Thursday, November 4, 2010

How government broke the auto industry, an alternate history.

How broken is health care?  Very.

Trying to explain how broken our current health care system is a difficult task, because it's nearly impossible to imagine an 'unbroken' system.  It's a counterfactual.  The system has been broken since the 1950's.  The fact that it just keeps getting worse makes us long for the days of our youth, when it was only 'mostly dead'.

So I'm going to try an analogy tack.

What is it that is broken about health care?  Well, the prices are out of control.  The costs of health care spiral year after year, always outpacing inflation.  This is an unsustainable situation.  But how did this happen?

Imagine if the government stepped in and mandated that employers pay for your auto insurance.  Actually, that's not quite right, the original sin is more subtle.  The government provides a *tax break* to employers who pay for your auto insurance.  Now let's follow this exercise through, and see some of the follow-on effects.

First, you quit really shopping for your auto insurance.  It comes as a perk with the job.  The best jobs will offer you outrageous auto insurance plans, where you can basically plow through a flock of BMW's in a parking lot with your Bentley and walk away unscathed.

You're not the only person taking advantage of this perk.  Lots of people are.  The end result is a rise in the accident rate.  Also, the subtle market pressure that would have made people want to buy cars that 'break' less is gone.  So cars become flamboyant and fragile.

Now, let's imagine what happens to the auto repair business.  Well, you take your car down to the shop to get it tuned up.  They replace some fluids and belts, and check the air in your tires.  Then they tear down the engine to replace all the gaskets and o-rings.  What?  Well, it's the only way to be sure, sir.  Can't risk having the engine blow out, that would be dangerous!

When they're done with your car they don't give you a bill.  Instead, you just file a claim with your insurance, and they take care of it.  You don't notice that it cost over $2000 to get your car 'tuned up'.  But even if you did notice, you wouldn't really care.  Because you're not paying for it.

And cars are no longer built to last.  The design of cars actually changes over the years, to one that favors cheaper manufacture, but requires regular maintenance.  Some cheap cars are essentially rebuilt every 12 months.

After decades of this broken system, the cost of auto insurance begins to dominate the cost of an employee.  Companies are in trouble, and they want to back down on these insurance plans.  Some companies try to get by without providing auto insurance to their employees, but they are demonized by the public.  Some try to offer scaled-back plans, but this is no better... the cost of auto insurance has risen to ridiculous levels, and few could afford it without employer subsidy.  The government has a plan where the elderly and the poor get assistance with their auto insurance, but many people are still unable to drive.  Or they decide to drive without insurance.  That's right: we get the elderly and the poor driving these fragile, unreliable vehicles out on the roads with no insurance.

Now, how will you fix this broken system?