Who Really Pays?

Dateline: Baltimore Washington Parkway


I'm driving from Washington , DC , to Baltimore to speak at a conference. As usual, I have an all-news station on the radio to not only get the latest local updates, but to monitor the never-ending traffic congestion areas. As I mindlessly crawl along another clogged section of the highway, I turn up the radio to hear a news host interviewing an elected official from a local county school board.

The interviewer asks about the county's plan to manage their recurring budget crunch. The school board member explains there should be no problem this year. The interviewer sounds incredulous and inquires why that would be the case with a projected shortfall in available funds. The school board member explains that the board has drawn up a plan to shift responsibility for certain food programs to a federal bureau, and student transportation costs to a regional governmental transportation agency.

I wonder if I've heard correctly. The school board can handle its budget for the coming year if it can shift some financial burden to other government entities? What an incredible admission! As the traffic report begins, I find myself wondering how much better my wife and I could handle our budget were we able to shift responsibility for some meals and our transportation needs to, say, our neighbors next door. It would certainly be easier to make ends meet, and I suspect they could afford it.

That same mindset appears to be at work on the national stage. Take the hot topic of healthcare costs, for example. It is no secret that American society is aging, and obtaining competent healthcare is very expensive. As a Baby Boomer myself, I am acutely conscious of the challenges my wife and I will face as we grudgingly enter what are euphemistically called the Golden Years. But every party impacted by this issue seems to be trying to solve it simply by shifting the financial burden to someone else.

Industries that years ago promised their workers free or reduced healthcare for life are now struggling under soaring costs as their work force ages and retires. These same industries seem to be contributing in record numbers to politicians who are promoting government-insured healthcare systems. Once enacted, such programs would immediately shift retirees' expectations from industry leaders to the government. So who really pays? Taxpayers.

Some workers and politicians instead advocate shifting healthcare costs onto employers. What these people seem to forget (or choose to ignore) is that companies do not pay taxes, they simply collect them. If laws demand a company pay for healthcare, companies would raise the prices of their goods and services to pay for these new obligations. Who really pays? Consumers.

This is a complex and difficult issue. I am not advocating any particular course of action. However, those who choose to ignore or minimize the economic impacts of their proposals are making grave mistakes and may even be accused of misrepresenting the value of their plans to mislead potential voters.

There is already a vibrant marketplace for people who wish to spread the risk of catastrophic financial loss among a large group of like-minded individuals. It's called insurance. The insurance industry is simply one of shared risk. Each individual pays into a common financial pool, and those who experience a loss are compensated from that pool. The company extracts a certain amount from the pool as operating expenses. Life insurance alone is nearly a trillion-dollar business in the United States at this writing.

From a personal level, most of us are keenly aware of what happens if we become a burden on our insurer. Let's take automobile insurance, for example. If we consistently report minor scrapes on our cars and expect the group to fix them, or we are accident-prone, we are charged accordingly and our rates will rise dramatically. We may have our coverage dropped completely.

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