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.