Healthcare and the Prado Dam

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Have you ever driven down the 91 Freeway past the Prado Dam and wondered why it’s there?

Well, the main reason is the free-rider problem.

Much of Orange County is in a flood zone. We could, of course, elect to do nothing about this. Some homeowners would say, ‘Oh-oh,” and buy very expensive flood insurance to protect themselves. It’d be expensive because the likelihood of flood damage would be high. Others – the free riders – would take their chances.

When the floods came, the free riders on hills would luck out, but the flat-landers would get washed away. Public roads, schools, power grids, water systems, etc. would be slammed. Overall, the devastation would be wide, everyone would lose something, and the recovery would be long and painful.

So in 1936, in their collective wisdom, the voters decided everyone should kick in, and they built the Prado with taxpayer money. This creates winners and losers. The insurance buyers benefit the most because the cost of their insurance goes down more than their taxes go up. The free riders living on hills benefit the least.

In essence, there was a mandate that everyone share the flood risk by building and maintaining the Prado Dam. Nobody complained to the Supreme Court, and the Prado Dam is still there.

This is pretty much what’s going on in the healthcare arena right now. There is a basic premise that society is better off if all of us stay healthy. It’s a question of how to mandate that outcome.

Ironically, it was Republicans who came up with the form of mandate that the Supreme Court may toss out this month. Some of us think it would only be a matter of time before a new form of mandate was devised, perhaps at the California level if the Feds can’t get their act together. Until then, we’d be going back to a less efficient, more costly alternative.

Let’s remind ourselves what that was like.

First, remember that no private healthcare provider really wants to lower its prices. Doctors, hospitals and insurance companies all get richer if they can get us to pay more for their services. They’re happy to screw each other in the process, too, but they’re definitely not looking out for you. Ditto any cost savings, which they’d rather pocket than pass along to you. Nonprofits like Hoag Hospital could be an exception, but even they must weigh the tradeoff between lower prices and increased services.

OK, so we’ll be going back to a shrinking employer-based system with rising costs in which insurers keep trying to cherry-pick healthy workers and push less healthy ones out.

Alternative health insurance options have more unhealthy people in them, so they are even more expensive. Those of you buying into these plans must make painful choices – buy insurance or educate the kids, insure or fix the roof.

More of us are then channeled into government health insurance plans like Medi-Cal, leaving taxpayers stuck paying for unhealthy folks pushed out of private plans.

More folks opt out of insurance and try to be free riders, but the government gets stuck with these, too – just not until they show up in the emergency room where it’s really expensive and inefficient to take care of them.

There were some cost savings for Medicare in the healthcare reform that may get tossed out with the bathwater – another problem for taxpayers who foot the bill for Medicare.

So if you were hoping the Supreme Court would make things better, just hope they keep their mitts off the Prado Dam.

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