August 18, 2009 | Posted by Vitaliy Katsenelson

Healthcare Game

healthcare Given my usual warning, I don’t want to discuss politics in my writings for two reasons: it bores me to death and I’ll upset 55% of my readers. But an investor cannot ignore politics especially today. What happens in Washington doesn’t stay in Washington.

In his healthcare proposal President Obama is using a tactic described in behavioral finance as anchoring. Here’s a real life example from my married life. Let’s say I buy an expensive toy (usually a geeky one like an electronic gadget) for $300. My wife will ask me how much it is, and I’ll respond with $600. With a stunned look on her face, her reaction is typically “You paid $600 for this?” I then come back with, “What would you say if it was $300?”

Her answer is usually something like “Ok, that would be a good price,” and I’ll finally admit I lied and that it is $300. She’s not upset with me anymore and everyone wins. I anchored her at the higher price ($600) and then the lower ($300) now seems like a bargain.

Mr. President is doing the same thing. He asked in his healthcare bill a lot more than he knows he could possibly receive. So anytime he is giving up something, like insurance companies’ right to exist, he is “compromising” and republicans and taxpayers claim a small victory. This is important. The President knows he won’t receive everything he asked for. He knows that the public option (a government insurance competitor – an Oxymoron if ask me) was a “no go” from very beginning. And thus he’ll “compromise” it away with cooperatives.

As dust around the healthcare bill begins to settle, we are seeing hints that health insurance companies will not be euthanized and in the worst case, they may have to compete with cooperatives. Let me tell you this. As a guy who spent half of his life in Russia and has seen cooperatives, this is an antonym to competition. I have yet to meet a person who adores his HMO, but for-profit HMOs are a better evil and more importantly, more efficient than not-for-profit cooperatives. I am buying HMO stocks.

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CasaleRA

Vitaliy,

You may be right, and in fact I think you are, but allow me to play devil’s advocate.

With Massachusetts as a proxy, we have evidence that an ‘all private’ form of universal coverage will indeed be effective at enrolling a very high percentage of the population, but will do very little to reign in cost. Abandonment of the public plan choice option has a major obstacle in the form of the congressional budget office. Should the provision be compromised away, the likelihood is that the bill won’t be passable based on cost projections / fundability.

Should it still go through as you suggest it may, it will be to accomplish widespread enrollment first, and reform down the road (like has occurred in MA, where some of the recently proposed reforms have some promise). That is a scary path to follow, but often that of least political resistance.

What I’d like to see is legislation (and a PR campaign) that makes the cost of healthcare more visible to us consumers, like having the non-taxable benefit detailed on a W2 for example (like a 401k contribution is). We need / have needed a 2 year high profile national discussion prior to attempting to push legislation through. There is irony in that the poor visibility of healthcare costs to the public, is what is making the need for reform so very hard to communicate, and is due to past ‘path of least resistance’ political decisions (largely made by Democrats).

Ralph

Healthcare Game

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