Despite all this, the insurance companies and their allies don’t like this idea. They argue that these private companies can’t fairly compete with the government. And they’d be right if taxpayers were subsidizing this public insurance option. But they won’t be. I’ve insisted that like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums it collects. But by avoiding some of the overhead that gets eaten up at private companies by profits and excessive administrative costs and executive salaries, it could provide a good deal for consumers, and would also keep pressure on private insurers to keep their policies affordable and treat their customers better, the same way public colleges and universities provide additional choice and competition to students without in any way inhibiting a vibrant system of private colleges and universities.
There’s a lot that’s revealed in this paragraph about how Obama views the world. Most importantly, I think his statement about profits being inefficient reveals his crypto-Marxist model of economics.
Crypto-Marxism is not an ideology but rather a phenomenon in which Marxist concepts and assumptions get renamed and reused in ways that disguise their Marxist roots. Most crypto-Marxists are completely unaware of the origins of the ideas and concepts they espouse. Marxism made its way into American universities during the ’60s, and almost everyone educated in the liberal arts got a strong dose of it in its disguised form. I feel confident that Obama is one of those people.
The idea that profit represents inefficiency in the economy is a concept originated by Marx himself, but it arguably has roots in the idea, common to most cultures, that all economic exchanges should be done at cost for both parties. Marx created an elaborate fantasy construct in which profit arose purely from the exploitation of both workers and consumers. In Marxism, profits were not only not a necessary part of the economic system, they were an actual flaw that reduced the standard of living for everyone.
Unfortunately, this appears to be the model that Obama is working from at some level.
The more sophisticated modern view holds that profits are part of the signalling mechanism by which we coordinate our efforts across the whole of the economy. Profits indicate that a good or service is needed and at what price. Perhaps more important, profits route resources to those who can make the best use of them. Historically, the biggest profits have come from people who produced innovative new technologies or services that radically raised the standard of living for everyone. The history of the computer industry is a good example of an industry in which incredible profit margins drove fantastic innovation and radically reduced cost.
If you read the other parts of the speech that touch upon insurance companies, it is quite clear that Obama believes that insurance companies’ profits come from denial of care. This is untrue. Insurance companies make most of their profit on investments they make using the pool of money that comes from premiums. Indeed, in many jurisdictions, it is illegal for insurance companies to extract profits from premiums, because doing so puts the company’s ability to make payouts in jeopardy. Even where it is not illegal, underwriters prevent the practice because it puts them on the hook for any shortfalls. They charge companies who dip into premium revenues heavily for doing so.
The premium pool is the mutually maintained resource of all of a company’s policy holders. Restricting payouts to only those conditions contracted and paid for prevents the first policy holders who become ill from sucking out all the money from the premium pool and leaving the others high and dry. This why non-profit insurance companies are just as quick as for-profit companies to deny claims. Somebody has to play the bad guy and say what will and will not be covered. In a socialized system, the people who do this sit on the “death panels.”
Even if insurance companies’ profits did come exclusively from the difference between premiums and payouts, confiscating all of their profits would not provide much benefit. Most insurance companies have profit margins in the low single digits. Taking all of their profits would provide only a minor savings in the big picture.
Obama is also clearly working from a crypto-Marxist perspective when he seeks to blame insurers for both high cost and denial of care. Marxism 101 says always blame the capitalist. Expect to see “profits” from insurance companies in terms of hundreds of millions of dollars, with no context as to the percentage of the companies’ revenue all that money represents.
Obama clearly believes in the essential Marxist idea that the freedom in the free market leads to gross inefficiencies and exploitation without any significant benefit. He clearly believes that these inefficiencies are so huge that he can greatly expand coverage and levels of care, without spending any more money, if he can just use the coercive power of the state to eliminate those inefficiencies.
This is the old Marxist dream that has arisen again and again in many guises. But no matter the form it took, it has always been proven wrong. Profits are neither exploitation nor inefficient, and the government has never been able to manage any system at the same performance level for less cost than do profit-driven systems.
It should disturb everyone that Obama appears to work from such an archaic and simplistic economic model. It should cause us to doubt his commitment to preserving even limited free-market mechanisms in health care. He certainly appears to lack the intellectual justification for doing so.