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Tuesday, March 9, 2010

An Open Letter to the President about Health Insurance Companies

On Monday, President Obama attempted to mobilize support for his health care initiative by criticizing health insurance companies for raising premiums and denying coverage on the basis of ability and willingness to pay for health insurance. Professor Don Boudreaux of George Mason University responded with this open letter to the President:

8 March 2010

Mr. Barack Obama
President, Executive Branch
United States Government
1600 Pennsylvania Ave., NW
Washington, DC 20500

Dear Mr. Obama:

CBS radio news this morning ran a clip of one of your recent speeches. In it, you criticize insurance companies because they “ration coverage … according to who can pay and who can’t.”

My first thought was “not exactly; coverage is rationed according to who pays and who doesn’t.” Ability to pay isn’t the same thing as actually paying, and what insurers care about is the latter. Many folks – especially young adults – have the ability to pay but choose not to do so. They get no coverage.

But further pondering of your point leads me to look beyond such nit-picking to see fascinating possibilities. Not only insurers, but all producers who greedily refuse to supply persons who don’t pay should be set aright. Now I’m sure that you don’t ration the supply of the books you write according to any criteria as sordid as requiring people actually to pay for them. But our society is full of people less enlightened than you.

For example, the typical worker rations his labor services according to who pays and who doesn’t. That must stop. Oh, and supermarkets! Every single one rations groceries according to who pays. Likewise with restaurants, clothing stores, home-builders, furniture makers, even lawyers! You name it, rationing is done according to who pays. Indeed, my own county government has been corrupted by this greedy attitude: if I don’t pay my taxes, the sheriff takes my house – effectively booting me out of the county merely because I didn’t pay for its services.


I look forward to your changing this selfish and unfair system of rationing that for too long now has kept Americans impoverished.


Donald J. Boudreaux

Professor of Economics
George Mason University
Fairfax, VA 22030

Donald J. Boudreaux, “An Open Letter to President Obama”, Café Hayek Blog (8 March 2010).

Donald J. Boudreaux is chairman of the department and professor of economics at George Mason University. He blogs at Café Hayek with Russell Roberts.

Response by Dr. Douglas O. Walker

Wouldn’t it be nice if all those people such as the President who expect others to charge less and work for less would first offer their own labor services and products for less. Then by their example, we could all join in and prices for everything everyone bought would be very much reduced. Indeed, President Obama can show the way by not only giving his books away but by working as President for half his present salary. Maybe all those who insist that rationing by who pays and who does not is inferior to simply asking how much others want to pay can start this wonderful new way of distributing goods and services by offering their own services and products to others at whatever prices buyers would like to pay.

Of course, under this new system there would not be one more whit of a product or service actually available to the public. If all prices were cut by half, all sales revenues would be cut by half, and if revenues were cut in half the means to pay all costs would be cut in half and hence all incomes would be cut in half. Even if all the high income groups were generous and cut their prices and incomes by half and all others did not, the physical quantity of goods and services available to Americans would be the same (assuming the rich continued to work as they did in the past). It would shuffle who got what, but it is difficult to see why the people who would get what they did not have before are any more deserving than the people who have now lost income and access to goods and services they previously had. I am puzzled as to why simply shuffling the available supply of goods and services among people in some broad sweeping way, as opposed to helping specific individuals in real need, be they rich or poor, would necessarily improve anything in terms of fairness.

In the end, in a world of scarcity the only thing that mitigates inadequate access to goods and services --- be it health care, food, shelter or whatever -- is economic growth. Increasing the production of goods and services requires the right incentives to encourage participation and productivity in the workplace. It is difficult to see how the President proposal to distribute the presently available supply of products in a manner unrelated to their production would actually encourage participation and productivity.

It is true some people cannot participate directly in producing goods and services or have such low productivity that they must be helped by those who can work and are productive. It is important to be generous and helpful to those who truly cannot contribute to production and are in need. But it is difficult to see how basing an entire economy on any principle other than ability and willingness to pay from the fruits of their own efforts would in the end improve economic outcomes and be fair to those actually engaged in the production of the goods and services on which we all rely for our daily bread and basic needs.

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