Big Business Goes Big for Health Care Reform

Why drug companies and insurance providers are backing ObamaCare

John Stossel | August 13, 2009

"What disturbs Americans of all ideological persuasions is the fear that almost everything, not just government, is fixed or manipulated by some powerful hidden hand," Frank Rich wrote in Sunday's New York Times.

That manipulation should disturb us. But contrary to Rich, it is not the work of "corporatists" who have sprung up to attack progressive reforms proposed by Obama and the Democratic majority. Manipulation is what we got many years ago when we traded a more or less free market for the "progressive" interventionist state. When government is big, the well-connected always have an advantage over the rest of us in influencing public policy.

Observe: Although President Obama and big-government activists demonize health-insurance companies, the companies "are still mostly on board with the president's effort to overhaul the U.S. health-care system," the Wall Street Journal reports; and ...

Although the activists criticize Big Pharma, "The drug industry has already contributed millions of dollars to advertising campaigns for the health care overhaul through the advocacy groups like Healthy Economies Now and Families USA. It has spent about $1 million on similar advertisements under its own name," the Times reports.

Big Pharma and Big Insurance want Obama-style health-care reform?

It's not so hard to understand. "The drug makers stand to gain millions of new customers," the Times said.

And from the Journal: "If health legislation succeeds, the [insurance] industry would likely get a fresh batch of new customers. In particular, many young and healthy people who currently forgo coverage would be forced to sign up." No wonder insurers are willing to stop "discriminating" against sick people. (Forget that the essence of insurance is discrimination according to risk.)

Not that Big Pharma and Big Insurance like every detail of the Democratic plan. Drug companies don't want Medicare negotiating drug prices—for good reason. If it forces drug prices down, research and development will be discouraged. (Depending whom you believe, Obama may or may not have agreed with the drug companies on this point.)

As for the insurance companies, they worry—legitimately—that a government insurance company—the so-called public option"—would drive them out of business. This isn't alarmism. It's economics. The public option would have no bottom line to worry about and therefore could engage in "predatory pricing" against the private insurers.

But despite these differences, the biggest companies in these two industries are on board with "reform."

It illustrates economist Steven Horwitz's First Law of Political Economy: "No one hates capitalism more than capitalists." In this case, big business wants to shape—and profit from—what inevitably will be an interventionist health-care reform. Can you think of the last time a major business supported a truly free market in anything?

In light of all this, it's funny to watch Democrats and their activist allies panic over the protests at congressional town meetings around the country. Tools of the corporate interests! they cry. But anyone opposing "socialized medicine" at the meeting can't be a mouthpiece for big business because, as we've seen, big business supports government control. Conservative groups may be encouraging people to vent their anger at congressmen who pass burdensome legislation without even bothering to read it, but that's no reason to insult the protestors as pawns. What's wrong with organizations helping like-minded people to voice their opinions? Why do Democrats, such as Speaker Nancy Pelosi, dismiss citizen participation as "AstroTurf"—not real grassroots—only when citizens oppose the kind of big government they favor?

They weren't so dismissive when George W. Bush was president and people protested—appropriately—his accumulation of executive powers.

"When handfuls of Code Pink ladies disrupted congressional hearings or speeches by Bush administration officials," Glenn Reynolds writes, "it was taken as evidence that the administration's policies were unpopular, and that the thinking parts of the populace were rising up in true democratic fashion. ... But when it happens to Democrats, it's something different: A threat to democracy, a sign of incipient fascism ... House Speaker Nancy Pelosi calls the 'Tea Party' protesters Nazis. ... "

So when lefties do it, it's called "community organizing."

Comments

hammeredHead|8.13.09 @ 12:18PM|#

Unfortunately, it appears that I disagree with many of the protesters. Most seem upset that their Medicare benefits might be cut and that their last few months will no longer be a burden on the tax-payer.

Tricky Prickears |8.13.09 @ 12:28PM|#

I've been saying for a while that any government option would probably be managed by a few select companies. And of course, they would get a huge subsidy for that service. It's not inconceivable to think that these companies themselves might want to move their own customers onto the government subsidized plan. This, of course, will lead to huge competitive advantages over smaller, "unconnected" companies, thus eliminating competition. There will most likely be massive amounts of regulation to comply with in order to "carry" the government plan. Regulations only the larger companies are equipped to deal with.

It's just more of the same old same old. Please, stop pulling my chain and decide to go with a truly free market, individual subsidized plan, or an all out single payer system. Otherwise we're looking at a privatized system similar to a Public Utilities Board where private business negotiates with government to determine rates and costs and the consumer and taxpayer ultimately ends up getting screwed.

|8.13.09 @ 12:32PM|#

But...but...TEH CORPORASHUNS!

