Our Habsburg President

Ramesh Ponnuru has a good post at Bloomberg called “Why Obama Won’t Listen to Reason on Obamacare.” It boils down in the end to the fact that President Obama cannot accept that anyone who disagrees with him could possibly have a valid point. With health insurance, Ponnuru points out that Obama insists on comprehensive insurance:

Obama believes that only comprehensive insurance policies are real insurance. Conservatives generally believe, by contrast, that people should be free to buy cheaper policies that protect them only from financial catastrophes arising from their health needs.

The problem is that so-called comprehensive insurance isn’t insurance at all; it’s a prepayment plan and a highly economically inefficient one.

The purpose of insurance is to protect against an unexpected event that would have severe economic consequences if it eventuated. A homeowner buys house insurance to protect himself from the economic consequences of fire, weather damage, or liability. But if, say, his grandson throws a baseball through the living room window, he calls the guy who fixes windows–not his insurance company. Likewise, automobile insurance covers accidents and liability, not oil changes. That’s for a good reason. Look what would happen if it did.

As it stands now, a car owner goes down to his local garage four times a year and gets the oil changed, paying, say, $25 for each change. But if he had “comprehensive auto insurance,” he would tell the garage owner to bill the insurance company. The garage owner would do so, but he wouldn’t bill $25. The need to collect from the insurance company involves clerical expenses and he has to wait for his money. So he bills $35. The insurance company pays the bill, but it, too, has clerical expenses, overhead, and the need to make a profit. So it bills $50. Whom does it bill? The guy who bought the insurance, of course. His premium will be $200 a year higher than it would be if the policy didn’t cover oil changes. So by being “insured” for oil changes, he pays twice as much for them.

Humans, of course, are not automobiles, so our routine health expenses are less predictable. But most of us can count on needing to visit a doctor and buy prescription drugs a few times a year, for a routine checkup, the flu, a sprained ankle, spring allergies, chronic heartburn, et cetera. Like cars, the older we are, the greater the routine expenses to keep us running optimally. (But, alas, unlike cars, we can’t trade ourselves in for a new model. We have to keep the old clunker running as long as possible.)

This ineluctable economic reality is why health savings plans and similar schemes make so much sense. By providing funds to cover routine expenses, while providing insurance to cover the unexpected and expensive, these plans make economic sense. They also provide discipline. They encourage the beneficiary of the plan to ask himself, “Do I really need to see a doctor?” and to ask the doctor or pharmacist, “How much is this going to cost?” So-called comprehensive health insurance, in contrast, encourages overspending on routine health care and an indifference to actual costs. With 315 million Americans all needing health care, that gets really expensive really fast.

But President Obama’s egotistic intellectual inflexibility does not allow him to see this. As Talleyrand said of the Habsburgs, he forgets nothing and he learns nothing.