Obama's Health Plan: Path to Government Takeover

Posted by Blythe Hunter | February 27, 2017

1. Federal Health Board
2. National Health Insurance Exchange
3. New Public Program, Based on Medicare
4. Play or Pay?

Individually, though deleterious, none of these measures would in themselves have the radical and profound consequences that, when coupled together, are sure to follow. Enacted collectively, this is very likely an irreversible recipe for a full-on government takeover of healthcare, along with lower quality, reduced access, higher costs and the full gamut of problems associated with nationalized health sectors the world over.

1. Federal Health Board

This idea first surfaced from former Senator Tom Daschle in 1993 as part of the failed implementation of Hillary Care Part I. It has since been revived in the former Senator's new book Critical: What We Can Do About the Health Care Crisis, and the idea has been endorsed by numerous influential characters, including a presidential candidate from Illinois.

I have already written on this issue here, but for the purposes of this article, it may be useful to reiterate some of the highlights of how board advocates envision its implementation.

The health board would be modeled largely upon the Federal Reserve Board, as well as Britain's National Institute for Clinical Excellence and the Federal Joint Committee in Germany. It would be composed of a dozen or so "experts:chosen based on their stature, knowledge, and experience, ensuring that the decisions they make have credibility across the healthcare spectrum."

Because Congress now has the dubious distinction of running healthcare in this country which, as both Sen. Daschle and I agree, it cannot do, this small group will be insulated from the political pressures that board advocates blame for the failure of many congressional health policies. By "political pressures" of course I mean the harping of constituents and other voters (some still call this the First Amendment). In other words: It isn't congress' fault, it's ours! It will make all manner of decisions regarding the delivery, payment, and consumption of healthcare in this country; and because it is intended to be insulated from we the people, its authority and decisions will be virtually beyond reproach.

Of course, numerous studies have shown that, yes, even the Fed is subject to political pressures.

In Daschle's words, it would "recommend coverage for those drugs and procedures backed by solid evidence. It would exert influence by ranking services and therapies by their health and cost impacts."

In reality, this group of "experts" will decide who must have coverage, what that coverage must include, how much it should cost, what drugs and procedures are to be permitted for use and, critically, how much we should pay for all of it. Further, it would regulate the insurance industry to the extent of limiting profits and even marketing expenses, effectively turning them into the equivalent of public utilities. It is also very likely to develop some set of standard practices for physicians and other providers that must be adhered to. These "experts," not you and your doctor, will decide how best to treat you in your time of need, irrespective of any unique circumstances.

That this entity is to be modeled on the Fed is in itself particularly interesting as well, and demonstrates the lack of economic aptitude of its proponents.

The Fed has a single price to set: the cost of money itself through interest rates. A Federal Health Board would have the responsibility of setting hundreds of thousands of prices for medical equipment, insurance plans, therapies, procedures, etc. What makes anyone think that any group could undertake such a challenge and execute it in an effective manner? In fact, as noted in an earlier post, this is already attempted through the Medicare program and it is remarkably inefficient. If one need confirmation of the fact, simply consider the current political strife over the physician reimbursement cuts, to say nothing of the programs overall long-term solvency (The Medicare Payment Advisory Committee [MedPAC] reports that the money runs out in 2019).

Given the reforms to follow, this board will likely have near absolute control over health care; but luckily, as it will be "insulated" from political pressure, we won't be able to petition our government for decisions we don't like, so we won't ruin their plans. Everything will be fine, as long as we just let them run the show and don't ask questions.

2. National Health Insurance Exchange

Similar in form to that which is currently being attempted in Massachusetts (with less than stellar results), the exchange would be a "connector" where small business workers and others who don't get insurance through their job to link up with a company and find coverage.

The state would have extraordinarily broad authority over the exchange and participating insurers, including mandated benefit levels and limits on the range of premiums that can be charged to different enrollees. Low income Americans would receive subsidies to help pay for premiums. Any participating private plan must be "actuarially equivalent" to a generous, government-provided plan (See Section 3), making it very difficult for any to realistically compete on a cost basis or to tailor policies to the needs of various individuals.

One notable aspect of this plan I find interesting is that it will circumvent (for some) the asinine restrictions on purchasing out of state insurance. If it weren't for the standards imposed on participating insurers, this would be a welcome development. In fact, to be frank, the exchange itself would be completely unnecessary if only Congress eliminated the out of state purchasing restrictions and allowed individuals to buy insurance wherever they could find the best deal, instead of being limited to the oligopoly controlling coverage in their own state.

