On her new blog (mentioned below), Representative Susan Lynn takes on the economic fallacies underlying Phil Bredesen’s Cover Tennessee proposal

Now the Governor wants the state to actually enter the insurance business by creating healthcare plans for the uninsured. Once implemented, steep enrollment increases are projected; eventually expanding limits to include even more Tennesseans.

Public policy analysis? Sparse benefits will ensure public lobbying for broader coverage year after year. Fee structures will entice businesses to drop current more generous health and prescription coverage for the state’s version. Guaranteed issue may encourage people to buy the insurance as they need it and drop it when they don’t. Rationed benefits, meant to curb usage, risk hurting people who are truly medically needy.

Rationing typically is used to curb the natural effects of supply and demand. In health care, it is precisely the absence of the  unimpeded interaction between supply and demand that has caused costs and health care usage to unnaturally increase. The solution to reducing health care costs and increasing availability lies not in taking the consumer/provider interaction out of the equation, but immersing the consumer and provider in it. This is Lynn’s idea

We could accomplish this by promoting Health Savings Accounts (HSA) in conjunction with a major medical policy. The premise is to save for minor illnesses and insure for major ones.

Because HSA owners decide how to spend their healthcare dollars they’re encouraged to become better consumers, pursue healthful lifestyles, and curb over consumption on their own.

They cost less too. HSA’s earn interest and grow with before tax dollars. HSA’s follow employees from job to job, through unemployment, into retirement and ultimately, can be passed onto heirs. Physicians work for patients and help them make good medical decisions instead of working for a healthcare bureaucracy to limit costs.

Precisely. If you’re using your own funds, or have an immediate financial stake in pursuing a healthy lifestyle, you will do so.  In turn, there is no overusage of health care and there is minimal incentive for health care providers to increase price if the real result will be a reduction in demand. As of now, with the way that the government handles health care benefits, the price of those benefits has become perversely inelastic. The cost to the consumer goes up, but the consumer doesn’t immediately feel the impact, so the use of what may actually be optional medical care continues at the same or greater rate. There is no reduction in demand for an increase in price. Lynn is right on this one. And for all his extended use of game theory and bait-and-switch on the issue of TennCare, Bredesen is dead wrong.