The Right Prescription

Lost in the Senate

Dim Democrats and the "choice" Wyden plan.

By 9.21.09

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Are all Democrats stupid or do you just have to be stupid to be a Democrat? I haven't figured that out yet.

The latest manifestation of the understanding-challenged comes with a New York Times op-ed last week by Oregon Democratic Senator Ron Wyden entitled: "Health Reform's Missing Ingredient." The missing ingredient, Wyden declares, is "choice."

"My guiding principle is, and always has been that consumers do better when there is a choice and competition," said the Senator, quoting no less an authority than President Barack Obama. Then quoting himself, he went on: "Empowering Americans to choose from a broad selection of health plans would turn the tables. Those insurers that charged affordable rates and provided good coverage would attract more customers."

Well, isn't that something? Newt Gingrich and the Republicans have been saying that for a decade, but let's take up the challenge. Why not free up the insurance market from burdensome state and federal regulations and let the companies sell whatever kinds of plan they want. Consumers could make their own choices and healthcare would be no more a "crisis" than cars or television sets.

It isn't so hard to imagine. Right here in New York I picked up a flyer in the supermarket the other day that offered the following health insurance policy:

• $5,000 per accident.

• $60,000 lifetime coverage for any of the following illness: cancer, cardiovascular, respiratory, blood and lymphoid, digestive, endocrine, musculoskelatal, nervous, skin, eyes, ears and nose diseases, etc,.

• 70 percent coverage, $100 deductible.

Not bad, eh? The cost -- $37.95 a month or $455 a year. The only catch is you have to buy it for your dog. If you're a human being, you have to pay at least $5,000 a year to buy basic protection.

Why? Because, like almost every other state, New York has regulated insurance to death. When you buy health insurance in New York, you can't just buy a simple policy. You have to accept coverage for mental health, psychiatry, psychologists, chiropractors, alcoholism, drug abuse, midwives, podiatrists, infertility clinics, occupational therapists, speech therapists, social workers and on and on. Other states mandate everything from massage therapists to acupuncturists to hair transplants. According to the Council on Affordable Health Insurance, there are close to 2,000 state mandates, which raise the price of insurance anywhere from 20 to 50 percent. And it's not consumers who are demanding this kind of coverage. It's the providers who lobby the legislatures to be included so they can get paid.

The result is insurance everywhere is overpriced. But that's just the beginning. As I outlined at length last week, the reason we have a "healthcare crisis" is precisely because so many people have managed to get out from under these state mandates while others remain stuck in them.

A long time ago, the Fortune 500 and their labor unions learned they could circumvent state regulations by setting up "self-insurance" pools for employees. Instead of buying insurance from insurance companies, the companies form their own pools and self-insure. All this is protected by the Federal Employee Retirement Income Security Act of 1974 (ERISA), which trumps state regulation. (States were granted regulation of the insurance industry by the McCarran-Ferguson Act of 1945, which has stifled competition and turned each state into a cartelized fiefdom.) Then, thanks to the IRS, these benefit plans are also tax-free. As a result, corporations and their employees loaded up on first-dollar, no-deductible coverage. Benefits were even extended to retirees so that -- as we just learned recently -- every Cadillac comes loaded with $3,000 in healthcare costs.

It was a great deal for those it benefited. In Patient Power, the best book I've ever read on the subject, John Goodman and Robert Musgrave speculated that it is precisely these "gold-plated" benefit plans that have driven up the costs of medical care, since the system is flooded with people spending other people's money.

The downside falls on those who are left out. If you aren't employed in a big company or the government, or if you're self-employed or work for a start-up or a company like Wal-Mart that's skimping every penny, or if you lose your job with the big company, then you're out of luck. Instead, you have to look for insurance in "the market," which consists of people like yourself plus those who are too sick to work or have been kicked out of their ERISA plans for running up too many bills. (ERISA plans are allowed to do this because they're not "insurance" but only "benefits.") Meanwhile, your state insurance commission, in classic stat-sponsored-monopoly fashion, has kept competitors out of the market at the behest of other competitors so your choices are limited. All you can buy is those Christmas-tree-laden mandated policies approved by the state legislation. You'll probably pay $5,000-10,000 a year for coverage that is costing an ERISA employee less than $1,000.

The "health insurance crisis," then, only exists for people outside ERISA's charmed circle. (Call up the ERISA Industry Committee -- 202-789-1400 -- if you don't believe any of this.) It's a phenomenon called "rent-seeking" where people use the government to institutionalize advantages at the expense of everybody else.

What could be done about it? There are plenty of proposals. The best is Health Savings Account (HSA), which extends the same tax-free benefits to everyone and allows people to put aside $3,000 of tax-free savings to pay their medical expenses. Combined with high-deductible insurance, this can work pretty well. Eight million people now have HSAs and it's climbing all the time (except the Democrats are always trying to abolish them). Then there are proposals to make it easier for small businesses or self-employed people to form their own self-insurance pools. Another idea would be to repeal McCarran-Ferguson and let people buy insurance across state lines. Or maybe we could just let everybody buy pet policies.

But the Obama Administration and Congressional Democrats are moving in a different direction. They want to pile on more mandates upon mandates, require small businesses to insure their employees, require everybody who isn't insured to buy insurance, fine everybody who doesn't, etc. etc. It's all in that 1,000-page bill. We'll find out after it's passed.

So now here comes Senator Wyden with his proposal for "choice." Let's hear what he has to say:

The various bills making their way through Congress would, as the president explained, provide some consumer choice by establishing large marketplaces where people could easily compare insurance plans and pick the ones that best suits their needs. Companies participating in these insurance exchanges would be required to offer coverage to anyone who wants to buy it, regardless of their age, gender or health status, and they would be barred from charging someone more for having a pre-existing condition.

The problem with these bills, however, is that they would not make the exchanges available to all Americans. Only very small companies and those individuals who can't get insurance outside of the exchange -- 25 million people -- would be allowed to shop there. This would leave more than 200 million Americans with no more options, private or public, than they have today. [Emphasis added.]

Did you get that? The problem, according to Senator Wyden, is that the 200 million people already in ERISA plans don't have enough choices. Here is his solution:

I am proposing… an amendment to the latest Senate health care bill…called Free Choice.… It would impose only one requirement on employers -- that they offer their employees a choice of at least two insurance plans, one of them a low-cost, high-value plan.… Ultimately, by empowering people to select the health insurance that makes the most sense for them and their family, we could end up with a system that works better for everyone.

So for Senator Wyden, the big problem isn't that 25 million people have been locked out of ERISA and forced to pay sky-high prices for meager coverage. The problem is that the 200 million Americans benefiting from ERISA only have one choice of gold-plated benefit plans instead of two. (Actually, many companies now offer a whole menu of options.) Besides that, it isn't fair that the 200 million people who are covered at work won't be able to shop in the dingy little market being rigged up for those who are left out. So we will mandate that employers offer a choice of two gold-plated plans instead of one.

How do people like this end up in public office? My only explanation is that Democrats live in such a tight, claustrophobic little circle of labor union politics, pressure groups and victim-mongering constituencies (who ever heard of an insurance company discriminated against customers "by gender"?) that they've lost all touch with the real world.

And these people are running the country.

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About the Author
William Tucker is news editor for RealClearEnergy.org.