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By Joe Campbell
August 5th, 2009

[digg-reddit-me]Politifact – a fact-checking organization – declared one statement from the mass email being circulated about health care (the one that cites the page and line numbers of various mythical provisions) “truthful.” Towards the end of the email it states, “All private healthcare plans must conform to government rules [in order] to participate in a Healthcare Exchange.”

This is true – and it’s a good thing. I actually think that – contrary to the opinions of most progressives – the key to effective health care reform is not the public option but a strong health care exchange. (Ezra Klein has a lot to do with this opinion.) The health reform Democrats are fighting for would create an ebay for health insurance – in which the government creates a market with set rules that sellers would need to follow in return for which the exchange would provide an easy way for buyers to evaluate and purchase the service (of health insurance in this instance.) This market wouldn’t replace the existing marketplace, but would only supplement it.

I support the public option – but health insurance reform will succeed based the effectiveness of the Health Insurance Exchange. It also should be able to receive bipartisan support – as it internalizes many Republican and free market doctrines (though it won’t receive any support from the Republicans.) The Health Insurance Exchange – if it is effective – will allow our system to gradually move away from health care insurance tied to employment; it will restrain costs; it will allow for decentralized, market-driven consumer decisions; it will provide safety and security that our current health insurance system is sorely lacking.

I’ve maintained before that free markets are a government creation. ((Not solely the government’s creation – but the government with society.)) In a Hobbesian universe, markets aren’t free – they are subject to the whim of robbers, poor transportation infrastructure, lack of protection for copyright or new technology, etcetera. Even in a state that offers these basic protections, a market can become unfree if any single company or group of companies attains too much power and begins to dominate decision-making. The strength of free markets comes from their virtues – competition; a lack of centralized decision-making; transparency. To the extent that the American economy is free, it is because our society and government have embraced these values. But this means that markets are a creation of the government – and they are maintained by it.

It is clear for anyone studying economic history that the market gets out of whack – that parts of it move irrationally. Costs move up too quickly; bubbles develop; monopolies take over. Seeing this, Friedrich Hayek, that pillar of free market thought and scourge of socialists the world over, suggested in his Nobel Prize acceptance speech, that those tasked with managing the economy look at their role as “gardners tending a garden.” This is exactly what the Democrats are setting out to do with this health care reform.

The Health Insurance Exchange is a governmental attempt to create a market for health insurance – an ebay in which sellers agree to follow certain rules in return for access to a customer base that trust the overall process. On ebay, those individuals and companies that choose to participate in this market agree to abide by certain rules: They accept that they will provide the service or good paid for in a prompt manner; they agree to be subject to a rating system; they agree to be honest in their postings; they agree to a certain degree of transparency; and they agree to numerous other rules that ebay sees as necessary to protect the community at large and individual consumers. In a similar way, the Health Insurance Exchange requires insurers who participate to be more transparent in their plans, to provide a certain base level of insurance, to subject themselves to being rated by their customers. And as ebay prohibits various fraudulent practices, the exchange would disallow the abusive practices of insurance companies from rescission once customers get sick to the abuse of claims of preexisting conditions.

This exchange would not replace the more free-wheeling market outside of the exchange, but would supplement it – just as ebay has not replaced the broader market, but provides a specific useful service within the broader market.

This ebay for health care insurance would create a market for health insurance that would ensure that companies would compete to make profits not by rescinding coverage or insuring only those who are healthy or simply denying claims – but by providing the best service for the lowest price. That’s not socialism – that’s creating a market that accomplishes something other than generating large profits for Wall Street and big name CEOs. I would even call it change I can believe in.

[This image is believed to be trademarked. It is being used to identify the organization eBay, a subject of public interest.]