October 30, 2004, 4:17 p.m.
The Government Takeover of Health Care
KerryCare is HillaryCare redux.

By Robert Moffit

Supporters of John Kerry's health-care plan insist that the senator has no intention of launching a "government takeover" of medicine. According to them, any comparisons to the massive 1993 Clinton health plan are overblown.

They may be correct about Kerry's intentions. But a close look at his scheme makes one thing clear: It will put the health-care sector of our economy on a glide path toward national health insurance, a path that would crowd out private coverage, push costs even higher, and force the government to monitor our health-care transactions.

There are three main reasons for this:

Kerry's "premium rebate" proposal would result in massive cost-shifting from employers and plans to taxpayers — a major corporate bailout. Beginning in 2006, Kerry would have taxpayers pick up 75 percent of the costs of any case in excess of $30,000, rising to $50,000 in 2013. But hundred of billions in cost-shifting won't add a dime to the value of patient care. The economic incentives of Kerry's plan are perverse: They would increase, not control, health-care spending.

Every player in the system — doctors, hospitals, employers, insurance companies, and even patients — would have powerful incentives to reach the threshold where the taxpayer subsidies kick in; once they do, there would be sharply reduced incentives to control or manage costs. Moreover, the very existence of a taxpayer threshold will introduce powerful new political incentives to lower that threshold, either in terms of the fixed dollar amount, or the percentage limitation on the co-payments. In either or both cases, Congress will be under tremendous pressure to intervene and lower them.

Massive government financing will lead to massive government regulation and control. Kerry's financing mechanism would open up two new avenues of heavy federal regulation over employment-based insurance. First, in return for the federal subsidies, employers would agree to cover all of their employees and make sure that any savings from the transaction is passed on to the employees. This would require unprecedented levels of federal regulation and control over employer-based health insurance, over the benefits covered and over the pass-back of savings to employees. For the pass-back alone, the government would have to audit and track employer payments to their employees.

Second, to enforce the premium-rebate threshold, the government would have to track enrollee spending. But what would be counted as a "qualified expense" in high-cost cases? Details matter. With the passage of time, we could expect pages and pages of detailed regulations. They would specify: 1) which items/procedures qualify; 2) which providers qualify; 3) what is the "allowable charge" for determining reimbursement; 4) what "case management" processes employer plans must implement (to help limit the number of cases that reach the subsidy threshold) if the plan is to be eligible for reimbursement; and, 5) ultimately, what "medical necessity" criteria are used in determining if the expense is justified.

We are probably going to get a tart taste of this in the gargantuan task of tracking the drug spending of every one of the 40 million seniors in the new Medicare drug benefit. Because of the built-in incentives of the Kerry plan, government officials surely would have to keep an eye on the costs of medical services, to determine if they are "medically necessary" to meet the taxpayer threshold. Worse, if government officials fail to contain soaring costs, they will be encouraged to impose the very price caps, regulations, and mandates that characterized the failed Clinton plan. The dynamics are in one direction: progressively greater government control. In any case, no serious analyst has indicated that the Kerry plan would somehow blossom into a model of consumer choice and free-market competition.

By expanding coverage through government health-care programs, such as Medicaid, Kerry's plan would displace much of existing private coverage. The professional literature is clear: Public-program expansions always crowd out existing private coverage to a greater or a lesser degree. Given the incentives in the Kerry proposals, the crowding out will be greater, not lesser. The enrollment of middle-class families and children in government health programs, especially Medicaid (a welfare program), is a headlong strategic retreat from the desirable goal of moving the uninsured and enrollees in public programs into private-sector coverage, the coverage that the overwhelming majority of these individuals say that they want.

So let's concede that Kerry isn't advocating a direct "government takeover" of health care. It still doesn't change the fact that his plan, once enacted, would move us further and further down that path. And that's exactly what our health-care system doesn't need.

— Robert Moffit is director of the director of the Center for Health Policy Studies at the Heritage Foundation.