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Jewish World Review April 28, 2000 / 23 Nissan, 5760

Thomas Sowell

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Insuring problems

http://www.jewishworldreview.com -- WHEN MY CAR BEGAN to look a little more shabby than usual, I took it to the dealer's body shop to have some of the dents and scratches removed. When the repair man saw me wince after hearing his estimate, he said that he could just do a little retouching here and there, and see if that would be OK.

It turned out OK and the price was right. But what if my automobile insurance covered things like that? I might have gone for the deluxe fix that would restore the car to the way it looked when it was brand new in the showroom, five years ago. Why not?

There is all the difference in the world between spending your own money and spending somebody else's money. That is at the heart of many welfare state problems, including the financial crisis in medical care, which comes from the fact that everybody is trying to get somebody else to pay for medical care.

While the government claims to be paying for many people's medical care under various programs, it can pay less than the real costs and leave it up to doctors, hospitals, and private insurance companies to absorb the losses.

Dumping costs on third parties is what the game is all about. That is why Hillary Clnton's health care plan and other such schemes want to be "universal." They don't want anybody to be able to escape by going to a doctor where they pay just for their own treatment. Universal coverage advocates want those who pay to have to pay prices that not only cover the cost of their own treatment, but also costs created by those who don't pay.

How did we ever get into this mess? During World War II, the federal government imposed wage and price controls. As a result, businesses that needed more workers could not attract them with higher pay. The loophole that was allowed was that these businesses could offer "fringe benefits" that were not considered to be pay and were not subject to taxation.

Before World War II, it was axiomatic that people paid their own medical bills, just as they paid their own rent, bought their own food, and paid for whatever else they wanted. Today, most medical treatment is paid for by third parties -- employer-financed insurance or government insurance.

No matter how health care or anything else is financed, we do not have one cent more available when the government spends billions of dollars than when it spends nothing. After all, where does it get those billions of dollars, except from us? The same principle applies to private health insurance.

After all, where does the insurance company get the money to pay our bills, except from the premium we all pay?

This is not an argument against insurance, which is a very important thing to have. It is an argument against imagining that the country as a whole is getting something for nothing. We have the same amount available, whether the government or a private company is picking up the tab for our medical bills or whether we pay for it directly ourselves out of our own pockets.

Once we understand that, then we can talk sense about the advantages and disadvantages of sending our money to the doctors and hospitals by one route rather than another.

The scope of insurance -- whether government or private -- is crucial. My car is insured, but it is not insured for oil changes or for fixing the dents and scratches that it picks up here and there. Insurance for major medical problems would be a lot cheaper than insurance for people's nicks and scratches or for the worries of hypochondriacs.

Insurance through the market is likely to take care of the biggies and leave it to the individual to decide whether he or she really wants to go to the doctor for every sniffle or itch. This is not just a matter of who pays. It is a matter of how to conserve scarce and costly resources -- including the doctor's time -- that go into medical treatment.

Just as I would have gone through with an ambitious restoration project on my car if I didn't have to pay for it myself, so can all sorts of people take up precious time that doctors and hospitals could be spending on people who are really sick. Another huge waste is the paperwork and bureaucracy that goes with third party payments.

Politically, it is great to come out for making health care -- and a zillion other things -- "affordable." In practice, making things "affordable" means subsidizing wasteful uses that the same individual would never indulge in, if faced with the real costs.


JWR contributor Thomas Sowell, a fellow at the Hoover Institution, is author, most recently, of The Quest for Cosmic Justice.

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