However, through the Exchange, Obama would allow out of state purchasing, but only for those willing to play by his rules. Quite obviously, the intention here isn't to create a market for insurance, or anything like that, as some proponents claim, but rather to create a controlled environment where all participating agents must adhere to the dictates of the state.

3. New Public Program, Based on Medicare

This, as you can probably guess, would be a publicly run, Medicare-like option that would be open to everybody. However, instead of the relatively limited Medicare benefit menu, it would be more akin to the Federal Employee Health Benefits Program (FEHBP), although it would still emulate Medicare's antiquated, and downright perverse, payment mechanism and rules which have put the program into the state that it is in today. It would dictate, not negotiate, prices. The federal government would act as the insurer in this regard, collecting premiums from enrollees to pay for claims on their behalf.

It is this aspect of the plan that, coupled with Section 4, makes a government takeover of healthcare eminently plausible.

The Lewin Group, a research firm that does statistical modeling of health plans, estimates that the public insurance option could charge premiums 30% below what an average employer plan cost in 2007. They further estimated that 66% of those who get their insurance through the exchange would choose the public option, effectively doubling the number of individuals under Medicare payment rules (not to mention another 12 million souls that would stem from other SCHIP and broader Medicaid expansions that are being discussed).

Of course it should be noted that without any expansion, Medicare will be broke in just over 10 years.

The idea of a generous standard benefit package however isn't only bad because it will cause an explosion of costs but, as alluded to above, it will make it virtually impossible for Americans to buy insurance tailored to their needs, and it will render high deductible, HSA qualified health plans all but extinct. Thus, over time, more and more people will gravitate towards the public option.

4. Play or Pay

All businesses will be required to provide coverage for their employees or pay a tax, equal to 7% of their payroll, to the federal government to offset the costs of enrolling workers in the new government-run insurance system. This would increase the costs of hiring workers overnight, making it less likely for businesses to expand and take on new personnel, but there is more.

Because of the tax treatment of employer-provided health benefits and the virtually unchecked demand for health services, healthcare costs are rising far faster than wages. Therefore, employers will have a very strong incentive to simply drop coverage altogether and pay the tax. The irony here, and I think Obama and his ilk recognize this, is that while they will pass a law requiring businesses to provide insurance coverage, the end result will be to force them to drop it.

In many ways, the tax is far easier for employers to contend with than the rapidly escalating costs of healthcare. Preset at 7%, this can be factored into budgets as a fixed cost, and can be anticipated and planned for year after year.

If nothing is done to curb demand for health services however, I don't think the tax will long remain at the stated 7%. As costs of the program inevitably begin to outpace revenues, policy makers might find it useful to revert to something a little more complex to fund the public health insurance program rather than a payroll tax that would require an act of congress to increase. This could be done by indexing the tax in such a way as to resemble the physician fee schedule based on Sustainable Growth Rate (SGR) projections. In this way taxes could continue to rise without an official act of congress.

Irrespective of the other detrimental implications of this policy, this is a serious erosion of liberty, and one that can be very costly indeed to businesses and the broader economy. Imagine it: the unchecked power to tax.

As noted, the actuarially equivalency standard will ensure that the government plan is far more generous than any private alternative, and special interest lobbyists will see to it that even more services are mandated for coverage. According to John Sheils of The Lewin Group, Obama's plan "will enormously increase total healthcare spending, but disguise the extra costs by shifting them to tax payers."

Conclusion

Obama's plan would not solve anything, in fact it would merely exacerbate the fundamental problem in American healthcare, which is that no one has any incentive to think about price, and will envelop the already over-burdened sector in more and more red tape. For any health reform package to have a shot at success, instilling cost-consciousness in patients and providers must be an essential element. While not necessarily ideal, John McCain's vision for the future of American healthcare does take us towards that important end.

Some will castigate the McCain plan by arguing that if one is lying on a hospital gurney it is no time to consider, let alone negotiate prices. Such an opinion however can only be drawn from an ill-informed conception of the implications of Sen. McCain's proposals.

Shaw Tully of Fortune sums it up nicely: "[The McCain proposals] will create a world where health care is treated as the precious resource that it is, rather than a costless entitlement."