Sunday, June 24, 2007

The Sickness in Sicko - Part II

The following is my second part in a series of my objections against Michael Moore's film Sicko, and particularly his 2nd prescription for health care:

Private, for-profit health insurance companies must be abolished.

von Mises writes in Profit and Loss, "Now one of the main functions of profits is to shift the control of capital to those who know how to employ it in the best possible way for the satisfaction of the public. The more profits a man earns, the greater his wealth consequently becomes, the more influential does he become in the conduct of business affairs. Profit and loss are the instruments by means of which the consumers pass the direction of production activities into the hands of those who are best fit to serve them. Whatever is undertaken to curtail or to confiscate profits, impairs this function. The result of such measures is to loosen the grip the consumers hold over the course of production. The economic machine becomes, from the point of view of the people, less efficient and less responsive."

The role of profit and subsequently loss is to reward the entrepreneur for their efforts in creating products and services that the consumer values. What would be the consequence for the removal of for-profit insurance entities? There would be no rewarding of innovation for services that deliver the hedging of risk for the health consumer. By removing for-profit entities and placing insurance provision in the hands of government, you remove the power of the individual consumer to vote via the communication of prices. You remove the power of the consumer to dictate to the insurer entrepreneur the value their products and services has in the marketplace.

I repeat what I stated in Part I. There is no cure for a lifetime of damage done to the body from smoking, poor diet and lack of exercise. What people ill-assume is that more health care is the answer to the failing health care economic system. The innovation needed is before visiting the doctor. We need innovation to align incentives of every actor in the system toward preventive health choices.

Private insurers are beginning to move towards preventive health rewards. By allowing more than one insurer to compete privately, each has an incentive to innovate toward this objective. A single insurer provider as Mr. Moore suggests in his 2nd prescription would remove this innovative incentive.

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