Rich|8.13.09 @ 12:36PM|#

(Forget that the essence of insurance is discrimination according to risk.)

Easily done, now that "risk" is a pre-existing condition.

|8.13.09 @ 12:47PM|#

Overall good article except for this

"(Forget that the essence of insurance is discrimination according to risk.)"

WTF???

the essence of insurance is to pool people with both high, medium, and low risks, to spread the risk around. The point isn't just to get a bunch of low risk people, and not insure any of the others.

yes there should be some pricing differences to encourge people to behave in a responsible fashion, but the essence of insurance is risk pooling, NOT discrimation according to risk.

creech|8.13.09 @ 12:52PM|#

I quote the opening paragraph from the 8/17 issue of "Business Week:"
"As the health reform fight shifts this month from a vacationing Washington to congressional districts and local airwaves around the country, much more of the battle than most people realize is already over. The like victors are insurance giants such as United Health Group, Aetna, and WellPoint. The carriers have succeeded in redefining the terms of the reform debate to such a degree that no matter what specifics emerge in the volumnious bill Congress may send to President Obama this fall, the insurance industry will emerge more profitable. Health reform could come with a $1 trillion price tag over the next decade, and it may complicate matters for some large employers. But insurance CEOs ought to be smiling."

|8.13.09 @ 1:02PM|#

But insurance CEOs ought to be smiling

Like the huge payments to the class enemies that run the banks being called a New New Deal of Keyensian stimulus, the huge payments to the insurance industry will be sold to the left as "the first step on the road to single payer healthcare".

This will be accepted by the left, at the very least grudgingly, because they had to elect one of their own to end Bush's policies on infinite detention, surveillance, and the like. These policies have also been adopted by Obama.

Thank God Change came.

|8.13.09 @ 1:07PM|#

Johnny Longtorso,

These policies don't have to be "sold" to the left. The left already bought them. All they care about is power. The whole "looking out for the little guy" thing is just boob bait. They are more than happy to hand over billions to wall street types and insurance companies that rightfully belongs to everyone else as long as doing so puts them in power. They figure they will deal with the rope sellers later.

Abdul|8.13.09 @ 1:09PM|#

Wait a minute! Aren't libertarians supposed to arguing in favor of corporate interests? Someone revoke Stossel's membership!

|8.13.09 @ 1:12PM|#

Has anyone (at Reason or elsewhere) done a good rundown of all this (infinite detention and surveillance continuing, money to the evil banks, money to the evil insurance companies, cash for clunkers going to those making $57K/yr on average and hurting the poor who buy their cars used, health care cost control impacting the elderly most, etc)? I've seen them all in isolation, but the Obamabots keep moving onto some other atrocity once the current one becomes clear.

A good summary could get some circulation.

The Chad|8.13.09 @ 1:15PM|#

We need to come up with a fancy new 21st century term for "Robber Barons" cause that's what these guys are becoming.

|8.13.09 @ 1:24PM|#

Wait a minute! Aren't libertarians supposed to arguing in favor of corporate interests? Someone revoke Stossel's membership!

Quite the opposite. It's the left and the right that are the stooges of corporate interests. Some unwitting, some witting.

Gunboat Diplomacy|8.13.09 @ 1:29PM|#

"We need to come up with a fancy new 21st century term for "Robber Barons" cause that's what these guys are becoming."

That's no way to talk about the Obama administration, Chad. It's just disrespectful.

|8.13.09 @ 1:31PM|#

the essence of insurance is to pool people with both high, medium, and low risks, to spread the risk around.

There are actually two competing views of what insurance is.

One view is the socialization of risk, as described above. This view requires government mandates on insurance companies to achieve the pooling of high and low risk people.

The other view is a contractual view, where each person desiring coverage contracts with an organization that is sufficiently capitalized to bear the risk of loss. No pooling required. No government mandate (beyond, perhaps, minimum capital requirements) necessary.

Which you think is the correct view is likely a function of whether your outlook is basically communitarian/collectivist, or basically individualist.

Space Fiend|8.13.09 @ 1:46PM|#

I don't think you give him enough credit, R C - large pools are essential to insurance, no matter how you view the "social purpose" of insurance contracts. Without a (very) large pool, a few large claims in a short period can wipe out a corporation. Now, granted, if Warren Buffet wanted to start an insurance company [ah crap, he already owns some, and I work for one] but lets just say he wanted a new one. He could start it and insure one person at a time, as long as he priced correctly he would make money over the very long run, because he can take the losses, but that isn't an efficient or realistic way to run a business.

|8.13.09 @ 1:54PM|#

I don't think you give him enough credit, R C - large pools are essential to insurance, no matter how you view the "social purpose" of insurance contracts.

