The Dow Jones Industrial average lost almost 450 points yesterday, closing at 10917.51, only a few points higher than when George Bush took office in 2000. (Fun fact: If you invested $100 in the Dow in 2000, you’d have $81 today.) Bear Stearns, Fannie Mae, Lehman Brothers, and now AIG have fallen, forcing taxpayers to pick up the tab.

They fell because they were allowed to buy and sell mortgages that should have never been created in the first place. They fell because banks that created these mortgages were allowed to lend vast amounts of money to people who couldn’t pay them back. Most importantly, they fell because the government implicitly acted as a safety net for risk, a role made explicit with the trillion dollar bailouts that have occurred over the last few months.

Conservatives have been pushing for deregulation of the financial markets for decades now, and in a large way, they have succeeded. Banks were allowed to lend to people who couldn’t repay loans, and sell those loans on the open market with little scrutiny. Investors knew these loans were risky, but there was so much money in it that they always assumed the government would bail them out if things came crashing down. They assumed right, and taxpayers are now taking the hit for it.

This makes sense. When businessmen know an entity with virtually unlimited resources will foot the bill if they make a mistake, they will take on all the risk they can (and make as much money from it as possible). This is called a moral hazard, and it’s what government regulation was designed to avoid.

Conservatives - most notably Senator John McCain and the insurance industry - are proposing to do the exact same thing to our health care system. They want to deregulate the insurance market and create a moral hazard that will allow the insurance industry to make as much money as possible and stick taxpayers with the bill.

Here’s how it works.



First, conservatives are calling for health care to be freed of its geographic constraints, allowing folks who live anywhere in America to purchase insurance from anywhere, as opposed to the state they live in. As Think Progress explains, this will make things worse for me and you and better for the insurance companies:

Two years ago, California’s then-Insurance Commissioner John Garamendi issued a scathing report on the conservative’s reform approach, explaining that insurers could avoid the health plan rules in some states mandating that specific benefits (such as cancer testing and preventive care for children) be offered and that specific providers (such as psychologists) be covered. State rules that help small businesses purchase insurance coverage would also be in jeopardy. Real insurance reform – like prohibiting insurance companies from refusing to cover people with health problems – wouldn’t stand a chance.

In other words, allowing people to purchase insurance in any state won’t let people “shop around” for a cheap policy that fits their needs. Instead, it will allow insurers to set up shop in states with favorable laws that let them make more money (and provide you less care). This idea is good for business and bad for you.

Next, conservatives want to decouple your insurance plan from your employer and tax it like any other income. They say Americans don’t have enough “skin in the game” and that if people were forced to pay for their health care, they would use less. Never mind the fact that every second, nineteen people go bankrupt because of bills for needed medical care they can’t pay.

To alleviate the new tax burden, conservatives would offer a tax credit in the range of $2,500 - $5,000 for people to pay for health care. The average cost of a family policy nationwide is around $12,000, with employers kicking in $8,000 of that amount. So forcing families to shoulder the entire $12,000 burden (or allowing employers to kick in some but taxing that money) and then giving families $5,000 to offset means most would be paying significantly more every year for health care.

And finally, here comes the moral hazard.

Conservatives will do everything they can to deregulate the insurance industry, allowing insurance companies to raise their prices, deny more care, and do everything they can to make money, because they believe the government will pick up the tab. AHIP, the insurance industry lobby, is openly advocating for expanding existing government health care programs like Medicare and Medicaid. While these programs are very efficient and enormously important to the people in them, they only insure certain people - those who can’t afford to pay for health care or are older, sicker patients, both demographics that aren’t profitable for insurance companies.

The insurance industry wants to bleed young, healthy, and wealthy people dry with high premiums and little coverage, and then drop them onto government rolls when they get too poor, sick, or old to be profitable.

This is the definition of a moral hazard.

We’ve seen what happens when this type of system is created. In the financial markets, conservatives aggressively deregulated and created incentives for the financial industry to make all the money it could on risky investments, knowing the government would bail them out if they failed. This is exactly what conservatives want to do to health care - create a system where business can make as much money as possible while leaving working people out in the cold.

It didn’t work with the financial industry and it won’t work for health care.

(also posted at the NOW! blog)




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