Monday, June 8, 2009

Thoughts on Obamacare

This is now a very important issue, since Democrats are soon going to launch their healthcare reform bills in Congress and they hope for a vote by Labor Day. Obama and the Dems clearly want to minimize debate and maximize the speed with which this will pass, appealing once again to the urgency of reform but with a new twist: by expanding the government's control of healthcare, we are told that costs can be reduced. Well, if you believe that, then I have a bridge to sell you... The WSJ also has a good article on the subject today.

Last week I heard a talk by Michael Tanner, Cato's expert on healthcare. You can find plenty of his writings on the issue at Cato, and a short essay on Obamacare here. He made some simple and powerful points in his talk, which I will try to summarize here:

Healthcare reform will carry with it both employer and individual mandates. If you don't participate, you will be fined. This is a disguised tax, of course, since the purpose is to spread the costs of healthcare across the entire population. But by mandating coverage, the government will end up defining what coverage you must have. It's a safe bet that lobbyists will want to have every conceivable coverage included in the basic package. Forget about buying a policy that doesn't include coverage for abortions, pregnancies, AIDS. Forget about buying a cheap policy with a high deductible.

And since coverage is mandated, insurers could not refuse coverage to anyone, regardless of their risk status or lifestyle.

Insurers would be required to accept all applicants regardless of their health (guaranteed issue) and forbid insurers from basing insurance premiums on risk factors (Community rating). There does not appear to be any exception for lifestyle factors, such as smoking, alcohol or drug use, diet, exercise, etc. Thus, not only will the young and healthy be forced to pay higher premiums to subsidize the old and unhealthy, but the responsible will be forced to pay more to subsidize the irresponsible.

Since the basic policy will almost certainly cover more than many people would otherwise want, it will be expensive for many people. Consequently there will be subsidies. There's talk that subsidies might go to families earning up to $100,000 per year or more. Who is going to be paying for those subsidies? Check out the trial balloons coming out of the White House these days: a VAT; more taxes on the rich; sin taxes; cap and trade auctions.

There will be a public option. This is being billed as expanding consumer choice, but it is nothing more than a taxpayer-subsidized insurance plan that, since it will be cheaper than the private sector can afford to sell, will eventually capture the entire healthcare market. It's the backdoor way to universal healthcare.

In order to bring down the cost of healthcare, the new plan will involve price controls. The government will simply mandate the price they are willing to pay. A government board will decide which drugs and treatments are cost-efficient and which aren't. That means the government will effectively put a price on people's lives, much as they do in the U.K. And since the price of healthcare will be artificially determined, and the third-party-pays problem will persist, it is virtually certain that scarcities will develop and the government will end up rationing care, as they already do in Canada and the U.K. The laws of economics tell us this, this is not partisan bias on my part.

The title of Tanner's talk was appropriate: "Obamacare: Be Afraid, Be Very Afraid." More government, more taxes, less individual freedom. Not a pretty picture at all.

UPDATE: It's even worse. Tanner has just posted a quick summary and analysis of Sen. Ted Kennedy's health care reform bill.

More details will undoubtedly emerge, but it is very clear that the Kennedy plan would put one-sixth of the US economy and some of our most important, personal, and private decisions firmly under the thumb of the federal government.

12 comments:

Cabodog said...

One way or another (ie, insurance premiums or paying your healthcare bills), we already have socialized medicine.

My son had stitches and the bill was $2300 (he had anesthesia). I asked the billing office why it was so much for a one hour procedure and the gal replied "because we have so many non-paying patients."

I pay my insurance premiums so that the "group" gets cared for... Then, pay my medical bills (I have a high deductible) so that the "other group" who has no insurance gets cared for...

Scott Grannis said...

Good point. Kind of makes you wonder exactly how everything is going to be fixed by expanding on the system we already have.

Cabodog said...

The only problem with the current system is that there is no competition. With insurance in place, no one cares about the total cost, just what their out-of-pocket will be.

In-store medical clinics have a chance of introducing competition into the chain, but only for minor ailments.

Scott Grannis said...

Exactly. We could radically transform—and greatly improve—healthcare with one simple change: either let everyone deduct the cost of healthcare insurance, or no one. That would eliminate the third-party-pays problem, since businesses would probably want to get out of the business of supplying healthcare, and consumers would have an incentive to shop around for the policy that best suits their needs and budget.

Donny Baseball said...

Cabodog-
Then what you need to do is what I do. Pay 1/3 of your bill promptly, let the rest go 90 days and when they call you tell them you'll pay another 1/3 immediately if they write-off the final 1/3. They will take it in a heartbeat and you've got your son's stitches for a 33% discount. Cynical, yes, but that is the landscape that our current system has setup so might as well navigate it smartly.

Unfortunately this is a pre-cursor to the ultimate flaw of an Obama/Kennedy type plan. Doctors and other providers may just want to accept cash payers as patients rather than wait on gov't's puny and untimely payment. But the government will want docs to see patients insured by the government and will enact certain licensing requirements or other such demands that doctors see patients. This is a taking. Doctors have education, training and expertise that amounts to personal property. If the government says they have to provide the benefits of this property to people according to the government's parameters and notions of just compensation, then we will have a legal battle par excellence as doctors the nation over claim their training is being coercively expropriated. I know alot of doctors; the lawsuits are basically already sketched out and ready to roll when the time comes. It won't be the case that Obamacare is passed and that is the end of it. We will litigate this for years, decades even.

That is just the legal mess we'll have on our hands, forget about the mess emanating from the economic consequences of Obamacare.

bob wright said...

Resistance is futile ..... You will be assimilated.

Matthew Peter said...

Scott,

Appreciate all your work. I have a question that I hope you can resolve in one of your future posts (unrelated to Obamacare). In several previous posts you have shown graphs that indicate Consumer Loans have actually increased (or at least held fairly steady) during the recent credit crisis. I was wondering if you have seen James Kwak's recent post over at baselinescenario.com and if so what you thought of it.

http://baselinescenario.com/2009/06/08/annoying-bank-propaganda/

Thanks.

Cabodog said...

Donny,

Good suggestion on paying 1/3, offering 1/3. I'll have to give that a try and let the next guy subsidize me!

Public Library said...

Donny. Frightening and interesting!

Mathew. Trust your instincts and dig into the network around you to answer that question. Credit for the majority of America is not expanding and if it is, it is taking longer, at higher rates, and requiring a higher credit score to access it. This is not a bad thing, but it is not the expansion of credit some would have you believe.

Banks took the Governmental free lunch and will milk this cow for as long as possible. Collectively that may be bad for the economy but individually there is no reward for martyrdom.

Brian said...

Brilliant synopsis Scott...thank you.

Scott Grannis said...

Brian: Thanks, now spread the word so we can stop this healthcare disaster before it gets worse.

Scott Grannis said...

Matthew Peter: see my post this morning (No shortage of money) for an answer to your question.