Bad Reform Is Worse Than No Reform

July 24, 2009 • Commentary
This article appeared on cato​.org on July 24, 2009.

President Obama came to Cleveland yesterday to sell his health care reform plan. As usual, he was deeply eloquent in describing the problems facing the American health care system and the need for reform. But the actual reform proposal that he is pushing is a deeply flawed product that even the best salesman can’t disguise.

If one totals up all the new taxes in the House Democratic health reform bill–the income tax surtax, the penalties on businesses that fail to provide and individuals who fail to buy the governments prescribed health care plan, as well as other frees and taxes–the cost to American taxpayers will top $800 billion. On top of that, studies suggest that the plan could increase insurance premiums by 75–95 percent.

Combined with President Obama’s plan to allow President Bush’s tax cuts to expire and state taxes, Ohio residents would face a top marginal tax rate of 51.2 percent. That’s a big price tag for a health care plan that will likely lead to Americans receiving less and lower quality health care.

Let’s look at what Ohioans would be buying.

First, the president supports an individual mandate — a requirement that every American buy health insurance. And not just any insurance but insurance that includes all the benefits government thinks you should have. That insurance could be more expensive or include benefits that people don’t want or are morally opposed to, such as abortion services.

And that doesn’t just affect those without insurance today. The bills now before Congress say that while you won’t be immediately forced to switch from your current insurance to a government‐​specified plan, you’ll have to switch to satisfy the government’s requirements if you lose your current insurance or want to change plans.

The president also supports an employer mandate. All but the very smallest businesses to provide health insurance to their workers. Employers would have to pay 72.5 percent of the premium for individual coverage and 65 percent for family coverage. Those businesses that don’t comply would be assessed a penalty or tax equal to 8 percent of their payroll. Estimates suggest that an employer mandate could cost 1.6 million jobs over the first five years.

In addition, the government would establish a new universal‐​health‐​care program, similar to Medicare, which would compete with private insurance. Regardless of how it is structured or administered, such a plan would have an inherent advantage in the marketplace because it would ultimately be subsidized by taxpayers. It could, for instance, keep its premiums artificially low or offer extra benefits, then turn to the U.S. Treasury to cover any shortfalls.

A government program would also have an advantage because its tremendous market presence would allow it to impose much lower reimbursement rates on doctors and hospitals. Government plans such as Medicare and Medicaid traditionally reimburse providers at rates considerably below those of private insurance. Providers recoup the lost income by raising prices for those with private insurance. It is estimated that privately insured patients pay $89 billion annually in additional insurance costs because of cost‐​shifting from government programs. If the new public option would have similar reimbursement policies, it would result in additional cost‐​shifting of as much as $36.4 billion annually. Such cost‐​shifting would force insurers to raise their premiums, making them even less competitive with the taxpayer‐​subsidized public plan.

In the end, millions of Americans would be forced out of the insurance they have today and into the government plan. Businesses, in particular, would have every incentive to dump their workers into the public plan. The independent actuarial firm Lewin Associates estimates that under the House bill 88 million workers would ultimately be forced into the government program.

When the president says, as he did again yesterday, “if you like your current plan, you will be able to keep it,” that is simply not true.

Frankly, when it comes to this health care reform, Ohioans should say “no sale.”

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