The Sunshine Report

An open and a sent let­ter to Rep. Paul Ryan (R-Wisc.) and pub­lished on Forbes.com.

Dear Con­gress­man Ryan:

I am writ­ing to you again because I still don’t under­stand your plan to elim­i­nate Medicare and I am seek­ing answers.

I wrote to you last month and didn’t get a response. Hope­fully, after hear­ing first hand from your con­stituents, you will take my ques­tions, and the ques­tions of mil­lions of other Amer­i­cans, more seriously.

As every­one who is younger than 55 is rapidly becom­ing aware, you are propos­ing the elim­i­na­tion of Medicare. Nor­mally, such a pro­posal would be con­sid­ered polit­i­cally laugh­able because Medicare pro­vides seniors with med­ical insur­ance they would oth­er­wise be unable to purchase.

But today, no one is laugh­ing at your proposal.

I must give you credit where it is due. Every­one, includ­ing your polit­i­cal oppo­nents, is tak­ing your pro­posal seri­ously. How­ever, I worry that your pro­posal has flaws and I want to under­stand why I shouldn’t be con­cerned.
Just to be clear, I believe in free mar­kets and think that free mar­kets will almost always allo­cate resources bet­ter than the gov­ern­ment. How­ever, I also know that free mar­kets require cer­tain con­di­tions to exist; the most impor­tant of which is a level play­ing field with clearly defined rules that pro­motes com­pe­ti­tion and dis­cour­ages anti-competitive behavior.

I think a good free mar­ket is a lot like bas­ket­ball. Both sides com­pete in a game where the rules favor nei­ther side. The bas­ket­ball court is the same for both teams and the ref­eree makes sure that the rules are fol­lowed. When a foul occurs, the team that broke the rules is penal­ized. If a player gets too many fouls, he is tossed out of the game.

The thing that I don’t under­stand about your pro­posal to get rid of Medicare and replace it with vouch­ers to pur­chase pri­vate insur­ance pro­gram is why you believe that com­pe­ti­tion exists in the indi­vid­ual med­ical insur­ance market.

Fed­eral reg­u­la­tions for insur­ers are noth­ing like bas­ket­ball rules — the play­ing court, the reg­u­la­tions and the ref­er­ees all are designed to make sure that the insur­ance com­pany wins because there is no competition.

Basi­cally, the med­ical insur­ance game is rigged. Med­ical insur­ance com­pa­nies have spe­cial legal pro­tec­tions that pro­mote anti-competitive behav­ior. Since 1944 they have been exempt from vir­tu­ally all the anti-trust laws that apply to other indus­tries and under­pin the foun­da­tion of our national economy.

Under the terms of the insur­ance exemp­tion, health insur­ance com­pa­nies can col­lude with one another, fix prices, rig bids and form car­tels. Preda­tory pric­ing by health insur­ance com­pa­nies is OK. These prac­tices — nor­mally ille­gal under fed­eral anti-trust reg­u­la­tion— are pro­tected by law.

Even worse, health insur­ance com­pa­nies don’t have to worry about being sued if they hurt some­one — they aren’t sub­ject to tort lia­bil­ity and as a prac­ti­cal mat­ter can’t be sued for mess­ing up a claim or deny­ing coverage.

In fact, the only thing health insur­ance com­pa­nies def­i­nitely aren’t allowed to do is phys­i­cally coerce indi­vid­u­als. It’s cold com­fort to know that the health insur­ance indus­try pretty much only has to avoid vio­lence to stay on the right side of Fed­eral law.

By any rea­son­able mea­sure, the indi­vid­ual health insur­ance mar­ket has failed to serve its con­stituents. In 2009 by almost a two to one mar­gin con­sumers who could have pur­chased an indi­vid­ual health insur­ance pol­icy decided that it was a bet­ter deal to go with­out it.

Accord­ing to the U.S. Cen­sus Bureau, approx­i­mately 16.7% of American’s didn’t pur­chase an indi­vid­ual health insur­ance pol­icy — not even a low cost, stripped down cat­a­strophic pol­icy. Only 8.9% of Amer­i­cans actu­ally pur­chased an indi­vid­ual insur­ance pol­icy while every­one else didn’t have to worry about how the indi­vid­ual insur­ance mar­ket worked. Almost all of the rest of Amer­i­cans, approx­i­mately 75% of the pop­u­la­tion, was cov­ered through either a gov­ern­ment pro­gram (pri­mar­ily Medicare, Med­ic­aid or Armed Forces) or through an employer pro­vided policy.

So, Con­gress­man Ryan, my ques­tion is what free mar­ket are you think­ing is going to take the place of Medicare?

If you think the cur­rent indi­vid­ual insur­ance mar­ket will work for seniors, think again — it isn’t free and it isn’t a market.

Under your plan, instead of receiv­ing Medicare ben­e­fits when I am old and frail should I expect to fig­ure out how to pur­chase insur­ance from a car­tel of com­pa­nies that are pro­tected by the Fed­eral gov­ern­ment and allowed to col­lude on preda­tory pric­ing schemes?

I hope that the cur­rent insur­ance mar­ket isn’t the one that you think is going to sud­denly be open, free and com­pet­i­tive. Maybe it will be a real mar­ket some­day. But that will require some­one — maybe you, Con­gress­man Ryan — to strip health insur­ance com­pa­nies of their anti-trust exemption.

Con­gress­man Ryan, I am won­der­ing — while we wait for the health insur­ance mar­ket to become a real mar­ket — what eco­nomic the­ory teaches that anti-competitive behav­ior is good for any­one other than the side that is allowed and empow­ered to cheat?

I am hop­ing that the fail­ure to repeal the anti-trust exemp­tion for health insur­ance com­pa­nies was just an hon­est over­sight on your part. But mostly I am ter­ri­fied about what your bill means for me and my fam­ily. Please tell me why I shouldn’t be scared.

I look for­ward to hear­ing from you.

Respect­fully,

Mark Sun­shine