The State-Made Crisis in Health Insurance

Ten years ago the media were full of alarming stories about the number of Americans who did not have health care insurance. That "crisis" was used to whip up support for the Clinton administration's comprehensive health care plan, which would have essentially nationalized the $1 trillion health-care industry.

The plan was defeated in Congress. A decade later, however, it seems that nothing was learned. The federal government, along with the states, has continued to expand the regulations and subsidies that created the problems in the first place. And once again the number of people without insurance is on the public agenda. On November 19, the National Academy of Sciences released a report claiming: "The American health care system is confronting a crisis. The cost of private health insurance is increasing at an annual rate of 12 percent. Individuals are paying more out of pocket and receiving fewer benefits. One in seven Americans is uninsured, and the number of uninsured is on the rise." Many newspapers followed up with stories of individuals losing benefits.

The health insurance "crisis," like other problems of the health care industry, is the product of government interventions in the market. Tax policies still push most people into employer-based health plans, so that losing a job means losing coverage—a matter of renewed anxiety with the economic downturn. Price controls on insurers—and doctors, hospitals, and drug companies—are lowering the quality of service available to consumers. The cost of malpractice insurance, driven up by courts that have allowed outlandish awards to plaintiffs, are driving doctors out of business. States continue to increase the number of conditions that insurers must cover, driving up the cost of insurance. Over the last half century, layer upon layer of government interventions have so distorted the health-care industry that it can hardly be called a marketplace any longer.

You wouldn't know this from the National Academy Report, or the news media, or even the health-care industry trade groups, most of which are calling for new government programs. It's not surprising that most Americans cannot see past the surface. They see prices going up, and employers less willing to cover expenses. They wait hours in line at managed-care clinics for five minutes with a doctor, and all too often can't get authorization to see specialists. They get laid off and find that the cost of paying for their own health insurance is astronomical. They blame the providers, and are easily persuaded that private, market-based health care isn't working.

A key ingredient in this confusion is the failure to understand the nature of insurance in the first place. The consequences of government control over the insurance market are utterly predictable to those who understand how insurance works. For that reason, we think it is timely to publish Stephen Moses's article on the nature and value of insurance: how it works, and why it doesn't work when the state puts its thumb on the scale. The article is adapted from a lecture presented at The Objectivist Center's 2002 Summer Seminar.

Stephen Moses is currently president of the Center for Long-Term Care Financing (www.centerltc.org) in Seattle, Washington, a nonprofit organization dedicated to ensuring quality long-term care for all Americans. A nationally-recognized expert on Medicaid and private long-term care insurance, his articles and comments have appeared in The New York Times, Newsweek, USA Today, Forbes, CBS Evening News, CNN, and other major media.