Emulating Fannie Mae in the Health Insurance Industry; Yes We Can!

Democratic Presidential nominee Barack Obama’s health plan has the Federal government getting directly into the health insurance business. He wants the government to create "a new public plan" for health insurance that would compete with existing private insurers. Senator Obama also wants the administrators of this new plan, or some other government-created insurer, to assume nationwide responsibility for catastrophic health insurance -- creating a government monopoly over one segment of America's healthcare economy.

If the idea of a targeted, government-backed monopoly sounds vaguely familiar, it's because another government created monopoly, the Federal National Mortgage Association (Fannie Mae, for short) has been in the news lately, and not in a good way. Fannie Mae was the "government sponsored enterprise" that held a virtual monopoly in the secondary mortgage industry whose mismanagement and collapse helped trigger the current worldwide financial crisis.

Fannie Mae collapsed because it was allowed to take risks that regulators would have quashed had they been attempted by a company identical in every way to Fannie Mae, save for the government backing. As blogger Mickey Kaus has noted, the unsound financial practices were accepted because of Fannie Mae’s aggressive advocacy of its social agenda -- increasing the rate of homeownership -- when challenged and because Congress and executive branch regulators responded to Fannie Mae's lobbying with a collective cognitive non-sequitur: because the organization’s intentions were good, no one needed to pay serious attention to its financial situation. Enmeshed in a culture that denied the need for oversight, warning signs were missed and Fannie Mae’s problems built up until a multi-hundred billion dollar bailout (separate from the much publicized $700B bailout of private institutions) became necessary to keep it and the mortgage industry which it dominated functioning.

Here’s the question for the future: why, in the long run, should the public expect the fate of Barack Obama's government created insurer to be any different than that of Fannie Mae? Like Fannie Mae, Barack Obama's new insurance company will be created in pursuit of a social goal (expanding access to health insurance). Like Fannie Mae, the government created insurer will be inextricably tied to the Federal government. And like Fannie Mae, the government created insurer will almost certainly be given regulatory advantages over its private competitors -- which may or may not make fiscal sense -- to help it achieve its social goal.

If you view government entities as organizations created and staffed by the same flawed humans that exist in every other walk of life, the potential danger here is obvious; allowing an organization, in this case, the Federal government, to create and run a national scale monopoly and then expect it to effectively regulate itself is an invitation to more Fannie Mae levels of mischief.

Will government remember this lesson by the time it takes up an Obama healthcare plan? Or is an assumption the government-does-it-better, no need to think this through, all that Democrats need to know when formulating their health plans?