Soccer Dad

What if obamacare applied to state lotteries?

Two months ago I received an e-mail from my Senator, Ben Cardin extolling the many benefits that will accrue to his constituents due to the recently signed health care bill. I read through them all and my reaction was the same for most of them. Nice, but that will raise premiums. Then I got to the last one and it really scared me.

Requires plans in the individual and small group market to spend 80 percent of premium dollars on medical services, and plans in the large group market to spend 85%. Insurers that do not meet these thresholds must provide rebates to policyholders.

So the bill approved by both houses of Congress presumed to tell health insurance companies how to operate. From the little I know about insurance, an insurance company raises money through premiums. An insurance company employs many talented finance professionals to invest the premiums. By decreeing how insurance companies must spend their money, Congress, in passing ObamaCare, will affect the way Americans get treated.

Last week, Scott Gottleib explained the changes going on in the medical industry in reaction to the new rules and concluded:

Consolidated practices and salaried doctors will leave fewer options for patients and longer waiting times for routine appointments. Like the insurers, physicians are responding to the economic burdens of the president's plan in one of the few ways they're permitted to.

For physicians, the strains include higher operating costs. The Obama health plan puts expensive new mandates on doctors, such as a requirement to purchase IT systems and keep more records. Overhead costs already consume more than 60% of the revenue generated by an average medical practice, according to a 2007 survey by the Medical Group Management Association. At the same time, reimbursement under Medicare is falling. Some specialists, such as radiologists and cardiologists, will see their Medicare payments fall by more than 10% next year. Then there's the fact that medical malpractice premiums have risen by 10%-20% annually for specialists like surgeons, particularly in states that haven't passed liability reform.

The bottom line: Defensive business arrangements designed to blunt ObamaCare's economic impacts will mean less patient choice.

(Another way ObamaCare will reduce patient choice is described here.)

But as long as Congress sees fit to dictate to private businesses how to operate, perhaps Congress ought to dictate to other governments: state governments too.

Health insurance companies are set up to help protect individuals from the costs of health care. I don't believe the system was broken before ObamaCare was passed, despite what it's proponents claimed. The system was imperfect, to be sure, but a major overhaul was not what was required. Last year Charles Krauthammer offered some ideas to do just that.

On the other hand state lotteries have one purpose: to separate citizens from their money. The only reason lotteries are permitted is because we're told that the proceeds fund noble programs as determined by the government.

So how much of lottery revenue gets paid out in prize money? According to this chart, nationwide that average is 64.5 percent.

But that doesn't tell us the whole story. Consider that in my state, Maryland, the state taxes on winnings is 9.25 percent. So a $64 million prize would pay out - assuming no adjustment to income, such as charitable donations - a little more than $42 million over 20 years or less than $28 million if the winner chooses a lump sum payment. Now this is a different calculation than the one yielding 64.5 percent, but if the major prize paid out actually only is worth somewhere between 50 to 67 percent of its stated value, it's actually much less than 64.5% of lottery revenues collected. (Of course that 67% is high; since it's paid out over 20 years its present day value is much less due to inflation.) And let's not forget that not all lottery winners live happily after, perhaps the states owe it to lottery winners to provide proper counseling so that they will spend their bounty wisely.

So if Congress knows what insurance companies must pay out, why not dictate to the states what they must pay out? In exchange for premiums insurance companies ease the financial challenges of increasing health care costs. In exchange for the purchase of a lottery ticket, a state accumulates wealth to redistribute to lucky winners. What makes the insurance companies so morally deficient that Congress must dictate to them but not to state governments? Why shouldn't Congress insist that states use 80 to 85 percent of lottery proceeds to pay out prizes? And insist that states collect no taxes on those payouts?

Are states capable of balancing their budgets without the current level of lottery windfall? If they aren't maybe states need to be told what they can and can't spend money on.

The concept that "I do think that at a certain point you've made enough money" then apparently applies only to private enterprise, not government.

As Arthur Brooks points out (via memeorandum):

I call this a culture war because free enterprise has been integral to American culture from the beginning, and it still lies at the core of our history and character. "A wise and frugal government," Thomas Jefferson declared in his first inaugural address in 1801, "which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government." He later warned: "To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to every one of a free exercise of his industry and the fruits acquired by it." In other words, beware government's economic control, and woe betide the redistributors.

Now, as then, entrepreneurship can flourish only in a culture where individuals are willing to innovate and exert leadership; where people enjoy the rewards and face the consequences of their decisions; and where we can gamble the security of the status quo for a chance of future success.

Yet, in his commencement address at Arizona State University on May 13, 2009, President Obama warned against precisely such impulses: "You're taught to chase after all the usual brass rings; you try to be on this "who's who" list or that Top 100 list; you chase after the big money and you figure out how big your corner office is; you worry about whether you have a fancy enough title or a fancy enough car. That's the message that's sent each and every day, or has been in our culture for far too long -- that through material possessions, through a ruthless competition pursued only on your own behalf -- that's how you will measure success." Such ambition, he cautioned, "may lead you to compromise your values and your principles."

I appreciate the sentiment that money does not buy happiness. But for the president of the United States to actively warn young adults away from economic ambition is remarkable. And he makes clear that he seeks to change our culture.

(And, no, Brooks doesn't let Republicans off the hook for this state of affairs.)