Hostile Takeover: Resisting Centralized Government's Stranglehold on America (34 page)

“In a society where you accept welfarism and socialism,” responds Paul, “he expects the government to take care of it.” Responding to multiple follow-up questions, Paul explains that what this hypothetical man “should do is whatever he wants to do and assume responsibility for himself. . . . That’s what freedom is all about, taking your own risks.”

Blitzer: But Congressman, are you saying that society should just let him die?

Paul: No. I practiced medicine before we had Medicaid in the early 1960s when I got out of medical school. I practiced at Santa Rosa Hospital in San Antonio. And the churches took care of ’em. We never turned anybody away from the hospital. [
Loud applause.
] And we’ve given up on this whole concept that we might take care of ourselves and assume responsibility for ourselves—our neighbors, our friends, our churches would do it. This whole idea—that’s the reason the cost is so high. The cost is so high because we dump it on the government, it becomes a bureaucracy, it becomes special-interest, it kowtows to the insurance companies and the drug companies, and then on top of that you have the inflation. The inflation devalues the dollar. We have lack of competition. There’s no competition in medicine.
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This episode is a classic example of Bastiat’s “seen and unseen” in the debate over who gets what in the provision and allocation of health care services. Is “health care” an objective good that exists outside of the incentives to provide it, a fixed pie of treatments, medications, and services that can be reallocated, from the top down, by the smartest, most benevolent bureaucrats? Government promises, empty as they are, are seen as doing something for this hypothetical (and irresponsible) man in need of health services. What goes unseen is the destruction of the social contract between free people living in a community where you are expected not to hurt others and not to take their stuff. Free people support and help each other. Where health care is a government-imposed “right,” someone else will take care of it, so there is little responsibility for yourself or others in a bind. One thing that history teaches us is that a contrived right to everything in theory amounts to exactly nothing in practice.

But a right to health care prompts key questions: What standard of care? Do you get access to the latest innovations and treatments? Will there be new innovations, or will the government deem them too expensive? Will a competent doctor be available when your government-imagined right to see him discourages young people from becoming doctors in the first place?

Who decides these questions? In a government-run system, the patient certainly will not.

The news stories of the Blitzer-Paul exchange focused exclusively on a single rude audience member who screamed “yeah” when the CNN reporter asked if “society should just let him die.” Who might have that individual have been? We will never know. Maybe Robert Reich slipped past security?

THE UNSEEN

A
LL OUR SYSTEM’S PROBLEMS—INFLATION, JOB LOSS, EXCESSIVE PAPERWORK
, 47 million uninsured—are symptoms of an underlying disease. The disease has a name: centralization. In the health care system, that’s usually referred to as “third-party payment.” Too much of our health care is paid for by third parties. Too much control has been taken away from
us
, the patients, and is being wielded by others.

No one spends other people’s money as wisely as he spends his own. That insight is as true in health care as it is everywhere else. And in health care, the negative effects of letting other people spend our money have encouraged more centralization of the system, away from patients. It’s as tragic as it was foreseeable, and preventable.

Happily, it’s also reversible.

The most common form of health benefits coverage today is a fairly comprehensive insurance plan covering most hospital costs and doctor bills, as well as any medically necessary prescription drugs and medical devices. For most folks, the benefits also tend to be rich in terms of cost-sharing. The deductibles and co-pays—the portion of the bill we pay before our insurance kicks in—tend to be relatively low. That means our premium payment—the amount we make each month to keep our coverage in effect—must be relatively high. This is the basic trade-off with health insurance: we can have higher premiums with lower cost-sharing, or lower premiums with higher cost-sharing.

The lower-deductible kind of coverage so widespread today is great for those who want “more” benefits and don’t mind paying extra for them, up front. The higher-deductible kind is more economical; it makes more sense for people of lesser means. More important, the higher your deductible, the more of a role you’ll tend to take in your own care—because, in keeping with human nature, we tend to spend more carefully when, by doing so, we can save money for something else we’d rather have more.

