In the real world, rational people know that companies will stop selling products if they are forced to lose money. In the political world, though, common sense doesn’t matter. Or at least it ranks far below other considerations, such as power, polling, fundraising, and spite. If you think I’m being too harsh, just look at what’s happened since Obamacare. As the Wall Street Journal notes, the “child-only” insurance market has been decimated by a new law that allows parents to wait until children get sick before buying insurance. Needless to say, that is an open invitation to lose money, and no business (other than crony capitalism entities such as Fannie Mae and Freddie Mac) exists to throw away shareholder funds. Obama, Pelosi, and Reid probably think this is a good development, however, since they can demagogue against “greedy” insurance companies and claim that government should fully take over the health care system.
This week, almost every big insurance company in America—including Aetna, Cigna, UnitedHealth Group, WellPoint, Humana, Coventry, some Blue Cross Blue Shield affiliates and others—stopped writing “child-only” policies in the individual market. This is a niche product that parents typically buy when their employer health plan doesn’t cover dependents. The exact plans vary company to company and state to state, and the insurers will still offer family policies and make good on the child-only policies that they’ve already sold. But most won’t be writing new ones. In other words, for-profit businesses are refusing to sell products that consumers want to buy. Exact data aren’t available, but the child-only market covers roughly a million kids a year. The reason is a regulation that President Obama mentions every time he talks about health care, as he did recently in Falls Church, Virginia: “Children who have pre-existing conditions are going to be covered.” Insurers are now required to cover everyone under 19 when their parents apply for coverage, regardless of health status. The problem with this kind of “guaranteed issue” is that it encourages people, in this case parents, to wait until their kids are sick before seeking coverage. This drives up premiums for the healthy, encouraging consumers in turn to drop coverage, and eventually it leads to what’s known as a “death spiral,” the industry term for an insurer with rapidly increasing costs as a result of population changes in its coverage pool. The child-only market is a particular death-spiral risk because it is so small and unstable, which explains why so many insurers left in a stroke. The collapse of the child-only market is a preview of what will happen when guaranteed issue and the rest of ObamaCare comes on line in 2014 for adults, except then insurers will have nowhere to flee. Exiting the market will mean going out of business.
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Posted in Competitiveness, Economics, Europe, Global Taxation, International bureaucracy, Jurisdictional Competition, OECD, Organization for Economic Cooperation and Development, Sovereignty, Statism, Tax Competition, United Nations, tagged Czech Republic, International bureaucracy, OECD, Sovereignty, Tax Competition, UN, United Nations, Vaclav Klaus on September 26, 2010 |
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I wish the title of this blog post referred to the President of the United States, but instead our praise is directed across the Atlantic, to the President of the Czech Republic, who wisely has warned against giving “global governance” powers to the international bureaucrats at the United Nations. President Vaclav Klaus is a great man, who has battled against immense odds to preserve national sovereignty, resisting statist initiatives such as the new EU Constitution (aka, the Lisbon Treaty) and global warming schemes. Klaus understands that international bureaucracies are staffed by leftist ideologues who reflexively distrust markets. Equally important, he recognizes that governments will use “global governance” as a scheme to create tax and regulatory cartels that inevitably expand the burden of government and reduce competition among nations. Here’s a Reuters report on the strong speech Klaus gave to the kleptocrats at the United Nations.
Czech President Vaclav Klaus on Saturday criticized U.N. calls for increased “global governance” of the world’s economy, saying the world body should leave that role to national governments. The solution to dealing with the global economic crisis, Klaus told the U.N. General Assembly, did not lie in “creating new governmental and supranational agencies, or in aiming at global governance of the world economy.” “On the contrary, this is the time for international organizations, including the United Nations, to reduce their expenditures, make their administrations thinner, and leave the solutions to the governments of member states,” he said. …Klaus, a free-market economist who oversaw a wave of privatization in the 1990s after communism collapsed in his homeland, also said the world was “moving in the wrong direction” in combating the economic crisis. “The anti-crisis measures that have been proposed and already partly implemented follow from the assumption that the crisis was a failure of markets and that the right way out is more regulation of markets,” he said. Klaus said that was a “mistaken assumption” and it was impossible to prevent future crises through regulatory interventions and similar actions by governments. That will only “destroy the markets and together with them the chances for economic growth and prosperity in both developed and developing countries,” he said.
A couple of years ago, I had the honor of introducing Klaus at a conference in France. Very rarely do I meet a politician that exudes philosophical integrity. Klaus was one of those unusual cases. And if you want to know why it is important to preserve jurisdictional competition, here is a video on the specific issue of tax competition. This is rather timely since I leave tomorrow for Singapore, where I will be doing everything I can to undermine the pampered bureaucrats at the OECD and their sinister plans to create a global tax cartel to prop up Europe’s inefficient welfare states.
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