From guest author Bruce Kesler:
Health care could be the next Fannie Mae type disaster. Similar forces are at work, and despite the lessons that should be drawn instead may be accelerated by the current financial meltdown. These forces are exaggeration of need and rights among the poor, greed by many of the rest of us, and many politicians seeking votes or contributions.
The forces in the credit crisis were the appeal to provide opportunities for home ownership to the poor and the consequent inflation of housing values that provided paper gains to the middle class and wealthy. Underlying these forces was a pyramid scheme profiting the political and financial elites that was dependent on trust in repayment of subprime loans by many without the means or stake in doing so.
Thus, ultimately the taxpayer and more careful consumers and investors are required to pay off, also making other worthy goals unaffordable.
Financially, the credit crisis is costing over $2-trillion dollars, and likely more, caused by excessive, reckless lending to bad risks, and the self-serving and profiting shuffling of these overleveraged risks into the portfolios of investors around the world. The burdens are not only financially much greater but as well in their impact on taxpayers, consumers and the gullible who placed their faith in the prudence of governments and giant financiers.
Literally, these floodgates were opened by our government allowing and encouraging the risky lending. At its root, our politicians, mostly Democrats, either benefited from contributions from the Fannie Mae’s and the giant financial institutions or from the votes of those obtaining mortgages for which they otherwise wouldn’t qualify. Most Republicans, also, went along for the ride on housing and consumption spending and balloon feelings of prosperity.
The appeals are similar in health care schemes that promise expansion of coverage.
The need is exaggerated. Only about 20-25% of those uninsured are actually citizens in financial or underwriting need. The rest are the healthier young and reckless, those who can afford insurance but don’t obtain it, and non-citizens (the legal ones supposedly guaranteed support by their sponsors and the illegal ones who cannot legitimately claim any presumed “right” to health care). The overwhelming majority of citizens are insured, and the most of poor receive taxpayer-funded health care.
The need is also exaggerated in terms of the impact of rising medical costs on the nation’s wealth and on individuals. Rising health care spending is offset by declines in costs for other necessities. Further, the availability and advances in medical care have dramatically expanded life expectancies and quality of life. Over the past half-century, the share of personal expenditures has declined by over 40% for food, 20% for furniture, 38% for clothing, and inflation adjusted costs of renting or owning have remained stable. Meanwhile, spending on medical care has increased by almost three-fold, to over 15% of our personal spending and gross domestic product. Other sharp increases have been in recreational type spending and services.
As individuals and collectively we have decided in favor of sharply improved health care and its costs. As a wealthy nation, we naturally spend more on health care. Indeed, the model of Canada and western European countries offering government-run health care is weak, as their costs are inflating rapidly, their quality and access is generally second-rate to our own, and they free-ride off our technology and pharmaceutical investments.
A vast government-run system is not necessary to expand coverage for about 12-million who are actually in need. Incremental programs will address this need. Going beyond that will upset everyone else’s apple-cart, through higher taxes, centralized bureaucracy interfering in personal choices and access, and imposing restrictions on the incentives and energies that lead to improvements in treatments.
States that have required insurers to accept anyone with an existing health condition provide incentive to avoid coverage until needed. High-risk pools can be expanded for those with grave conditions. States that impose the same premium on all regardless of age discourage the young from getting coverage. In both cases, costs are shifted on to the responsible. Consequently, premiums are sharply higher in those states. Similarly, the Massachusetts experiment in mandated care has experienced, despite contrary political promises, sharply higher spending and increased charges to employers, both disincentives to economic growth. Compounding this is the reduced access to primary care givers as their compensation declines and the demands upon them increases.
Until it is too late, the promise of a free ride evaporates as higher taxes and lower care quality take hold. As with the housing credit bubble, the same forces are at work to create an unaffordable and ultimately bankrupting health care bubble. Even worse than losing part of one’s paper wealth is losing one’s real health.
For those who seek relief from increased drains from health care on our national wealth while at the same time offering support to those actually in need, the tendency in Republican proposals is to provide tax credits that will allow the needy to obtain insurance while shifting greater coverage decision responsibility from employers to individuals who will have to make personal choices about whether some treatments are really needed. Both Democrats and Republicans promise nebulous efficiencies, most of which the free market are already undertaking anyway, but only individual self-restraint will measurably impact the inflation in medical costs that comes from overuse.
Bruce Kesler owns an employee benefits & financial planning firm in Encinitas, CA. Nearing retirement, he disclaims profiting from commissions if more people have insurance.
