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Health Care Industry Shouldn’t Be Taken Without Due Process And Compensation

August 12, 2009

IBD      6 Aug 09

Under the Fifth Amendment, if the government takes property, the holder is entitled to due process and compensation. Usually, this concept of eminent domain applies to real estate seized for a public purpose.

What if the seizure is not of real property, but a business? The broad concept is still the same: If the government takes your property, you are entitled to your day in court and adjudicated compensation.

What if the government uses its cash to muscle into your territory and forces you to surrender customers by underpricing you for the sake of the “uninsured”?

Further, what if the government passes such stringent regulations that only a few large insurers already in bed with the government can survive?

The current House medical insurance bill and the purported Blue Dog compromise constructively take property without due process of law and compensation. Speaker Nancy Pelosi calls the insurers “immoral” and “villains” and contends “they are doing everything they can to stop a public option.”

Why is someone a villain if he doesn’t agree to being robbed?

The speaker has forced the question: Who is the villain?

The medical industry is much more complicated than it needs to be. The terrible compromises made by large insurers with big government are well beyond the scope of this article.

The criticism of proposed government expansion of medical insurance was muted when the insurance industry thought it was going to keep its preferred tax status and pick up an extra 46 million subsidized Medicare Plus-type clients, and the pharmaceutical companies and the AMA had been squeezed or bought off enough.

But reality bites. The insurers are finding the government is a hungry partner with an insatiable appetite, and next up on the menu is their prime territory.

The proposed House legislation contemplates the government will offer competing health insurance. The law would bar some health insurance companies from adding new customers, which ensures that through attrition the firms will liquidate their business.

The Blue Dog “compromise” doesn’t quite do that, but it does sanction overwhelming public sector competition. President Obama has disingenuously criticized critics of his bailout plans by saying if the government is such a bad business manager, why do they fear us as a competitor?

Well, all businesses fear predatory monopoly pricing in a competitor, especially a stupid one with the ability to print dollars and set regulations a competitor that can easily bankrupt you and doesn’t care about losing money.

And like shareholders of Ford, shareholders of the private insurers will have their tax dollars used to shore up their ignorant but powerful competitor.

America was built on real competition, based on supply and demand and real price discovery. The original sin of the health insurance industry was in its birth as a non-taxable employment benefit. How did that happen?

Just as Franklin Roosevelt tried to support falling prices during the Depression (making it worse), the government disguised rising wages during World War II by labeling medical insurance nontaxable. Cash wages were deductible by the employer, taxable to the employee and portable.

Once health insurance was deductible by the employer, but nontaxable to the employee, health insurance became nonportable. Yes, the industry grew faster than others, but with twisted incentives that severed the consumers from the producers, and increasingly without price discovery. Without true price discovery, no one can really compete and medical insurance is misallocated.

Recently, the CBO said the House plan would be more expensive for the country than the limited form of competition we have. Real competition is the only way to reduce costs on a sustainable basis.

The health insurance industry has a public market capitalization of about $100 billion, down from much higher amounts a while back. The CBO never gave any consideration to the constitutional requirements of providing eminent domain reimbursement to the shareholders of the health insurers whose property is being taken away from them bit by bit.

If it did, the scales of justice would tip even further against the proposed law. The truly private portion of the health insurance industry would be entitled to something like an additional $50 billion to $100 billion to compensate them.

If the government were judged by its own laws, a case could be made for antitrust damages arising from predatory pricing by a monopoly. In the House bill, the government self-consciously exempts itself from just such liability.

At the very least, the shareholders of the private insurers that stand to be driven out of business deserve compensation.

Anything less is slow motion theft by the real villains.

our comments- and the real villains are?

• Singer is the manager for the Congressional Effect Fund.

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