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Wednesday, November 12, 2008

Universal Health Care and the Mortgage Crisis

At its core, the mortgage crisis occurred when unqualified borrowers received mortgages they couldn't repay. There is a great lesson here, and it appears the government isn't attempting to learn it in regards to universal health care. In any industry, but certainly in the financial industry, when unqualified customers receive your product, it is a recipe for disaster. Insurance is no different than any other industry. If millions of unqualified people receive insurance, that is a recipe for disaster.

That's why this story is extremely troubling.

Without waiting for President-elect Barack Obama, Senator Max Baucus, the chairman of the Finance Committee, will unveil a detailed blueprint on Wednesday to guarantee health insurance for all Americans by facilitating sales of private insurance, expanding Medicaid and Medicare, and requiring most employers to provide or pay
for health benefits.

Aides to Mr. Obama said they welcomed the Congressional efforts, had encouraged Congress to take the lead and still considered health care a top priority, despite the urgent need to address huge problems afflicting the economy. …

Mr. Baucus would create a nationwide marketplace, a “health insurance exchange,” where people could compare and buy insurance policies. The options would include private insurance policies and a new public plan similar to Medicare. Insurers could no longer deny coverage to people who had been sick. Congress would also limit
insurers’ ability to charge higher premiums because of a person’s age or prior

People would have a duty to obtain coverage when affordable options were available to all through employers or through the insurance exchange. This obligation “would be enforced, possibly through the tax system,” the plan says.

In this plan, the government will force things upon people and entities that would normally not qualify in all sorts of ways.

1) Pre existing conditions

This is the most troubling. The government is showing a stunning amount of naivete. The government acts as though the only reason those with pre existing conditions are denied coverage is because insurance companies are mean vultures. The reason that those with pre existing conditions are denied coverage is because it isn't financially feasible to give them coverage. This is the definition of someone being unqualified and still receiving the financial product. If insurance companies could make money insuring those with pre existing conditions, they would insure all of them. Clearly, it's not profitable to do so.

So, what is the potential outcome of such action? There's only three possible outcomes. The insurance companies eat the loss in income. It bankrupts the insurance companies. Finally, the insurance companies make up for the losses by charging higher premiums to others. Since capitalists rarely eat a loss in profits, the reality is there are only two possible outcomes.

2) Limit on premiums charged to those with pre existing conditions.

This is the equivalent of someone with multiple mortgage lates and bank ruptcies receiving the exact same rate as someone with perfect credit. Not only will the federal government mandate that those with pre existing condition have to be covered, but the federal government will make sure that insurance companies can't fully account for the pre existing condition. These are insurance companies not charities. They can't be forced to cover someone that isn't profitable and then also not be allowed to charge them as if they have a pre existing condition. This guarantees that those with pre existing conditions, as a whole, will be a losing proposition for whatever entity is forced to take them on.

Again, there are really only two possibilities here. First, this bankrupts those companies that have to take them on. Second, they pass on the losses with higher premiums for everyone else.

3) Force employers to provide health insurance

There is more stunning naivete with this idea. Employers would provide health insurance if it was feasible for them to do so. Health insurance is one of many ways that employers attract the best employees. If an employer doesn't provide health insurance, it isn't because they are simply mean. It's because they aren't in a financial position to do so. If they are forced to do so, or face a tax, they will take on expenses they can't afford. Once again, there are only three possibilities here. First, they eat the losses. Second, they go bankrupt doing it. Third, they fire people, raise their prices, or cut their business in order to account for the extra imposed expense.

4) Make available to everyone insurance that is now only available to Congress

There is more lunacy here. If the insurance available now only to Congress could be available to everyone and be profitable for the insurance company, the insurance company would make it available to everyone. By forcing this Rolls Royce of insurance to be available to everyone, they force those that provide it to become unprofitable. Once again, there are only two previously mentioned possibilities from this.

It is stunning that this soon after the mortgage debacle the federal government would impose policy that would make the exact same mistake. This idea for universal health care is full of places in which people that are unqualified are mandated to do or receive something. That is a recipe for disaster.


Anonymous said...

