How Capitalism Will Save Us (58 page)

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n the summer of 2009, the Obama administration and congressional Democrats floated their ideas on how to fix the health-care system: Everyone would have health insurance. People could keep their current policies. But after five years the federal government would have to approve any and all employer health plans. Employers failing to provide coverage would face a penalty.

Individuals who could not get insurance from their employer would be able to buy it from a federal government pool with a government subsidy based on their income. Private insurers, meanwhile, would be required to enroll everyone and give all people the same premium regardless of medical condition.

The problem with this plan is that a government insurer, with its unlimited resources and subsidized, low-cost coverage, would under-price private competitors and eventually drive them out of business. With the government offering low-priced coverage, many employers would figure that they don’t really need to offer private insurance. Many would opt to pay the penalty and let their employees buy from Uncle Sam.

Even if a handful of private-sector insurers remain, government, with its vast resources, will end up imposing its bureaucratic rigidities on the market. Government, after all, has more power than many Wal-Marts or Microsofts put together. In the Real World, when government dominates a market, it often takes over. Even if you don’t opt to use government insurance, the reimbursement policies of Uncle Sam’s mammoth insurance company will affect the priorities of health-care providers and ultimately your care. It can force its prices and practices on the private players, forcing them to become, in effect, government appendages.
Health-care and insurance providers would be prevented from developing new market solutions that could potentially address some of today’s problems.

This is the scenario that experts like Sally Pipes of the Pacific Research Institute, Grace-Marie Turner of the Galen Institute, and John Goodman of the National Center for Policy Analysis see unfolding with such a system. Private insurance companies and health-care providers would endure basically in name only; in practice they would function as subsidiaries of the federal government, carrying out its command-and-control policies.

Regulation would intensify. Health-care policy analyst Michael Tanner of the Cato Institute reports that supporters of mandatory coverage intend a federal government pool “to regulate all sorts of things, including minimum benefit packages, premium caps, limits on co-payments and deductibles, and ‘standards of quality and efficiency.’ ”
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Private insurers will be even less able than they are today to come up with innovative, less expensive plans that serve the needs of their customers.

Mandatory coverage does nothing to reform the fundamental problem with America’s health care—the prevalence of third-party payment for health insurance, which is helping to make coverage and care so expensive. In fact, it promises to make this economic distortion even more severe.

Think of it as extending Medicare beyond the elderly to the rest of the population. The proposed federal government insurance pool is another Medicare-like government insurance bureaucracy. Yes, it will offer people cheap insurance. But this bargain plan will unleash an even greater deluge of artificially inflated demand—on top of what we have now with Medicare and Medicaid.

A federal insurance pool would increase beyond measure the cost-shifting that has already hyperinflated the prices of medical care and insurance. Why would reimbursements from the new health-care bureaucracy be any less stingy than those from Medicare and Medicaid? For doctors and hospitals this means that an even larger segment of the population will become a money-losing proposition. So what happens? Privately insured patients, and the taxpayer, will shoulder an even greater cost burden than they do now. With cost-shifting on steroids, private insurance would become even more outrageously expensive.

What’s likely to happen next? Calls for more government, of course.

Heritage Foundation analyst Stuart Butler wrote in the
New York Times
in 2008 that this is exactly what supporters of Canadian- or British-style single-payer health care are counting on. That’s why many aren’t objecting to allowing private-sector insurance to coexist with a federal program. “They see this seeming competition model evolving into their kind of system.”
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In 2006, Massachusetts adopted a mandatory coverage plan that’s basically a smaller-scale version of what today’s universal health care advocates are proposing. Like the federal plan currently under consideration, Massachusetts requires all residents to have insurance. Those who don’t buy it privately can buy through the state. It’s been a colossal failure. Sally Pipes’s analysis is that the program has caused costs to “explode.” Even tax hikes haven’t been sufficient to fund the system. As a consequence, “the entire system is only possible due to sizable transfers from the federal government.”
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What about cooperatives? Skeptics fear that these will only be disguised versions of a federal insurer—sort of a state and medical version of Fannie and Freddie. Whatever the version, a government-based system will fail to work. Will we have to ask China to fund our health care?

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dvocates of national, government-mandated universal coverage believe it should force companies to insure everyone. Otherwise, they insist, insurers will “cherry pick” patients—they will keep healthier ones and drop the sickest people, who need coverage the most. Some states already require insurers to accept everybody. Such regulations are known as “guaranteed issue.” Despite their good intentions, guaranteed-issue
regulations are a major reason that health insurance in states like New York, New Jersey, and Massachusetts has become almost unaffordable.

Merrill Matthews, director of the Council for Affordable Health Insurance, notes that:

Well intentioned though they may be, Matthews says, guaranteed-issue regulations have so inflated the cost of coverage that “many states are ‘protecting’ their residents right into the uninsured camp.” They are one of the reasons that there are forty-six million uninsured.

Matthews believes “the best solution is to let the health-insurance market work for the vast majority of Americans and create a safety net for those who can’t get coverage.”
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For the small number of hard-to-insure individuals with preexisting conditions, he advocates high-risk pools that take all comers. The government, in partnership with the insurance industry, would fund these nonprofit insurance organizations.

Right now, some thirty-four states offer some kind of high-risk insurance to about two hundred thousand Americans. The problem has been high premium costs for those who enroll, which can make state funding difficult. High-risk pools are expensive for the same reason that ordinary health insurance is expensive—state mandates. Like private insurance, high-risk plans have to cover everything—not just catastrophic care but those nonessentials that people may not need. Merrill Matthews and others believe that high-risk pools would be less expensive and work better if the broader insurance market were deregulated and requirements like mandates were eliminated. One of the states where high-risk pools work, Matthews says, is Wisconsin, where there are fewer state regulations and consequently lower premium costs.

Allowing insurance to be sold across state lines would make it easier and cheaper to privately insure sick people. Insurance risk pools would be larger and there would be greater competition. Fewer people would need to enter high-risk pools in the first place.

University of Chicago economist John Cochrane has proposed another way to pay for patients who suddenly develop “preexisting conditions” that prevent them from changing insurers or getting new insurance—supplemental health-status insurance. The coverage would be separate from the person’s main policy. Cochrane explains: “Medical insurance covers your medical expenses in the current year, minus deductibles and co-payments. Health-status insurance covers the risk that your medical premiums will rise.”
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Health-status insurance would provide you with a large, lump-sum payment to cover future premium increases if you become sick. This supplemental plan would be portable and consumer driven. Cochrane estimates it could cost about seven hundred dollars per year at age twenty-five, rising to nine hundred dollars per year at age fifty-five.

Not only would health-status insurance help to protect people from soaring premiums, but it would make insurers less likely to drop sick people. Says Cochrane: “Constant competition for every consumer will have the same dramatic effects on cost, quality, and innovation in health care as it does in every other industry.”
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