Today, Harvard economist and former Reagan Council of Economic Advisers Chairman Martin Feldstein appeared on CNBC to discuss his fear that the health care reforms being debated by Congress will lead to government rationing of care. But during the segment, he displayed a stunningly limited knowledge of how health insurance actually works, implying that insurance companies rarely cut people off when they get sick, and when they do, it’s easy to simply go somewhere else and buy a new policy:

[Insurance companies] turn down very, very few things, and again it is not the government doing it. So if my insurance company doesn’t allow certain drugs or doesn’t allow certain kinds of treatments, I can choose a different kind of policy. And the idea as I see it in the Obama proposal is to force us all into a certain kind of spending pattern because the government is concerned, the administration is concerned, with how much the government is spending.

Watch it:

CNBC’s Mark Haines (who makes a lot of sense when he is not discussing Wall Street bonuses) replied, “Oh please. First of all, the private insurance companies are a bureaucracy, so this bureaucrat argument is nonsense. And second, you’ll pardon me sir, your argument is a very easy one to make by someone who has money.” Indeed, Feldstein seems to think that buying health insurance is the same as buying apples. If one rots, it’s a cinch to go out a find a better one somewhere else. But the insurance market doesn’t work like that.

For one thing, even people with employer-based health insurance are limited in their options, and if the plans that their employer provides don’t have the coverage they want, they have to go into the individual market, where nearly nine out of every ten people seeking coverage never get it.

Second, the insurance market is riddled with monopolies that limit the sort of mobility Feldstein espouses. According to the American Medical Association, “94 percent of insurance markets in the United States are now highly concentrated, and insurers are thriving in the anti-competitive marketplace.” And even assuming that there is competition, as the New York Times’ Gina Kolata pointed out today, buying individual insurance is often like ordering off a menu that “has no prices and you have no idea what you will be required to pay until a few weeks later when the bill arrives in the mail.”

So does Feldstein really think that people whose insurance company has turned down a treatment can take their now pre-existing conditions and go find coverage elsewhere? Or does he just expect everyone to pay huge out-of-pocket prices for things that the insurance companies refuse to fund? He may have the luxury of paying (or he may be covered by Medicare, since he is 69 years old), but that is not the situation that many Americans find themselves in.

A few weeks ago, TARP Inspector General Neil Barofsky ignited a media firestorm by adding up the cost of every financial rescue program ever proposed since 2007 and coming up with $23.7 trillion as possible government liability for the economic rescue.

The total was meaningless, because for the government to ever be on the hook for that much, every bank in America would have to fail, every mortgage held by the government would have to be worthless, and Treasury itself would have to default on its securities. (And Barofsky added in the full cost of programs that were discontinued or never even begun.)

Of course, that didn’t stop cable news anchors like Sean Hannity and Lou Dobbs from claiming that $23.7 trillion would be the total cost for government bailouts. And with that number finally out of the public discourse, along comes the Wall Street Journal’s editorial board, claiming that the federal government should add $5 trillion to the national debt by accounting for the possible liabilities of Fannie Mae and Freddie Mac:

Putting Fannie and Freddie on the national books would in an instant increase the national debt held by the public by 75%—to $12.7 trillion, from $7.3 trillion today…[T]his takes debt as a share of GDP to nearly 90%, or nearly double the peak it reached in the 1980s when the political class was hyperventilating even as the Reagan deficits were falling as a share of GDP. Congress would have to add that $5.4 trillion to the increase in the federal debt limit that Treasury Secretary Timothy Geithner is now requesting. But that would be truth-in-budgeting.

This proposal makes absolutely no sense. But it would be a really convenient way for conservatives to peg the Obama administration with an explosion in federal debt, and bolster arguments that increasing deficits and debt warrant cuts in spending.

Like Barofsky’s estimate, the Journal’s number assumes that every mortgage held by Fannie and Freddie goes into default and all of the homes turn out to be worthless. In other words, it accounts for all of the liabilities of the GSE’s while not taking into account any of their assets.

Conforming mortgages owned by Fannie and Freddie are actually performing far better than privately held and securitized mortgages. Fannie and Freddie account for 57 percent of the mortgage market, but only 22 percent of delinquencies, while private label companies have seven percent of the mortgages but 42 percent of the delinquencies. Does the Journal think all of those privately held mortgages need to be written off as a sunk cost as well?

Following the Journal’s proposal would be like assuming that the government will have to pay out every single deposit insured by the Federal Deposit Insurance Corp. — and thus putting them all on the government books today — when the likelihood of all that deposit insurance needing to be paid out is incredibly small and would be indicative of problems that far outweigh federal budget accounting. It’s a good way to pin a big number on the guys in charge, but it doesn’t accurately reflect much of anything.