Ironically, all this makes me sick... As a health care industry worker, I foresee not only what you mentioned, but great strain on healthcare providers. There is already so much red tape but adding more people and feeding them the entitlement mentality is going to mummify US healthcare in red tape.

Anonymous said...

Here go the Radical Democrats again.

It wasn't bad enough that they used CRA and Fannie/Freddie to collapse the financial market. They want to bring the collapse to the Health Industry as well.

We'll end up rationing, and no new innovations in the medical field.

All in the name of Fairness.

When is enough going to be enough?

mike volpe said...

I agree with your points re health care TOBCAR, but your points about both Fannie and CRA are way overstated. It is a Conservative meme to blame those two for the collapse and that's because liberals are responsible for both. Both were supporting players in the collapse and frankly the CRA is the most overblown idea in causing anything collapse included.

The CRA was barely known by anyone in the industry while all of this went on, and then after it blew up, all of these outside experts started to suddenly blame it for the collapse. That's total nonsense. Here were my thoughts on it...

Anonymous said...

Whatever you point of view may be, you have to understand the following.

Without the CRA, and the use of the law to fordce the banks to make unpayable loans in the first place, the Securitization of mortgages would not have crumbled.

In another words, if banking institutions and Fannie/Freddie decided to securityze the sub-prime loans, and it happened with the rules back in 1976, before CRA, there would have been no collapse.

It wasn't just the CRA, however, without CRA, the concept of NINJA loans would never have been born.

Furthermore, add Fannie/Freddie's lowering of their standards in order to be able to purchase these sub-primes were like adding an gas to the fire.

CRA was the cancer, however, it just couldn't spread because of the limitation of banks financial ability.

In another words, there were only a finite amount of money that banks could commit to these types of loans and still stay in business.

With the change in late 90's by Clinton administration and change in Fannie/Freddie, the CRA created type of mortgages mushroomed.

The important factor is that this mushrooming created an imbalance to the housing market.

With so many 'qualified' buyers in the market, the suppliers didn't have enough inventory to meet the demand.

That created the 'bubble'. Of course building a home is not a few months process. It takes years to catch up with demand. Which lengthened the 'bubble' for many years. And the CRA created type of loans facilitated the imbalance further.

Yes, other factor did come into the mix.

However, the salient point is without the CRA and the change in Fannie/Freddie, we don't have a meltdown.

There's no way that a meltdown happens without those two factors.

No matter how you slice and dice the situation, those 2 are the key components to this mess.

P.S. By the way, I do enjoy this chat. Responding to you sharpens my ability to express my views as well as better understand the opposing views. Please keep it up. It's encouraging to actually have a conversation with someone with a different point of view that can talk intelligently and not resort to profanity or seer idiocy.

mike volpe said...

With all due respect, I am in the business. Dismissing my perspective is not only silly but condescending. When you speak of the mortgage crisis everything you say you learned from the media. When I speak of the mortgage crisis everything I learned from being an insider since I started during the refi boom, all the way to the real estate boom, and the current bust.

I don't need anyone telling me how it happened. I was there and I know. CRA had nothing to do with anything. It is a red herring trotted out by conservative ideologues and parroted by folks like you. I am conservative so this isn't ideological. This is about the truth.

Both Fannie/Freddie had separate programs, My Community and Home Possible, that they created specifically for CRA. Neither of these programs were done by anyone I know though that is beside the point. Whatever amount it was done, it was a separate program totally outside the bulk of Fannie/Freddie. Furthermore, both Fannie/Freddie specialized in loans for folks with good credit. They got into sub prime after it had exploded and they got into it because the niche was making so much money.

The driver of the mortgage crisis was when Greenspan lowered the Fed Funds rate below one percent to .75%. This caused banks to borrow so much that they had more money than loans. As such, they created more loans and the monster was born.

Blaming CRA is something partisans do. If you want to know what happened I suggest you read this piece.

This is a detailed summary and it is done by an insider.

Please, if you are going to debate the mortgage crisis with me, do it from a position of being informed not indoctrinated. I have a lot more knowledge than the average person. I work in the business. For you to start telling me how it happened when your information is entirely third hand is condescending.