The American Spectator

We need to start by reforming Medicaid, which is failing to do its job, despite hundreds of billions in spending each year. The federal government needs to cede complete authority over this program to each state to reform it into a more sturdy safety net. The federal share of spending should be sent to each state in a block grant targeted to health care for the poor, with each state to determine how that money and its own Medicaid funds could be best spent to provide a better safety net in the state. Neither candidate has seriously focused on Medicaid reform to date.

But there is an additional idea that can fill the remaining gap. McCain has proposed the Guaranteed Access Plan, or GAP, which would build on the uninsurable risk pools already in existence in 34 states. Those who do not have health insurance who become uninsurable because they have contracted a costly illness would be able to obtain coverage from their state’s risk pool. They would be charged a premium adjusted based on their ability to pay, and the state would finance the rest. Only about 1-2% become truly uninsurable through private insurance. They can obtain coverage from their state’s risk pool without government taking over health insurance or care for everyone. Current risk pools already provide coverage for about 200,000 Americans. McCain’s GAP initiative would provide assistance and financing to help every state establish a sound uninsurable risk pool.

Obama’s Socialized Medicine

IN SHARP CONTRAST, everything in Obama’s health proposal involves higher government taxes, higher government spending, and more government regulation. It begins with a new payroll tax, estimated at around 7%, that employers would have to pay, unless they paid 75% of the premiums for an employee health plan specified by the government.

As economist John Goodman of the National Center for Policy Analysis points out, the cost of this payroll tax will be almost completely borne by workers in the form of lower wages. To the extent it is not and employers bear the cost, then the tax would make employment more expensive. This added cost, as Goodman also points out, “encourages employers to hire fewer workers, adopt labor saving technology, employ part-time workers, and outsource labor to independent contractors and other entities.”

Then there is the endless, new government spending. Obama would establish a National Health Insurance Exchange where Americans could purchase health insurance. They could choose among private insurers that offered plans as specified and approved by the government. Obama emphasizes that these would be generous plans covering all “essential” services, including preventive, maternity and mental health care. In other words, the plans would be expensive. But not to worry, because the government is going to provide “income-based sliding scale tax credits for people and families who need it.” In other words, the government, meaning taxpayers, will help to pay for the insurance, but Obama does not specify how much.

In addition, the government will offer a public, government insurance plan on this Exchange as well. The more people that sign up for this plan, the more the government will be paying directly for health care, on top of Medicare and Medicaid. This plan will undoubtedly be designed and priced to involve effectively even more government subsidies, to get more people into the trap of socialized medicine, increasing the spending burden further. As the non-partisan Cato Institute concluded, this public plan would be able “to keep its premiums artificially low…since it can turn to the U.S. Treasury to cover any shortfalls” resulting in “undercutting the private market.” The same point could be made about deductibles and co-payments. The Wall Street Journal similarly concluded that the goal of the Obama plan, “like HillaryCare in the 1990s, is to displace current private coverage and switch people to the default government option.”

But we are not nearly done yet with the increased spending. Remember the Medicaid program, which is already spending $350 billion, eventually growing to the equivalent of $700 billion today under current law? Obama wants to expand eligibility and increase spending even further for that. The same goes for the State Children’s Health Insurance Program (SCHIP). Last year, President Bush proposed to increase spending for this program by 25%. The Democrats laughed that off and wanted to double or triple it.

In addition, the Obama plan “would reimburse employer health plans for a portion of the catastrophic costs they incur above a threshold if they guarantee such savings are used to reduce the cost of workers’ premiums.” So the government, read taxpayers, would pay for the high costs of all employer plans above an unspecified threshold. In addition, the government would pay for 50% of the premiums paid by small business for health coverage for their employees, through a new, refundable, Small Business Health Tax Credit.

OBAMA IS SO LACKING in understanding of the concept of incentives that, for him, designing any economic policy is like a blind and deaf person driving an automobile. The Obama plan would include regulations providing for guaranteed issue, meaning that insurers would have to offer the same health coverage to anyone who shows up, no matter how sick they are. The insurers would have to cover all pre-existing conditions for whoever shows up for coverage, no matter how costly. So if a doctor tells you that you need a heart transplant costing half a million dollars, you could go down to the National Health Insurance Exchange, sign up for the health care plan of your choice, and check into the hospital the next day, with the bill to go to the insurer. Moreover, Obama’s regulations would also require all plans to be community rated, meaning that everyone has to be charged the same premium, regardless of illness or costs when they first sign up.

So under these rules, why would anyone pay anything for health insurance before they are sick? Wait until you find out you have some costly disease, and then go sign up for insurance, paying no more in premiums from that day on than someone who signed up and started paying the same premiums at 21, when they were healthy, and at low cost for decades to come. These rules make private insurance impossible and unworkable, again ultimately forcing everyone into the public plan.

Moreover, the heavy subsidies for the cost of the insurance, and the competitive pressure from the public plan undoubtedly with low deductibles and co-pays would force the private insurers to offer low deductibles and co-pays as well. The same factors would drive consumers to choose the most costly plans offering the most benefits. Yet, where are the incentives in the Obama plan to control costs? There are none.

For these and other reasons, the costs of the Obama plan and its thorough subsidies would soar. The plan is already estimated to add $250 billion in new government spending each year to start. When Medicare was adopted in 1965, it was estimated to cost $9 billion a year by 1980. The actual cost for that year was 3.5 times as much. And all of this is supposed to be financed by repealing the Bush tax cuts on the top 5% of income earners. But the higher tax rates on these savers, investors, and owners with maximum economic flexibility will generate little if any revenues.

So like all government run, socialized health plans, with no market incentives to control costs, the Obama plan will soon be scrambling for cost control. And the only place to turn for significant cost savings is government rationing of health care. All of these socialized health plans start out promising broad scale freebies for everyone. But throughout history, in every country, they end up as established bureaucracies organized around the primary goal of denying health care as the only remaining means to control costs. Long waiting times to see doctors or specialists, slow adoption of new technologies and drugs, denying the effectiveness of treatments and therapies for patients, constricting the supply of doctors, specialists, and hospitals, relying on lack of knowledge by patients and their families as to what treatments are possible, these become the organizing principles for denying care.

The Obama campaign already ominously notes that “the top five percent of people with the greatest health care expenses…account for 49% of the overall health care dollar.” Strictly rationing care to these sickest of patients, and letting them die off, saves big bucks, politically silencing them as well. Keeping them alive to continue to consume massive portions of health care threatens bankruptcy, and political stability. These are the people who are sacrificed to the gods of socialized medicine, so self-satisfied liberals can feel good about the fairness of “universal coverage.” Under our current system, the young and healthy tend to be the most uninsured. Under the fair, moral, universal coverage system, the young and healthy are covered, but the sickest and most needy of care to save their lives find, in the end, too late, that they effectively are not.