How was this economic conclusion reached?

Question

This may seem somewhat burdensome, but I need a little help understanding something. Visit this website:

http://www.theobjectivestandard.com/issues/2007-winter/moral-vs-universal-health-care.asp

Find the lengthly paragraph that begins with:

"Given the existing tax burden on Americans and their justified efforts..." and ends with "This is precisely what has happened with health insurance."

I am a little bit unsure as to the point that the authors of the article are making in this paragraph. More specifically, I don't understand how they went from the demand for home repairs increasing to the home insurers having to limit their coverage in order to stay in business. If people are buying more and more insurance to cover routine home repairs since it's beneficial under the tax structure, what happened that the home insurers are now having to take measures to stay in business?

Answer 1

I think increased prices for repairs mean insurance companies have to pay more on policies with same premium.

Even if insurance coverage says "repair expenses up to $50,000", but in reality average expenses per case are below $50K, and increase in prices does affect the costs of insurance company. And there is probably some regulation that prevents them from increasing prices.

Answer 2

You are right to be confused because the reasoning in the article is specious to say the least.

The previous answer is correct in noting that the article makes a number of unreasonable assumptions about what government regulations would be in order to justify the analogy.

It is, however, the case that people's behavior changes over time in view of the circumstances. Give someone with balance problems a cane and that person can move around far more easily. But using the cane doesn't help with the balance problems, it just mitigates, or even eliminates their consequences. Therefore people with canes tend not to do the exercises that would actually help their balance problems because the balance problems have become less important and the person has "better" things to do with his/her time.

To the extent that a service, such as health care, is perceived as being "free", people will take greater advantage of it. (This is what price elasticity is all about.) But since the service isn't truly free (i.e. it takes resources), someone has to provide those resources. And no one wants those resources to be wasted by unneeded demands on the service.

(Of course the true price isn't just the nominal price; it includes the cost of going to see the doctor, the time spent there, etc.

In countries with socialized medicine, people who are busy working are much less likely to seek medical attention than those who aren't, just because the latter tend to have more time. (And many of the elderly like going to the doctor because it gives them a chance to meet others and to have someone listen to them. For them the costs are lower and the perceived benefits much higher.)

This is one of the factors in the problems states have with Medicaid and Medicare.)

The classic way to ameliorate this situation is to have deductibles, limits on coverage, etc. But if the government is making the rules, the results are likely to be politically expedient for those making the rules, not the best for society as a whole. (Consider the fact that the U.S. actually passed the Constitutional amendment on Prohibition. One factor was that very few politicians wanted to be on the record as defending "demon rum", even as they drank it.)

And the government (including all three branches: the legislature, the executive, and the judiciary) has, in the past, set up rules that do make it impossible for various kinds of companies to operate effectively.

So it is possible that the government would put these companies in a very difficult position. But whether it is likely, and whether that situation would continue for very long, you can decide for yourself.