The downside of the more generous, lower-deductible sort of coverage prevalent today is that it tends to encourage medical inflation. People consume more than they otherwise might—demand rises unchecked—because, once their insurance kicks in, any additional costs feel “free” to them.
An extra test? Another office visit? Name brand instead of generic? Don’t worry, your insurance will cover it!
Americans have become disconnected from the cost of their own health care. And it’s why in health care, unlike most other areas of the economy, prices always go up; they never remain flat or go down. We’re spending what feels to us like “other people’s money.”

How did things get like this? The answer lies in the tax code, specifically in section 106. That provision excludes health benefits from the income and payroll taxes—which is very generous treatment—but only
if
those benefits come from your employer. As a result of this government policy, more than half of Americans get their health coverage through the workplace. Which is odd, if you think about it, since no other country on earth does it that way.

The downside is that Americans without access to job-based coverage don’t get the tax break. They pay full freight. The 15 percent of the population that goes without coverage, either voluntarily or involuntarily, is, in a sense, the price we pay for having this peculiar system. To be sure, some of the uninsured have sufficient resources to protect themselves, out-of-pocket. But for most, coverage is simply too expensive, relative to its value for them personally.

Section 106 is one of the great examples of how a seemingly small, “altruistic” change in the law can have massive negative repercussions over time.

Historically, this policy was a bureaucratic response to the
unseen
economic consequences of wage and price controls imposed by FDR during World War II. Bureaucrats at the War Labor Board were charged with enforcing a complicated system of wage and price controls, and faced pressure from employers and labor unions eager to get around those controls. The board decided to embrace the idea that fringe benefits up to 5 percent of wages shouldn’t be deemed “inflationary” and could therefore be excluded. That fateful 1942 decision was followed the next year by an IRS ruling that employer-provided health insurance, already tax-deductible as a business expense, didn’t have to be declared as income by workers. Employers seized on this new tool for attracting workers in a competitive labor market, and workers readily accepted the tax-free fringe benefits in lieu of cash compensation. By 1946, enrollment in employer-sponsored group health benefit plans had more than tripled, from 7 million to 26 million members.
39
In 1954, Congress codified the new policy in the tax code.

With the advent of Medicare and Medicaid in the Lyndon Johnson Great Society years, the entire system began to evolve into one of reliance on third-party payers. By the 1990s, national health spending, public as well as private, had almost tripled, to 13 percent of the economy. Today, two decades later, health spending represents about 17 percent of output, or more than one-sixth of our entire economy, and it’s still rising.
40
Now, by itself, that increase might not be a bad thing, if it simply means medicine provides more value than it did in the past. After all, who’s to say how much health care is “too much”? But while overall spending was going up, the share of health spending paid for by individuals out of pocket was falling dramatically, from close to half of all health spending in the early ’60s to only about one-quarter today.
41
Meanwhile, government’s share is growing; today, it represents nearly two-thirds of all health spending.
42

Value has been rising, to be sure. Medicine can do all sorts of things it couldn’t in our grandparents’ time. But medical inflation has been rising too. Indeed, it’s plagued health care for half a century now, and has reached the point that it’s the single largest driver of federal debt and deficits. It’s not as if the government hasn’t been trying to fight rising costs. Bureaucrats have come up with every solution you can think of—from local restrictions on the number of hospital beds to repeated attempts to impose price controls. Nothing has worked. The one solution that hasn’t been tried is the only one that
can
actually work: abandoning the centralized model and returning power to patients.

PROGRESSIVELY WORSE

S
O FAR,
I’
VE BEEN TELLING ONLY THE DOLLARS-AND-CENTS PART OF
the story. There’s also the political story, the long twilight struggle of ideas between top-down government and individual freedom.

