Why Is Government Regulating Health Insurance in the First Place?

The Hobby Lobby decision has stirred up quite a debate. While conservatives rejoice at this apparent respect of First Amendment rights (freedom of religion), liberals get all worked up about the violation of reproductive rights, the misogyny of the Supreme Court, and a plot to establish a theocracy.

However, no one seems to be asking a fundamental question: Why is government regulating health insurance in the first place?

It all goes back to World War II, when the economy was strictly managed. During that era, President Franklin D. Roosevelt issued Executive Order 9328, which froze almost every price including wages. However, the War Labor Board ruled that the freeze didn’t apply to fringe benefits, which includes health insurance. In 1954, the Revenue Act was amended in order to confirm that health plans are tax-exempt and that they are deductible business expenses.

Fr. Thomas Loya (R) speaks at a rally in support of religious freedom after the Supreme Court's decision in the Hobby Lobby, contraception coverage requirement case on June 30, 2014 in Chicago, Illinois. Oklahoma-based Hobby Lobby, which operates a chain of arts-and-craft stores, challenged the provision and the high court ruled 5-4 that requiring family-owned corporations to pay for insurance coverage for contraception under the Affordable Care Act violated a federal law protecting religious freedom. Scott Olson/Getty Images

Due to the tremendous increase in real wages following the war, a change in the perception of hospitals, and new innovations like kidney transplants and penicillin, people started wanting more hospital care. Unions also played a role in the expansion since the Supreme Court agreed to let them negotiate health benefits in their collective arrangements.

Cost was low at first since the insured population was young and healthy, thanks to the baby boom. However, like many government policies, there were problems officials didn’t see coming, such as an exponential increase in health care costs.

Why is that?

The reason is simple: People with insurance don’t pay the “real” price for their care. As a result, they just take whatever comes first without much worry about the cost. Would you shop around if your car insurance included gasoline? Would you care if your steak was $10 a pound if supermarket insurance paid for it?

This explains why Medicaid is so expensive. Since it’s a fee-for-service scheme (patients pay very low, if any, premium), people just have to show their card in order to get care. Unfortunately, most patients tend to go in the emergency room, where care is very expensive. In other words, the Medicaid expansion desired by President Barack Obama – it’s his way or the highway – means that spending will increase dramatically, as predicted in by Mercatus, Heritage, and Cato.

Photo Credit: Shutterstock

In order to really decrease costs - unlike what conservatives have proposed - something needs to happen that hasn’t happened since that “wind of change” of the late '70s: deregulation.

If it was able to decrease cost for trucking, trains and airlines, why can’t it work for health care? It worked for Lasik; we can now pay less than 33 percent of its original cost because it was allowed to freely compete without artificial encouragements to boost demand.

The same thing would go for health care. If people had to pay more out of their pockets, they would carefully shop around in order to find the best deal. By “voting with their feet,” people would therefore encourage competition and lower prices. Those who couldn’t afford insurance could turn to concierge doctors who completely refuse insurance and offer affordable plans. Finally, not-for-profit hospitals could also take care of sick patients. The ones existing in Germany have similar outcomes to for-profit hospitals.

In order to avoid another Hobby Lobby drama, government needs to stay out of health care altogether. Let people get insurance (or not) and let businesses decide if they want to offer certain benefits (or not). If people are not happy that Hobby Lobby doesn’t cover all 20 contraceptives available they can buy it themselves, get the money elsewhere, or change jobs.

It’s not the government’s job to decide who has to offer what. Otherwise, we end up like the Canadian province of Quebec, whose public daycare services have created shortages that never existed before.

PierreGuy Veer is a Canadian-born libertarian now living in Idaho. His ideas have stirred up debates both in French and in English. You can contact him at pedg63@hotmail.com or follow him on Twitter @le_moutongris

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