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Posted on December 10, 2007

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By Daniel Gallington
The Washington Times
December 9, 2007

Absent another large-scale terrorist attack on U.S. soil, health insurance could easily be the issue that determines the 2008 election.

The health insurance issue set — by its very nature and history — favors the Democrats, who have already started telling voters “what they are going to get” under various new national health insurance schemes. So far, almost all the Republicans have been able to say is that the Democrats propose faceless socialized medicine, a la Canada, the Britain and Europe — and that it’s way too expensive and will require massive tax increases.

However, the Democrats aren’t proposing that — they are proposing almost everyone be required to buy private health insurance (Hillary Clinton) and/or that people who can’t afford it, especially children, would get private health insurance free or at low cost (Barack Obama).

One thing is certain: Private insurance companies are licking their chops over national insurance ideas that would have billions of dollars paid to them — no matter who pays. Another key issue associated with such proposals is whether the American heath care “system” can provide health care for everyone, even if there is a way to pay for it.

We can hope the debates on national health insurance — and health care — will get more responsible and informative. But there’s no assurance of that, judging from the content and coverage of the discussions so far. To start, the public is way “underinformed” on the basics of any kind of insurance.

For example, insurance companies make their money in three ways, only one of which has much to do with insuring risks:

(1) They typically own and manage vast real estate holdings, billions and billions of dollars worth, so they are indirect partners in lots of other kinds of businesses and ventures.

(2) They have billions and billions of dollars that they invest in stocks, bonds and other kinds of investments. In fact, insurance companies have always been among the largest “institutional investors” on Wall Street.

(3) They employ armies of actuary scientists, risk managers, lawyers and other experts to reduce the amount of money they have to pay for losses they have insured people against. They even take out insurance to cover their own liability exposure for catastrophic losses — this is called “reinsurance” and is huge financial industry in its own right.

Surprising to most people, the regulatory “turf” for insurance was divided up in the 1940s with a little known law, called the “McCarran Act,” the most important part of which cedes insurance regulation to the individual states.

So, could the establishment of a comprehensive heath insurance system for all Americans require — of necessity — a federal legislative revamping of the entire regulatory basis for one of the largest U.S. financial operations?

Sure it could, and one can only imagine the intensity of the lobbying efforts to influence how that regulatory turf would be recast. It would make all past lobbying campaigns in Washington look like skirmishes — this as the various insurance special interests lined up to protect their interests.

Accordingly — for a universal health insurance “solution” — the insurance industry will have in mind the kind of sweetheart deal they got in the past: They manage the programs and get lots of money from the government to do it — like Medicare, Medicaid and the Medicare Drug Program.

Think about it — these programs have been financial booms to the health insurance industry, primarily because the government has assumed the long-term obligation to pay for the highest risk groups: People over age 65. Accordingly, for any new national health insurance program — insurance companies will insist the government pay for those (a) who can’t otherwise pay their premiums, and (b) those in higher-or chronic-risk categories.

While the insurance industry certainly won’t mind if the federal government makes huge cash payments into their business system, they will mind if the government actually takes over — or manages — the health insurance business. Therefore — even if it becomes the cheapest and most efficient way for any part of a new health insurance system to work (for younger people, for example) it is unlikely to happen.

For proof of this, one need only look at how the intensively lobbied Congress “resolved” the recent addition of drug coverage (Medicare “D”) to the Medicare program: They were simply bought off by the drug companies (to make sure the highest prices for drugs were paid) and the insurance companies (to make sure there was enough money in the Medicare/Medicaid system to pay the new claims). Bottom line? All Congress really did was throw money — our money — at the insurance companies, and they love it.

In sum, how will individual voters, taxpayers and health insurance consumers figure in the new universal health insurance debate? The short answer is that they won’t: Just as the most expensive and least efficient alternatives for our other forms of government-sponsored health insurance (e.g., Medicare, Medicaid and Medicare “D”) have prevailed in the past — they will likely prevail again.

Daniel Gallington is a senior fellow at the Potomac Institute for Policy Studies in Arlington, Va.