Perhaps. What is really necessary is large pools of capital, though, not large pools of the customers, but lets say you need the latter for the former.

Without a (very) large pool, a few large claims in a short period can wipe out a corporation.

Granted. Of course, that isn't an argument for pooling of different risk categories. Its an argument for minimum capital requirements according to the risk of your pool.

You only really get to "social" pooling if you look at having insurance as a right. Under the contractual model, a high-risk person may not be able to afford a policy. However, if there is some sense that everyone has a "right" to a policy they can "afford", then you are well on your way to community rating and the rest.

LarryA|8.13.09 @ 2:18PM|#

the essence of insurance is to pool people with both high, medium, and low risks, to spread the risk around.

Nope, that's socialism. The best insurance only covers medium risk, i.e. situations that are unlikely, but catastrophic if experienced. For instance, a policy that protects you if your house is flooded.

I have no need of such a policy, since my house is high enough that if it floods it's time for an ark. Low risk.

People who live where it floods every three years don't need insurance, they need a moving van. The premiums to cover the expense of rebuilding that often are too high to be affordable. High risk.

But people who live where it might flood every fifty years should be able to get a policy supported by others who live with the same hazard, but from different watersheds. The premiums paid by the lucky ones who aren't flooded tthis year can cover the claims of those who are. Medium risk.

In an ideal situation the policies should be priced according to risk, with people who build in a 25-year floodplain paying more than those inside the 50-year boundaries. That will encourage people to move to higher ground.

|8.13.09 @ 2:23PM|#

IMO, whether insurance is a right, and how insurance works are to different things.

The essence of insurance is risk pooling. People are unceratin about the future, and so it makes sense to pay a premium each month to protect against the risk that they will be that 1 in 100 etc.

Now I don't know if I would argue that insurance should be a right. But I will argue that insurance companies have gotten so good at picking their customers that they are defeating the purposes of insurance in the first place. From an insurance companies prespective it makes sense, from a societies prespectve it could have problems.

For example, I doubt we are going to evacucate Florida, and most of the rest of the hurricane zone, even though it can be hard/impossible to get regular insurance there.

Same idea for people with pre-existing conditions.

When you get into the nitty gritty of policy details modern day insurance is much different from the text book ideals.

Tricky Prickears |8.13.09 @ 2:30PM|#

...the huge payments to the insurance industry will be sold to the left as "the first step on the road to single payer healthcare".

From what I've been reading on the Progressive sites, the left ain't buyin' this shit either. They want HR 676 , period.

|8.13.09 @ 2:48PM|#

The essence of insurance is risk pooling.

That's one view.

The other view is that the essence of insurance is contractual. From my perspective as an insured person, I don't give a crap about who else is in my pool. I only care about the contract, both in terms of what it covers and my ability to collect on it if I suffer a loss.

Now I don't know if I would argue that insurance should be a right.

I think that you will be forced to if you believe the essence of insurance is pooling. Left to their own devices, insurance companies will not socialize risk across high risk customers. Why should they be required to take them? Why should their pools include high risk customers? I think the answer is going to boil down to "because high risk customers have a right to insurance they can afford".

|8.13.09 @ 2:58PM|#

The problem with all this talk of "pre-existing conditions", is that it fails to distinguish between three categories of people:
1. People with a genetic susceptibility to a disease.
2. People who have recovered from a serious illness, but may have complications or recurrences down the road.
3. People who are seriously ill right now.

Now personally, I don't think that it's AT ALL resonable to expect insurance companies to cover people in category 3. Nor is it reasonable to expect insurance companies to charge category 2 people the same premiums.

The only case that is actually a matter of potential concern is category 1. Which should really only cause a marginal effect on premiums, and anyway, you should be permitted to tailor insurance to your risk factors.

|8.13.09 @ 3:00PM|#

Insurance is a promise to pay for covered services in exchange for a consistently paid premium. If health insurance were treated like auto insurance, where govts mandate the high risk customers get spread out among all insurers as a percentage of their book, then everyone could be covered. But auto insurers have less regulation about what coverage variety they offer and they compete on price as well as service. Health insurers are so limited in their variety, they all essentially offer the same coverage within a given state. They must be deregulated if the goal is to cover everyone AND still maintain a high level of care. The govt could eliminate private insurance and cover everyone, but care would be limited and get worse as the govt sets prices rather than the market.

|8.13.09 @ 3:05PM|#

Even if it's entirely a pool of low risk people, you are still pooling the risks. you are just lowering the total expected payout.

