Saturday, December 01, 2007

Healthcare and SubPrime Mortgages

It has been very interesting to read the comments from the Wall Street Journal's economics blog about the subprime mortgage mess.

Why is it confusing that purchasing more house that we can afford with low "teaser" rates might come back to haunt us later when the rates reset? Why is it confusing to think that banks that lured gullible consumers by offering them subprime home loans might want to continue generating profits when the market turns?

So now, when the interest rates have reset, people with adjustable rate mortgages (ARMs) found they didn't have enough money to pay their loans(who knew?!!!?)! They default. The banks and financial institutions that created the ponsy scheme called ARMs suddenly lose their income stream. They lose billions. They run to the government before insolvency. "Help!" they cry. And now government now wants to "work with banks" to freeze "temporarily" interest rates on certain subprime home loans in the interest of assuring mortgage holders can still afford to pay their loans so the ponsy scheme can continue.

But despite the cost of the current subprime mortgage mess to our economy, it pales in comparison to the potential economic fallout of our current healthcare crisis. You see, government intervention on free markets occurred with healthcare before, too.

It started with Blue Cross - a health plan that originated in 1929 at Baylor University in Waco, TX that provided teachers 21 days of hospital care for $6 a year. The plan was extended to other employee groups in Dallas, and similar employer-sponsored health plans began to spread nationally. Employees began demanding the perk. Employers without these plans were at risk of losing employees to their competitors. And so the programs grew to be expected by employees. Upon retirement, though, retirees were threatened with the potential for no health insurance, so Medicare and Medicaid were formed - a government run "insurance program" signed into law in 1965 to assure the continued availability of healthcare at low cost to seniors. Remarkably affordable healthcare could then the obtained by many at very low cost (sound like ARMs?). So people felt entitled to healthcare, just like people felt entitled to a big 7000-square-foot house when money was cheap. The sky was the limit as to what they could spend. But unlike healthcare that was funded by an entity that could hide the cost-overruns by dipping into the endless money pool called the national debt, banks that supplied ARMs have no such safety net to write off their debts. They might go bankrupt. And so they now have run to the government for cover.

But if we can learn from anything, we should recall our experience with healthcare. Now, some relatively-short 42 years later, we see the effects of trying to make something appear cheaper than it really is: a $2 trillion dollar healthcare economy that has forgotten the very patient that it is supposed to benefit while preserving bureaucracy and corporate profits.

So go ahead, Mr. Bush. Have the government suck up the tab for the latest financial and banking debacle. Forty years from now, you'll be long gone. But our kids, just like with healthcare, well, they'll be left holding the bag.


1 comment:

The Happy Hospitalist said...

Wes. The patient believes and the insurance both private and Medicare, together, believe that paying premium on insurance equates to an unlimited use of health care currency dollars.

I paid my premium, there for I should get all care all the time.


Our system, by default has turned our premiums into a guarantee of unlimited cash flow towards the purchase of "health care"

To turn FREE=LESS you will have to ration or say no with much more frequency. You will have ration.

And the best way to ration care is to make the patient financially responsible for that care.

If the government bails out the folks who chewed off more than they could handle, it will implicitly be saying that
owning a home is a right.

An entitlement.

Of course they will use "in the interest of national security" as an excuse for the bail out.

I would love to see a lawyer sue the federal government on behalve of a homeless guy claiming that he has a right to a home.

He is entitled to a home.