Aug 192009

For some time now I’ve been harping on the fact that in the health care business, as in the auto business, we need the government as a referee. If government is a player, it can hardly be a good referee.

But someone else has explained it better than I have. James Taranto’s “Best of the Web Today” found an explanation and reproduced it from Mike Hanlon’s blog:

Currently, consumers enter into a health-care contract with an insurance company. This contract has an asymmetric payoff, in that the insurance company gains when a consumer stays healthy, and the consumer gains if they fall [sic] ill. If a consumer falls ill, the insurance company would like to renege on its obligation. Yet it cannot, because the contract is enforced by an unbiased referee. That referee is the United States government.

The fundamental problem with the Democrat’s [sic] health care proposal is that it will cause the the [sic] government to abandon its “referee” role in order to become my “contractual opponent.” Democrats suggest that government can play the role of both opponent and referee. Maybe I’m too competitive, but I prefer when my opponent and my referee are not the same person.

Opposition to “health care reform” is not so much philosophical as it is practical. Sarah Palin learned something at the University of Idaho that a lot of folks didn’t learn at Harvard: when contractual payoffs are asymmetric, you need a referee to ensure compliance. I want my referee, and the Democrats are trying to take it away from me. Doesn’t that justify a little anger?

It’s not as though such a mixture of roles has never been done, though. Last winter I was surprised to learn that the USSR had such a thing as insurance. The 1966 Eldar Ryazanov movie, Beregis Avtomobilya (Beware of the Car), features an insurance agent who does a little noble larceny on the side. (Kino Reticulator blog article here, YouTube link above.)

Well, OK, so a socialist welfare state had insurance. It was a government monopoly, much as health insurance will be in our country when Obama gets finished with it.

But surely the insurance salespeople didn’t work on commission, did they? But Alexander, who reads my blog from Ekaterinburg, says that yes, indeed, the sales people did work on a commission.

Last winter I found that there have been a few English-lanugage books and articles on the insurance system in the Soviet Union and eastern Europe, mostly written by a Paul P. Rogers, who seems to have been studying this topic ever since he started his 1964 doctoral dissertation. In 1963 he wrote:

Insurance is closely related to the origins and growth of modern capitalist economy and the insurance contract has been identified as the springboard by which small-scale itinerant commerce of the early Middle Ages vaulted into large-scale enterprise of modern capitalism. How, then, can insurance be fitted into a non-capitalist framework and what role can it play?

The quote is from “A Survey of Insurance in the USSR”, in The Journal of Insurance, Vol. 30, No. 2 (Jun., 1963), pp. 273-279, published by the American Risk and Insurance Association.

So the government did sell insurance, and salespeople worked on a commission. But how about the settling of claims? How did that work when the government needed to referee itself?

That is a harder question to answer. I’ve read the article from which the above quote is taken, and don’t recall anything being said about it. Rogers’ 1986 book on the topic seems to devote about 17 of 214 pages to the topic of “Settlement of Loss”, according to this Table of Contents. Whether those pages have information that either supports or refutes the idea that it’s a bad idea for government to be both referee and player, I don’t know. But now I think I’d like to get Rogers’ book and read it.