The second part is a bit more interesting. I guess it depends on whether or not the government is going to pay anyway, if people don't have insurance.

Let's take house insurance again. Say the high risk people in Fl can't get any hurricane insurance. If the government won't step in, and pay for them to rebuild, then a case could be made to allow them not to have insurance. But if the government is going to step in, then it makes sense to make them get insurance to limit the risks to the tax payer.


This is also a case where having VERY large risk pools makes sense. No matter where you go in the country there is a change of natural disater, earthquakes in CA, tornados and floods in the midwest, hurricans in the south and east.

But...

the chances of them all happening at the same time are pretty remote. So a large risk pool diversified accross the country would make sense. It also loweres a bunch of high risk spots, to a lower overal risk. Which is the point isn't it?

|8.13.09 @ 3:09PM|#

Hazel, I think insurers would be willing to cover category 1 if they were permitted to price the risk accordingly. Sure, the premiums would be high but charity and/or govt subsidy would exist to help them.

Despite what RC says, high risk customers are covered by insurers all the time, even if the insurer KNOWS the customer is high risk. They'll use loss control measures (such as an incentive to lose weight or quit smoking) just like they use to get businesses and homeowners to maintain and/or secure their buildings in property insurance. Insurance companies don't like to give up premium if they can account for it in their pricing. It's when they can't that you have the FL problem. The state basically tells the insurance companies they can't raise rates even though FL gets more damaging hurricanes now than they used to and property values have been high in the last decade.

|8.13.09 @ 3:13PM|#

the chances of them all happening at the same time are pretty remote. So a large risk pool diversified accross the country would make sense. It also loweres a bunch of high risk spots, to a lower overal risk. Which is the point isn't it?

Insurers DO try to spread out their geographical risks, but govt regulations in many states don't want the insurer to be able to charge more to account for them. They can't make up the difference in places with low risk for natural disaster like say, desert areas, because a small insurer in that state who does not have risks in FL and CA will just lower their prices and take all the business eventually leaving the national insurer with nothing but FL and CA policies. Then they have to raise prices in those dangerous states and the states won't let them.

Paul|8.13.09 @ 3:27PM|#

3. People who are seriously ill right now.

Now personally, I don't think that it's AT ALL resonable to expect insurance companies to cover people in category 3. Nor is it reasonable to expect insurance companies to charge category 2 people the same premiums.

The reason is seems reasonable is because of the way our relationships with our insurers are are currently structured. Because of the locked relationship people have with insurance and employer, when an insurer won't cover you, the patient is 'stuck'.

This is where the reform needs to happen. Give people real choices, not just another soon-to-be-broke government plan.

|8.13.09 @ 3:32PM|#

the chances of them all happening at the same time are pretty remote. So a large risk pool diversified accross the country would make sense. It also loweres a bunch of high risk spots, to a lower overal risk. Which is the point isn't it?

Which is why we should hinge our economy on bundled mortage securities. The chances of home prices dropping every around the country at the same time are so low, that they are AAA grade safe........

Paul|8.13.09 @ 3:37PM|#

Which is why we should hinge our economy on bundled mortage securities. The chances of home prices dropping every around the country at the same time are so low, that they are AAA grade safe........

Right, couple that with a few government sponsored entities with a mission to push mortgages into the hands of, well, everyone regardless of their ability to pay-- 'cause the government likes home ownership-- and the plan is bulletproof.

Barry Loberfeld|8.14.09 @ 10:22AM|#

From "Modern Liberalism at Wit's End":

[The author's] "history" has been exposed as mythology itself by the scholarly research of historian Gabriel Kolko, who documented how the Progressive regulatory agencies were "invariably controlled by leaders of the regulated industry, and directed toward ends they deemed acceptable or desirable ... [mostly] because the regulatory movements were usually initiated by the dominant businesses to be regulated," e.g., the Interstate Commerce Commission and the railroad industry. Kolko's work was embraced by free-market economists from the conventional Friedman to the radical Murray Rothbard, who all stressed the same point: Big Business loves "business regulation" (especially the funded-by-taxpayers and crippling-to-smaller-competitors parts). [The author] concedes that by the Johnson administration corporate support for regulation became obvious to all, but he characterizes the regulation as something corporations accepted altruistically because they sincerely believed it benefited the "country as a whole." Yup, that's what he writes. Only under George W. Bush has corporatism become the special-interest pursuit of privileges for connected businesses.

