is the high cost of care. But we
need to consider why the cost is high.
1) Doctors spend nearly a decade in school
accumulating hundreds of thousands of dollars of student loans. By going
to medical school doctors are making an investment in their own human capital
in hopes that their future will be more productive and generate more income
than they otherwise would. There is also an opportunity cost in terms of
lost income, lost productivity, and the allocation of future income to pay off
student loans.
2) The American judicial system that does
little to restrict frivolous lawsuits by plaintiffs anticipating an out of
court settlement. One of the main purposes of any government is to
enforce personal property laws. By allowing these lawsuits the government
is granting the approval for plaintiffs to steal the productivity and property
of doctors. A doctor could allow the case to go to court and fight to defend
his honor, practice, and income. But the opportunity cost may be great
enough that an out of court settlement would be the least harmful route for the
doctor. Today many doctors carry malpractice insurance in order to
mitigate the majority of the risk of these types of lawsuits.
3) The free market is restricted because
insurance providers are not allowed to sell policies across state lines.
Lobbyists and rent seekers have created a virtual monopoly in the health
insurance industry through state laws and legislation. Without free and
fair competition consumers will be restricted in finding an affordable policy
for their individual needs. The policies that consumers eventually
purchase will be higher than they would be if we expanded our insurance
networks nationally.
The ACA does nothing to address any of
these problems. Instead the ACA treats health care as a public good and
compelling Americans to purchase insurance plans that the government approves.
But this notion of the health care system being a public good is false.
A public good is a good that is both non-excludable and non-rivalrous in
that individuals cannot be effectively excluded from the use and where use by
one individual does not reduce the availability to others. Doctors and
patients compete for patients to exchange their productivity and services for
income. Even patients are in competition with one another. In some
cases it may take months to see a specialist or a doctor may stop seeing new
patients if their current patient population has exceeded their ability to
provide service or fulfills their income requirements. Health care is not a
public good because it is excludable and rivalrous. Doctors accrue
opportunity costs, dept, and risk in anticipation that they will be rewarded
for the services that they will offer consumers. Nurses, medical
technicians, lab specialists, administrators, and many other careers also
accrue opportunity costs, debt, and risk in order to over their services to
consumers.
As well intentioned as the government is with
the ACA, it will in fact make health insurance prices rise and health care
increasingly scarce. A free market will find a price that both parties
benefit from the exchange. The health care system is broken because of
the very entity that is trying to fix it. The government uses force to
get in between the free exchange of insurance providers, health care
professionals, and patients. By enacting the ACA the government has
harmed both the consumer and the economy in many ways.
1) In the ACA law, health insurance plans
are required to meet criteria set forth by the government regardless of the
insurance coverage needs of the consumer. This interrupts free and
voluntary trade between insurance providers and consumers. Many consumers
will end up paying for services they do not need or wish to have.
2) The ACA continues to enforce the
restriction of selling health insurance across state lines. Lobbyists and
rent seekers have manipulated the system so that they can benefit financially.
The elimination of competition has caused insurance costs to be higher
than free market levels.
3) The ACA forces insurance companies to
insure individuals with preexisting conditions. By introducing these high
risk patients into the insurance pools everyone must share in the increased
risk by raising the cost of health insurance.
4) The ACA compels Americans to purchase
health insurance with an opportunity cost.
5) The ACA compels employers to offer
health insurance to employees who work at least 30 hours per week.
Employers have already found ways around this portion of the ACA by
reducing hours of low skilled labor to under 30 hours per week. This
forces these individuals to find a second job as a means to their standard of
living. With each employee now having a health care cost to employers in
addition to wages it forces many employers to restrict or eliminate new
employees, business expansion, and hiring of entry level workers. The
increase in operating costs will cause prices to rise as businesses struggle to
maintain profitability. Unemployment and underemployment among low
skilled workers will rise which will have an opportunity cost of disposable
income that will no longer be able to be spend at small businesses and start
ups. With less disposable income people will spend less. The
less people spend the more businesses will struggle. The more businesses
struggle the more unemployed we will see and prices rise. This vicious
cycle will destroy small businesses in America and we will only be left with
large box stores with enough capital to wait out the coming economic disaster.
These are all reasons why the New York
Times articles is wrong in assuming there will be an increase in entrepreneurs because of the
ACA. Capital will be allocated away from small businesses and start up
companies. It will be spend instead on
higher insurance premiums and taxes to pay for the unemployed which will cause
a decrease in aggregate spending. But the solution is not to subsidize
doctors education because there is not a positive externality. The
solution is not to restrict insurance market size because of rent seekers and
lobbyists. The solution is not to force people into the health insurance
networks. The solution is not to compel employers to offer expensive government
approved health care plans. The solution is to remove the force of
government from the health care industry. The free market will, by trial
and error, find the most beneficial prices and services for all parties
involved if it is left to its own devices. Only the free market will allow
insurance companies to find a balance between risk and reward while consumers
find balance between cost and value. But as long as the government uses
its force to manipulate the free market system we will always have unintended
consequences and a failure in the health care market.
The New York Times article referred to in
this post can be found here.
