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.