The American Spectator

THIS PROPOSED LEGISLATION reflects no learning from the various socialized medicine failures around the world, as the new system it creates would be subject to all of the same problems.

The new HAPI coverage would create extensive new demand for health care, as consumers are given every incentive to take maximum advantage of this new Federal boondoggle. Pressure then builds on the government to do something to curb the unexpected runaway costs. Without a market in health care, the only alternative is to turn to health care rationing.

The government would increasingly squeeze down on health provider reimbursements to save costs, just as it has done for Medicaid and Medicare. This reduces the supply of health care, which causes prices to rise further. The government then starts restricting when consumers can obtain what health care to try to control costs. The government slows approval of new medical treatments and breakthroughs to further reduce exploding costs. This slows the development of new, advanced medical care.

Health plans would compete to see who could provide the best care for the healthiest patients, while restricting their ability to serve sick patients as much as possible. Why provide access to all the latest, best treatments for cancer when that will just attract everyone who gets cancer, after they get it, especially under guaranteed issue and community rating? Ditto for medical care for heart disease, or the aged. Better to be known as a terrible health plan for those suffering with these life-threatening illnesses. This sharply restricts investment in facilities for providing the best and latest treatments for these illnesses.

The rationing just draws the government further and further into controlling every aspect of health care, until the entire health system is basically government run. Doctors become bureaucrats more interested in implementing government policies rather than serving patients. That is because under these systems their real client is the government, not the patients.

DOESN’T THIS SOUND just like all the socialized medicine systems around the world we have come to know and not to love? Milton Friedman called it “the black hole of socialized medicine.” By that he meant that these systems draw more and more resources in but produce less and less health care services out. In every one of these systems, what starts as a system to provide health care to everyone morphs over time through rationing and all of its incentives into an official government imposed system to deny health care.

I am so embarrassed for the Republicans on this bill that I am not even going to name them all. The ring leader has been Sen. Bob Bennett of Utah, who also has been consistently bad on Social Security reform. Another one to be named is Sen. Judd Gregg (R-NH), who wails a lot about the runaway costs of current Federal entitlement programs, suggesting the need for sharp tax increases. Then, in this bill, he has co-sponsored a new entitlement program that would be the largest of all.

When I first came to Washington over 25 years ago, I soon learned a little aphorism that has helped me understand what is going on in this town. The saying goes, the Democrats are the evil party and the Republicans are the stupid party. Every once in a while, they get together and do something truly bipartisan, which is both evil and stupid. The Healthy Americans Act is a perfect example of this.

Free Market Safety Nets

IN SHARP CONTRAST, with a few modest policy changes that would actually make the government smaller overall, we could assure that everyone would have essential health care when they need it.

The first element of such a plan would be guaranteed renewability. This means that as long as the premiums are paid, an insurance company cannot cancel a health insurance policy after the beneficiary becomes sick. That would be like a fire insurance policy that the insurer could cancel once the house caught on fire. Such a policy would provide no real protection against the costs of fire, or serious illnesses in the health insurance context, and so would not be real insurance at all. It would be a fraud. That is why this element is already supposed to be in force in every state. To the extent loopholes have developed over time, they should be closed.

The second component would be to provide assistance to low and moderate income workers to assure that they could purchase basic health insurance coverage. This would be best accomplished through reforms to block grant Medicaid and SCHIP back to the states, following the model of the extremely successful block grants of the old AFDC program adopted in 1996.

Under that reform, the Federal government ended the practice of Federal funds matching state expenditures for AFDC, which only encouraged states to spend more and more. Instead each state was given a finite block grant from the Feds, with a mandate to design their own new welfare programs based on a work requirement for the able bodied. If the new state programs cost less than the Federal block grant and what the states were spending on their AFDC programs before, the states could each keep the savings. If the new state programs cost more, the states would have to pay for the entire additional costs themselves.

This reform revolutionized the incentives for state bureaucrats. They responded with new programs fully focused on getting welfare recipients out to work, to save the state money. Within a few years, the welfare rolls declined by a shocking 60% nationwide as compared to the old AFDC program.

This same reform should now be extended to Medicaid and SCHIP. Federal spending on the new block grants for these programs would be limited to grow no faster than the rate of growth of GDP, so that these programs would not contribute in the future to increasing Federal spending relative to GDP. Each state would use the Federal block grant funds, along with the funds they were previously spending on these programs, to finance health insurance vouchers for low and moderate income residents in their respective states. These vouchers would then help pay for health insurance for these lower income residents. Each state would decide what level of assistance was appropriate at which income levels within the state.