Tuesday, February 21, 2017

A Market-Oriented Solution to High Health Insurance Costs

            Given the new Congress and president, and amidst signals that the now ostensibly voluntary individual health insurance purchase mandate will be weakened further1, and following a widely publicized debate on the future of Obamacare between senators and 2nd-place presidential primary candidates Bernie Sanders and Ted Cruz2, it seems that the time has come for Americans to think about what kind of replacement for Obamacare they'll be willing to accept under the remainder of the Trump Administration, in case the last president’s key legislation is repealed.
            On January 25th, 2017, Senator Rand Paul of Kentucky introduced the Obamacare Replacement Act (Senate Bill 222), legislation which would provide an immediate replacement for the 2009 Patient Protection and Affordable Care Act (called either P.P.A.C.A., the A.C.A., the Affordable Care Act, or Obamacare, for short).3 Paul favors repealing the entirety of Obamacare, and replacing it immediately.4 This is a clear, bold position which cannot be misunderstood, and which holds an auspicious potential for allaying the oft-voiced concerns of Obamacare supporters who believe that the opposition wants to repeal it and replace it with nothing.
The Washington Post estimates that some 18 million people could be kicked off their health insurance plans5, as millions were when Obamacare kicked-in in 2014. Senator Paul does not want to see the same thing happen again; he believes that establishing market-oriented health will help ensure uninterrupted coverage for policy holders who have pre-existing conditions. The senator is concerned that to continue to require health insurance companies to sell policies to people with pre-existing conditions could cause "adverse selection" of insurance policies, something that he fears could bankrupt the health insurance industry.
            In an op-ed essay, which was published on Rare.us on January 2nd of this year (the day before the 115th Congress was sworn in), Senator Paul proposed replacing Obamacare with “freedom”. This includes "freedom for all individuals to join together in voluntary associations to gain the leverage of being part of a large insurance pool"6, in addition to three other specific points (which are outside this article’s range of discussion).
On the same day that Paul proposed the Obamacare Replacement Act, his senate.gov web page published a press release. The press release stated that Paul’s proposal would expand “Association Health Plans (AHPs) to allow small businesses owners and individuals to band together across state lines through their membership in a trade or professional association to purchase health coverage for their families and employees at a lower cost."7 Association Health Plans provide health insurance coverage to groups of businesses that share common interests, through an “industry organization”.8

Senator Paul’s proposal would allow people who work in similar professions to pool their money and resources together, in order to inexpensively purchase health insurance policies. Similarly-employed professionals joining into voluntary associations could make it easier for industries to demand custom policies from insurance companies; policies which are specially tailored to cover the unique and distinct safety and health risks which are associated with particular industries and particular types of workplaces.
            The broader purpose (outside of the issue of professions) of allowing people to “join together in voluntary associations”6 is, as Paul’s press release stated, “to gain the leverage of being part of a large insurance pool.”6 The point is to help customers (policy holders) to match, equalize, and balance-out insurance companies’ great selling power. When customers’ buying power increases, insurance companies’ price-setting power declines in comparison, which means that premiums decrease, enabling working people to more easily procure inexpensive coverage.

            It could be argued that the very same leveraging of economic power can be accomplished through government programs, and by increasing government involvement in health. This is to say that requiring as many people as possible to purchase health insurance, achieves the same kind of leverage that is necessary to balance-out insurance companies’ selling power and price-setting power.
This argument holds some water, because to establish (for example) a Medicare-for-all -type system, puts everybody in the same purchasing pool. Everybody in the same pool means maximum purchasing power for policy holders, which means lower premiums.
            However, putting all Americans in the same pool does not accomplish Paul’s goal of having these pools emerge as “voluntary associations” (“voluntary” being the operative word). Paul opposes Obamacare’s individual mandate, because he believes that mandates are antithetical to freedom.
            If the government can compel you – under the threat of fines and imprisonment – to purchase health insurance, then it can compel you to purchase it at a price that is satisfactory to both the government and the insurance companies. This is especially true when the government extorts taxpayers in order to fund at least ten types of artificial corporate privilege which would arguably not exist in a free market for health insurance and health care. Corporate privileges for health insurance companies produce an oligopoly; that is, a state of few sellers.
Just as with student loans, for government to promise to pay all health costs (with taxpayers footing the bill) only encourages high expense. When government buys all health insurance, it becomes a monopsony; that is, a single buyer. As Libertarian Party presidential nominee Gary Johnson explained during the 2016 campaign, if college students boycotted college for a single year, the price of tuition would plummet.
Similarly, if Americans were suddenly able to exercise their natural freedom to refrain from purchasing health insurance policies, premiums would plummet. It is only our freedom to refuse to purchase health insurance, which gives us the negotiation power we need to bring premiums as close to zero as possible.

