A non-technical narrative about health care reform

Those who allege that health care prices are being skewed by the health insurance industry are correct, but that is really our (us, the insurance and health care consumers) fault.

As our culture has changed and more and more Americans have defected from taking personal responsibility, the insurance industry saw an increasing opportunity for profit. (We really can't blame the industry for wanting to make more money. I'm sure the company you work for wants to make money and I know the company I work for wants to do so.)

How it used to work

You see, when I was a kid, "medical insurance" (not "health insurance") was owned by many people (but not all) and it was used to cover what today would be known as "major medical" costs. When my parents needed to take one of their seven children to the doctor or hospital, they paid for the visit in full out of their own pocket. If they couldn't pay all at once, they made arrangements to pay it off over time—and they kept their word. And, no doubt, good-hearted doctors and hospitals offered an informal "sliding scale" of fees. Wealthy families probably paid more for services than poorer families visiting the same office or hospital for the same service.

We didn't get check-ups every year. We also didn't have a battery of tests performed with every checkup, but we all survived—as did just about everyone else in my generation.

But handling medical expenses under this "plan" meant self-denial (saving for emergencies, setting aside money and not spending it on every new titillating bauble that hit the market). Unfortunately, most of my generation didn't like that more or less austere lifestyle.

So, along came the insurance industry to "help" us out. Instead of "saving" money, this generation would buy a "product" called "health insurance" that would permit them to visit the doctor with little or no out-of-pocket expense—except for the money being taken out of their paychecks every month for the insurance. As you know, having a payroll deduction means it's money you seldom or never miss.

You also know, if you've read Human Action by Ludwig von Mises, about moral hazard. This new insurance reduced risk for us, the insured—thus making us less careful about how we spend the insurance money. This, in turn, drives the prices of insurance up, because there are more dollars chasing the supply of goods and services.

Meanwhile, access to more money flowing from the insurance industry drove doctors and hospitals to invest in new products and services to "attract" their customers more frequently—more checkups, more tests, more fancy gadgets. Do so tended to drive up the cost of health care which, in turn, drove up the cost of health insurance. Of course, the more money the insurance companies were handling, the more profits the insurance companies garnered from their financial and operational entities.

Profits everywhere went up: doctors made more money, hospitals typically made more money, the insurance companies made more money all from processes that drove the cost of health care upward in a vicious spiral. Add in the whole new field of tort law exploited by the legal community against doctors and hospitals knowing that the insurance companies would end up paying and you have one huge problem. And Congress won't address tort reform because 40 percent or more of Congress is made up of attorneys.

All of this really stems—as I said—from us (the insurance and health care consumers) who willingly engage in the purchase of "health" insurance which, in turn, created for all the participants a moral hazard—a willingness to be more careless about our spending because it seemed like the money really wasn't our own.

Health care reform?

Yes. We need it. But, we have met the enemy, and it is us.

Furthermore, ObamaCare is not the right answer. Tort reform and new approaches to insurance industry competitiveness across state lines is a very good place to start.

Thanks for listening.