About halfway through yesterday's all-day healthcare summit, Democratic Congressman James Clyburn of South Carolina told another of the many insurance horror stories that peppered the proceedings:
A gentleman was called in and he was very, very emotional. He was getting ready to have transplant surgery. But he was told that because he's on Medicare, his post-operative treatment is going to be limited to three years. After that, he's going to have to find some way to pay. He was very, very emotional.
Think about that for a minute. The patient is about to receive a transplanted organ (the Congressman didn't specify what it was) and the horror is the government is only going to continue to pay his medical bills for three years. If this is the worst we can say about American medicine, are we really in that bad shape after all?
Yesterday's all-day event went much better than it might have. There was no shouting, no screaming, no name-calling. Despite the talk that Washington doesn't work anymore, the dialogue was very civilized. Deliberation seems to be alive and well.
Except of course, for the fundamental difference, which remains the same -- Republicans want to reform and improve health care without destroying its free-enterprise base, while Democrats would be very happy to see the entire thing absorbed into a government-controlled system, as half of it has been already through the extension of Medicare, Medicaid and other government programs.
What became most outstanding is that President Obama and his teammates still do not have any real understanding of how the current system works. Take for example the President's constant insistence that the problem is the insurance pools in which very sick people must shop and that the solution is to "get everybody into those pools" so that risks can be shared. That's a very good idea and a very simple principle of insurance -- people who aren't sick pay for those who are sick. But "getting everybody into those pools" is precisely what the current system is designed to avoid.
Just as a guess, what percentage of the population do you think now buys their insurance individually on the open market? 15 percent? 20 percent? The answer is 6 percent. The figure has not changed for the last 15 years.
Only 6 percent of the population actually buys their own insurance. (And for this, we are painting the insurance companies as the villains of this melodrama?) Fourteen percent of the population is on Medicare, 14 percent on Medicaid. The other 66 percent do not have insurance but health benefits¸, which is not the same thing. Nine percent gets its benefits from government employment, 4 percent from the military and the remaining 43 percent get their benefits from private employment. The last 15 percent (there is some overlap) has no coverage at all.
President Obama kept talking about how it is these "large pools" in big companies that make insurance cheap, but that is not true. Large pools are only part of the equation. Equally important is that these employees are getting their benefits tax-free. This is a huge advantage not available to the uninsured population. Because the government is not getting its cut, employers are also eager to convey benefits to their employees instead of wage increases because they have more value. This is why, for many people, health benefits constitute the major reason for employment. Wages transfer easily from job to job but benefits do not.
Yet another advantage of company-run health benefits programs is that they are exempt from state regulations. There was a lot of talk at Blair House yesterday about monopolies and how many states are served by only one or two insurance companies. There was also talk about how the government must mandate minimum coverage or people will not realize their insurance doesn't cover much. What no one said is that all these mandates are now being imposed at the state level and it is precisely this that limits competition and makes insurance so expensive.
Corporate benefit plans, on the other hand, are all exempt from state regulations under the Employees Retirement Income Security Act (ERISA), which pre-empts state regulation. This is why large corporations are able to provide insurance relatively cheaply -- because they don't have to comply with state mandates that insist that chiropractic, foot massage, alcoholic treatment and all kinds of marginal medical services be included. Companies can provide their employees with what they want -- and it doesn't take any government oversight to do it.
So Obama's premise is wrong. We're not going to be able to "get everybody into the pool" because doing that would mean breaking up the system of employment-based health benefits that is protected by ERISA. That 43 percent of the market is staying put. The only thing that could crack this wall of protection would be if benefits were highly taxed and the federal "insurance exchanges" were made so attractive that people were willing to give up their employment-based benefits in exchange. Those are the things that Obama has sworn won't happen.
Instead, whatever "exchanges" are created will remain isolated, populated only by the very sick and people who can't get coverage anywhere else. That's what we have now. The only thing that can make the exchange more attractive is if it is highly subsidized. Several states tried this in the 1990s and found it impossibly expensive -- as several Senators testified yesterday. It's hard to believe the federal government will find it any different.
Because the President does not recognize what makes health benefits such a good deal for employees of large companies, he also refuses to do what Republicans have been suggesting all along -- extend those same advantages to everyone else. Several times, Obama talked about the Senators' and Congressmen's own health plans -- apparently thinking he was embarrassing them -- and asked why we couldn't extend the same benefits to everyone else? But of course that would mean everybody working for the government -- which might eventually happen if the Democrats stay in power long enough.
Instead, these advantages could simply be identified and passed on to everyone else. Give people an allowance of tax-free money to spend on their own health benefits. Let them buy insurance that is not weighted down with government mandates. This is what health savings accounts do. Eight million people now have them (almost as many as are covered by the military) and they work very well.
Ah, but the President doesn't like that, either. "All the data says that the people who have health savings account have a lot of disposable income," he said yesterday. The implication is, of course, that HSA's are a rich man's game and will leave the poor to fend for themselves.
But then in the next minute he contradicts himself. The uninsured, he said, are not the poor. The poor are covered by Medicaid. The uninsured tend to be the self-employed and people working for smaller companies that cannot afford to provide benefits to their employees. Aren't these precisely the people who could benefit from health savings accounts? But instead, the Democrats would prefer to mandate that these smaller businesses provide health insurance to their employees -- even though they obviously can't afford it. Could there be a more efficient way of killing job creation in this country?
The Republicans came off very well in yesterday's summit. They drew a line in the sand -- solve the problem by enhancing free markets -- and stuck with it. If Democrats want to persist in pushing their reform bill on the American people, let them. Then let them stand by it in the November election.
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