Politics & Policy

Wrong RX

Dr. Obama doesn't know what he's talking about.

Barack Obama’s presidential campaign is supposed to represent a new politics that transcends traditional partisanship, open to new ideas from all sides, and leavened with optimism. But if Obama’s new health-care plan is an example of this new politics, give me old fashioned partisan bickering and gridlock anytime.

That plan, unveiled Monday in Des Moines, is a dog’s breakfast of bad ideas from Left, Right, and center, topped with an unhealthy amount of wishful thinking. If enacted it would cost Americans dearly — in higher taxes, lost jobs, reduced freedom of choice, and lower quality health care.

From the Left, along with the usual mishmash of increased subsidies, Obama, has taken the idea of an employer mandate. Obama would establish a “play or pay” system under which employers would be required to provide their workers with health insurance or pay a payroll tax to fund government-provided insurance. There are two big problems with this approach. First, it flies in the face of basic economics. The amount of compensation a worker receives is a function of his productivity, and an employer is indifferent as to whether that compensation is in the form of wages, taxes, health insurance, or other benefits. Such a mandate simply increases the cost of hiring workers without increasing their productivity. Employers will therefore have to find ways to offset the added costs. This they can do by raising prices, lowering wages or reducing future wage increases, reducing other benefits such as pensions, or hiring fewer workers. Almost certainly, employees will be the net losers under such a mandate, with the low-skilled suffering most.

Second, an employer mandate locks us further into an employment-based health insurance system at a time when there is a growing bipartisan consensus that we should be moving in the opposite direction. There is no logical reason for tying health insurance to employment. There are many good reasons for not doing so.

At the same time, he looks right to call for a Massachusetts-style insurance “connector,” an idea being promoted by the Heritage Foundation among others. (Obama calls it “an exchange.”) The exchange would allow workers to purchase individual health insurance with pre-tax dollars, leveling the playing field for individual insurance and giving workers the chance to buy personal and portable insurance — a good idea. The problem is that “exchanges” are also regulatory bodies. Indeed, Obama wants the “exchange” to regulate all sorts of things, including minimum benefit packages, premium caps, limits on copayments and deductibles, and “standards of quality and efficiency.”

Like Hillary Clinton, who announced part of her health-care plan last week, Obama would require insurers to cover everyone regardless of their health status and charge community-rated premiums. One goal of health-care reform should be to encourage people to enter the insurance pool while they are young and healthy. We can do this by making insurance inexpensive for them, and penalizing them if they wait to buy insurance when they are old and sick. Community rating and guaranteed issue does precisely the opposite, raising the cost of insurance for the young and healthy and removing any penalty for waiting. Inevitably, this means more young healthy people will make the rational choice to go without insurance. Hillary Clinton (and former Massachusetts Governor Mitt Romney, for that matter) dealt with this by mandating that everyone buy insurance. Obama seems unaware of the problem he is creating.

Finally, there is the question of how to pay for all this. Obama does not put a price tag on his plan, but there is no doubt it will be expensive. Indeed, it will almost certainly be far more expensive than he assumes, since his ideas for cost savings are mostly figments of his imagination. For example, Obama assumes that allowing the federal government to directly negotiate Medicare drug prices will yield substantial savings. But the Congressional Budget Office has said that private insurance plans have already reduced drug prices about as far as they can go, and unless the government is prepared to severely restrict drug formularies, denying seniors access to some drugs, further savings are unlikely.

And Obama, like everyone else from Newt Gingrich to Hillary Clinton, assumes that there will be enormous savings from having the government design a system for electronic medical records. Electronic medical records would undoubtedly be a good thing and would reduce both costs and medical errors. The private sector is already moving rapidly in that direction. But the federal government has not yet figured out how to get the FBI’s computers to talk to each other. What makes anyone think that a single federally-imposed medical IT system will be more efficient?

So far three Democrats (Obama, Hillary Clinton, and John Edwards) and one Republican, (Mitt Romney) have put forward plans for health-care reform. For supporters of free market health care, it is looking like a very long and disappointing campaign.

–Michael Tanner is the director of Health & Welfare Studies at the Cato Institute, and the author of Leviathan on the Right: How Big Government Conservatism Brought down the Republican Revolution?

Michael TannerMr. Tanner is the director of the Cato Institute’s Project on Poverty and Inequality in California and the author of The Inclusive Economy: How to Bring Wealth to America’s Poor.


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