Medicare magic

The Aug. 15 letter “Costly insurance” hits the nail on the head in explaining why replacing Medicare with vouchers wouldn’t work. But putting it in Econ 101 terms might clarify for those still looking to the magic of the free market.

First, the price of insurance is where supply and demand meet. If consumers have a voucher to add to what they can pay, it shifts the demand curve out, making the equilibrium at a higher price. Vouchers will increase the price of insurance for people with vouchers.

Second, when the writer explains it is unlike food stamps, he is talking about “price discrimination” – something insurance is based on but impractical for grocery stores. When insurance companies adjust rates based on risk factors, they are seeking people willing to pay more than the normal equilibrium price and charging them more. That’s how insurance works. It’s not how Medicare works. If we send people desperately needing coverage to the market, insurers will price-discriminate and charge them more. This is doubly so if they have vouchers.

This is why Medicare exists. Because the free market, as the other side of the coin of its great benefits, will charge people in need of coverage, with a voucher in their pockets, more money. That’s the whole point of the free market.

Drake Morgan, Durham