[The author] often frames Bush policies as outrages for which there's been no Democratic counterpart. "In 2003, Bush and the Republican Congress enacted a bill extending Medicare coverage to prescription drugs, representing the largest expansion of entitlements in nearly forty years" -- so much for the "primacy of the market," to say nothing of popular charges of rolling back the welfare state. Yet [the author] is indignant that the legislation also contained "hundreds of billions of dollars of subsidies to health insurance companies, the prescription drug industry, and other supplicants" (p. 65). Does he really imagine that the current administration invented corporate welfare? That Democrats never threw a bone to Big Business while throwing one to the little guy? That people are delusional when they note the corporate ties of both parties? (Not for more than a polemical moment, after which he's left with only the argument that "Republican style" contemporary pork is porkier than Democratic "[c]lassic pork.") Since [the author] never brings up Kelo, he at least doesn't blame Bush for the Court liberals' gifting corporations with "property rights" to other people's property.

|8.14.09 @ 12:23PM|#

Insurance isn't about only covering medium or low risk customers.

It works if the insured have to pay ACCORDING TO THEIR RISK.

This is why car insurance is so much more expensive for 17-year-old males than for 35-year-old girls.

If you want to build your house in a flood plain, or smoke, then your insurance needs to be priced accordingly.

It's no different for health care.

I mean, risk isn't the only factor: 100% of people die, so how does life insurance make money? Well, life insurance DOES make money, so clearly the question is ill-posed.

A 55-year-old lifetime smoker is going to pay more for the same life insurance policy than a kid out of college is.

If government mandated health insurance worked that way, I'd have little problem with it. But the politically connected, and the important special interests will make sure it DOESN'T work that way.

Old people aren't going to want to pay more. Members of Congress aren't going to want the lousy benefits. Etc.

|8.14.09 @ 1:10PM|#

I agree that healthcare premiums should be based on risk, but I think it should mainly just be for things that people can control. IE, being overweight, smoker etc. A reasonable variance for age is also fine.

Charging people more, or even refusing to insure them just becuase they have some random pre-existing condition I think usually goes to far.

I think pricing should be there to encourage good behavior, not prevent anyone that every had anything wrong with them get coverage.

Otherwise then it will just end up falling to the Govt, or ER.

|8.14.09 @ 1:22PM|#

"Can you think of the last time a major business supported a truly free market in anything?"

It's true. Just look at the 10 most powerful companies in the US at 10 year snapshots. They change. They hate that.

|8.14.09 @ 1:29PM|#

Gabriel Hanna | August 14, 2009, 12:23pm | #

"It works if the insured have to pay ACCORDING TO THEIR RISK."

I worked the system to my advantage in my 20s. Instead of going on my employer's group plan (where costs were averaged) I opted out and bought a personal blue cross plan. It was less than $50 per month.

While I outsmarted the system, the employer plan still worked / was able to function even when forced to take higher risk people... it just costs more.

So my point... it seems we have a social problem with people who can not get health insurance. Mandating everyone get insurance seems like one way to do it. Yes, it will raise costs (Obama's BS aside)... but the insurance companies will not be put out of business, they'll just pass on the costs (like with their group plans where they can deny people coverage). The question becomes, do we want to do that to address the social problem (and I don't mean Obama's plan, which I think is a backdoor single payer scheme), but just 'in general'?

mark|8.14.09 @ 8:45PM|#

How about a free market? Anyone thought of that yet? This debate is so incredibly depressing because I know that whatever they pass it will only make the problem worse.

Ratdog|8.15.09 @ 8:14PM|#

Not everything that happens is bad, John Stossel did wake up and come over to the well reasoned side of right, a good thing, in my opinion. John sees things as they really are and has an exceptional talent for converting what he sees into words. We can never have too many like him, not that it can do much to turn things around in favor of freedom. This country has no shortage of ignorant lazy morons, now that they see all they need do elect the officials who will use the Treasury to lavish them with free gifts they will have little interest in anything sensible. Too much brain strain trying to understand reality, too much like working for what one needs, much easier to just have Obama whip his breast out when they thirst, and have a little free government milk.

|8.26.09 @ 12:55PM|#

MAYBE I AM MISDIRECTED, BUT IT SEEMS TO ME THAT THE BRUNT OF THIS MESS SHOULDN'T BE BLAMED ON INSURANCE COMPANIES. MEDICAL PROVIDERS HAVE JACKED UP THEIR FEES TO MAKE MORE MONEY OFF THE INSURANCE COMPANIES. THIS MAY WORK FAIRLY WELL FOR THE CONSUMER/PATIENT AS LONG AS THEY ACTUALLY HAVE INSURANCE, BUT IF THEY DON'T, THAT IS WHEN TROUBLE STARTS.