Diary

The Practical Effect of Government-Funded Health Care

As a conservative who believes in the natural supremacy of evolved systems (incorporating the experiences of millions) over those constructed in the minds of academics (incorporating the experiences of a few), I’m always a bit skeptical when slogans questioning the wisdom of an evolved system are dogmatically repeated as self-evident truth.  One of my favorite nostrums at the moment is that health care costs are strangling business relative to our international competition, and similar arguments along that line.

While undoubtedly true (what cost doesn’t negatively impact competitivess?), let’s consider how we got into this situation and what the practical effect would be of changing to a government-funded system.

I think we can all agree that corporations are not, nor are they designed to be, philanthropic organizations.  So why would corporations originally accept the responsibility for providing health care to their employees?  Certainly there were regulations adopted requiring them to do so (more on that later), but fundamentally the reason they did so was for the purpose of cost control.  Let me say that again: Corporate-provided health care was, and remains, a means of controlling costs.  How so?  Because corporations rightly understood that, through the power of collective bargaining, they could secure health care for their employees for the cost of X which, if purchased individually by the employee, would cost Y (significantly more than X).  They could then offer this health care as an overall part of their compensation package, worth Y to the employee but only costing the corporation X, the difference going back into the corporation’s profits.  Now, while there are legitimate concerns with this arrangement (e.g., the insertion of another layer of bureaucracy between the customer and the supplier of health care, etc.), there is nothing inherently immoral in it, given that participation in a corporation (by employees and stockholders) is entirely voluntary; if employees don’t want to accept these tradeoffs, they’re free to seek employment elsewhere.

So what would be the effect of transitioning to a government-funded system?  By shifting the costs to the government, corporations would certainly become more profitable, and competitive world-wide, as a result.  But they would have done so by devaluing the compensation package offered to their employees.  Continuing our example above, employee compensation would effectively be reduced by the value of Y.  Can we expect that corporations would contemporaneously raise their employees’ salaries by at least X dollars (the individual employee cost to the corporation previously), which, though fair (from a corporate standpoint) would still represent a substantial reduction in compensation from the employee’s standpoint?  Well, let’s just say I wouldn’t hold my breath.

But it get’s worse.  Because who will be underwriting the government-funded solution?  That’s right – tax-paying Americans, i.e., the very employees whose compensation has just been cut.  The end result is an unprecedented transfer of wealth from employees to employer, and a dramatic reduction in working Americans’ standard of living (with a corresponding reduction in the middle class).  In effect, these corporations will become more competitive by lowering the American standard of living to that of their international competitors, many of them in the Third World.

Returning to the regulatory requirements, I would argue that the statutory provisions put in place were a result of the cart following the horse.  Far from being anti-big business, they were (and are) in fact, pro-big business.  The reason being, large corporations understood that in addition to being a means of controlling costs, corporate-funded health care also provides a competitive advantage over their up-start rivals, as collective bargaining grants them greater leverage over this cost as a result of their size.

If the American people want to know who’s in bed with big business, they need look no further than 1600 Pennsylvania Avenue.