Are Health Insurance Companies Now GSEs?

Reading Holeman Jenkins Jr's column on the new health care bill got me thinking about the question, are health insurance companies now government sponsored enterprises?

Certainly they are not like Fannie Mae, Freddie Mac, or Ginnie Mae yet, but what about five, ten, twenty years down the road? The motives behind the creation of Fannie, Freddie, and Ginnie are similar to the reason to motives behind the new health care law, fix a perceived market failure. In the mortgage GSEs it was a lack of liquidity in the mortgage market, and with the insurance market it was a lack of coverage of the poor and middle class.

Now the health insurance companies are not GSEs in the same sense as the mortgage GSEs, i.e. they losses health insurance may take are not backed by the government, but the individual mandate basically is the government saying, "You people need health insurance, and we support the health insurance industry. So we are requiring you to purchase health insurance." If that is not a sponsorship of the health insurance industry then I do not know what is!

However I cannot wait to feel vindicated when the health insurance industry finds out how its new buddy, the government, runs business. It is like seeing a guy/girl at the local club hitting on a woman/man who you know is just there to get drinks out of guys/just sleep with the girls (happens all the time!). It is almost brotherly/sisterly duty to go and tell the guy/girl, "Hey be careful of her/him." Of course the majority of Americans did that, but the insurance industry, probably drunk on the idea of an individual mandate, decided to sleep with the government anyways. I am chomping at the bit to here the first negotiating session between the government and health insurance about the cost of a procedure:

Health insurance: "This new procedure took years of research and to recoup our cost it is going to cost x."

Gov't: "No, that is too expensive we are not paying for that procedure unless you lower the price to x-y."

Health insurance: "At that price we will not recoup our cost! We cannot do that!"

Gov't: "Well if you cannot do that price then we will not allow this new procedure on the government health insurance, and we are going to have you testify before Congress as to why you would hold back such procedure because we think you are price gouging."

Am I the only one who sees such a scenario playing out?

Michael F. Cannon discusses health care reform in a NMA forum

Now this is over a year and a half old, but extremely poignant given what just happen in health care. Michael Cannon, an economist from George Mason University, bets Karen Davenport, a master of public administration that he can convince her of these two claims regarding universal health insurance coverage:

1. Supporting an individual mandate is an act of personal irresponsibility
2. Supporting universal coverage means you are willing to let people die unnecessarily

It is obvious he won, but I feel it is a trick question. Especially on the first point where Mr. Cannon states that it is irresponsible to give up any bit of freedom. So by agreeing that the government should force people have health insurance is personally irresponsible because it denies people the freedom to choose whether or not to have health insurance. I agree with Mr. Cannon on the principle, but I feel those who support the individual mandate believe that the benefit of having everyone possess some sort of insurance is more valuable than the restraint on freedom it imposes. I find this to be a sort of principled argument that no one really considers when debating policy, but it makes for an interesting economic thought game when one is bored.

The second point is a little bit different than I expected. I did not expect Mr. Cannon to use the erroneous "death panel" argument that the Republican party used unsuccessfully, but he did not even touch upon the concept of price at all. Instead he argued that academics have proven that the concept of health insurance may not be the best alternative to staying healthy, and that by expanding this concept to everyone is essentially expanding a theory that has not be tested against other possible maybe even better solutions. The other solutions possibly might save more lives.

Regardless of what he argues, he is right and it goes back to the basic concept of economics: there are infinite wants and finite resources. This is especially true when it comes to the concept of information. Everybody wants to know everything, but there are limits. Without perfect information there are going to be unnecessary deaths, but obtaining anything close to perfect information is more expensive than we can imagine, and as I would argue impossible.

Both the claims Mr. Cannon makes are true, and Ms. Davenport owes him $40.

What do you think?

HT: Bryan Caplan for posting it on his blog