That struggle can be traced all the way back to Teddy Roosevelt’s Progressive Party platform of 1912, which—stealing an issue from the then-rising Socialists—included a promise of national health insurance. Democrats under Woodrow Wilson picked up the idea, and every Democratic president since has attempted to make it a reality. Franklin D. Roosevelt tried it in his Social Security plan in 1935, but had to back off under pressure from the medical community. John F. Kennedy and Lyndon Johnson tried again in the ’60s, falling back to a “seniors and poor people first” strategy, and succeeded with enactment of Medicare and Medicaid in 1965. Jimmy Carter tried for the whole kahuna again in the late ’70s, only to fail miserably. Bill Clinton picked up where Carter left off, and almost secured passage of Hillarycare in 1994, but was famously foiled by a united GOP and a handful of centrist Democrats. That plan, however, hadn’t smoldered on the ash heap of history for very long before a fallback plan known as Kids First was picked up in 1997 by a senatorial duo: Ted Kennedy, the famously progressive Massachusetts Democrat, and Orrin Hatch, the Utah Republican. It soon became law as the State Children’s Health Insurance Program, or S-CHIP.

Essentially a big Medicaid expansion, S-CHIP revived the Left’s fortunes after their disastrous repudiation in the ’94 elections. Ever since, they’ve been on the offensive, pushing incremental initiatives, like HMO reform and a Medicare prescription drug benefit, waiting patiently for the day when yet another Democratic president and Congress could resume the fight. And of course, it finally happened, in March 2010, when President Obama and a Democratic Congress managed to ram Obamacare into law, on a strictly party-line basis.

With this last step, the Left’s nearly century-old dream is almost realized. All that remains is for Democrats to stave off repeal of their handiwork until 2014, when the machinery of centralized medicine will finally roar into full operation.

The history of the past seventy years is a history of a steady loss of patients’ freedoms. The consolidation of ever more power in Washington spells destruction for what remains of individual choice in our health care system. This is why we must repeal Obamacare and replace it with policies that focus on patients first, promoting price transparency and portability, and ultimately getting at the root cause of our current ailments: section 106 of the tax code. We must decouple health care from third parties payers.

PATIENT-CENTERED CARE

I
N THE WORDS OF
R
ONALD
R
EAGAN,
“T
HERE
ARE
SIMPLE SOLUTIONS,
just no easy ones.”

Let’s begin by asking ourselves: What would health care look like if we reversed the mistakes of the past seventy years? What if we put patients first? The answer is: We would have a health care system where patients are truly in charge and the rest of the system exists for
their
benefit.

A key way to measure progress in this effort is by how many millions of people move from centralized to decentralized sources of health coverage—how many Americans obtain good, private health insurance from the private market, or what I call “true insurance,” as compared to the number who rely on “government-based” coverage. Unlike group health benefits, whether public or private, true insurance is personal, portable, and individually owned and controlled.

Here are some general strategies that can help make this vision a reality:

1. Focus on reducing costs and expanding freedom, not on “expanding coverage.”
   
2. Reduce reliance on third-party payment.
   
3. Promote price transparency for all consumers.
   
4. Equalize the tax treatment of health benefits (don’t discriminate in favor of job-based coverage).
   
5. Defend true insurance and promote access to the individual market (as opposed to favoring the group market).
   
6. Make participation in all federal health care programs, especially Medicare, truly voluntary.
   
7. Increase consumer choice and competition within federal health benefits programs.
   
8. Convert all federal health care subsidies into defined contributions, including Medicare and tax code section 106 (the exclusion from tax, for employer-sponsored health benefits).
   
9. End Medicare price controls. Let doctors charge more than the Medicare rate, and allow private agreements between doctors and patients.
   
10. Prevent rationing by letting Medicare beneficiaries voluntarily add their own money on top of what Medicare pays.
    
11. Until the income tax is abolished or replaced by a flat tax, give individuals greater control and security through strengthened Health Savings Accounts.
    
12. Call for state-based medical-malpractice reform.
    
13. Permit insurance to be purchased across state lines.