            Senator Paul’s Obamacare Replacement Act intends to put to good use the natural market incentive which people have to join into large insurance pools in as numerous quantities as possible. The existence of this natural incentive renders the idea of an individual purchase mandate completely unnecessary and superfluous.
            The individual mandate, and unconstitutional taxpayer-funded corporate favors, have assisted in the birth and growth of a price-setting cartel of health insurance companies. Allowing an oligopsony (state of few buyers) to arise naturally through the market, would be sufficient to balance-out the price-setting power of the insurance oligopoly (state of few sellers). But government takes it one unnecessary step further; it takes our money, and uses it to buy all health insurance. Thus, it not only makes itself into a health insurance monopsony (that is, the sole purchaser of insurance, the “single payer”); it also remains the same defense monopoly it always was, being the only agency legally authorized to sell military and police protection to the people.
Although some may argue that any market-oriented or voluntary proposal to fix health policy is “privatization” that risks the very same kind of monopoly that free-marketers should rightfully oppose, Paul’s plan is not “privatization”. Privatization refers to a system in which government gives favors to cronies, picks winners and losers in the marketplace, and sells-off parts of itself to the highest bidder. But Paul’s proposal resembles “radical privatization” than privatization.
“Radical privatization” is a term which radical libertarians use to refer to a situation in which government gets out of the way, by exiting an industry entirely, rather than transferring management or ownership of government agencies to members of the for-profit private business sector.
Radical privatization frees-up taxpayer funds, allowing taxpayers to choose from among goods and services that compete in the market; when these types of goods and services were previously monopolized by government and not readily available for individual purchase in markets.
To allow voluntary associations, while repealing the mandate, means a truly optional “public option”. In fact, multiple voluntary associations really means multiple public options. If Paul’s proposal passes, we could see these “public options” (if the term would still rightfully apply) compete on the market alongside ordinary plans. This is because a truly voluntary and optional public plan would transform government health insurance cooperatives into market actors.
The result would be a wider and more diverse array of types of policies; a wider array of the set of conditions and ailments which health insurance policies cover. Additionally, people would be free to choose between plans tailored to their profession, versus plans tailored to their individual or family needs. Perhaps most importantly, nobody could be rightfully compelled to pay for coverage of ailments which they reason will probably never affect them.  
Moreover, to eliminate the tax credit for employer-provided health insurance (which Paul did not mention specifically in his proposal, although he does support it), would make that choice easier, because people who lose their insurance when they lose their job would be free to choose non-professional policies whose premiums are not distorted by the price-altering influence of government tax credits.
But professional voluntary associations, and cooperatives competing on the open market, are only the first step.

While cooperatives and E.L.M.F.s (egalitarian labor-managed firms) empower workers, consumer-cooperatives (sometimes called worker-consumer cooperatives, or mutual firms), ensure that consumers and workers have equal power. Just as with insurance cartels, the goal here is to ensure that consumers have as much power to demand low prices as workers do to demand adequate compensation for their labor.

In a consumer-oriented health insurance purchasing cooperative, policy holders and policy providers would have equal negotiation power, moderated and adjudicated by neutral agents. The prime candidates to moderate these disputes would be individuals who both buy and sell insurance; such as a health insurance company employee who has purchased health insurance for himself.
If policy holders (the consumers of health insurance) do not feel that such an enterprise would be sufficiently balanced and fair, then they would still be free to join (or form) consumer-oriented enterprises and consumer interest groups which intend to make sure that health insurance policy providers do not demand so much compensation that it puts ordinary policy holders in dire financial straits.
Furthermore, cooperatives, consumer-cooperatives, and consumer-oriented enterprises, are not the only types of agencies which could buy and sell insurance, and negotiate on premiums. Many types of agencies could accomplish this; there is no limit to the number of combinations and permutations of existing business models into new types of firms.
For example, cooperatives (and / or consumer-cooperatives) could band together into federations known as Cooperative Wholesale Societies (or C.W.S.s) – or purchasing societies – in order to arrange and manage bulk purchases. As we all know, buying in bulk, and buying at the wholesale price, saves us money.

Rand Paul’s Obamacare Replacement Act would help provide a smooth transition away from a health policy built on a command-and-control model, to one that potentiates a nationwide interstate market for health care and insurance. Paul’s is a voluntary, market-oriented proposal that carries the potential of addressing consumers’ unique needs, without seeming to necessitate increased government spending, nor the expansion of federal involvement in health (an industry which the authority of managing is not specifically enumerated in the Constitution).
Perhaps voluntary public options and professional voluntary associations, competing on the open market on a nationwide basis, will result in a multi-state health insurance purchasing pool that acts as a C.W.S., subsuming all health insurance purchasing cooperatives into-under it, upon consent of each cooperative, choosing individually whether to join the federation. Maybe the telos of all this is some sort of “federative society of wholesale health insurance purchasing consumer-cooperatives”, whatever that might look like.
I guess there’s only one way to find out.


Written on February 10th, 2017

Edited and Expanded on February 16th, and 18th through 21st, 2017