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Obama's flawed prescription for health care 

By Jeff Scialabba
web posted November 23, 2009

The House of Representatives has already passed its health-care bill and now the Senate is preparing to vote on its own. Should it pass, the largest new entitlement program since the New Deal will be a reconciliation process and a President's signature away from being enacted. This is Congress and President Obama's proposed cure for the ills of our health-care system. But are we sure they have properly diagnosed the disease? 

In his speech before Congress in early September, Obama noted that "more and more Americans worry that if you move, lose your job, or change your job, you'll lose your health insurance too," and that "buying insurance on your own costs you three times as much as the coverage you get from your employer." The obvious implication is that government must do something. 

But missing from the speech were answers to the following questions: Why is individual insurance so pricey? And why are so many Americans--over half the population, including more than 90 percent of the privately insured--chained to their employer for health insurance? 

The answers implicate government. Government policy has favored employer-based insurance through tax breaks dating back to WWII. Together with coercive labor laws arm-twisting companies into providing health benefits, these substantial tax breaks, which have never been extended to individuals purchasing insurance on their own, have distorted the health-insurance market. Employer-based plans now outnumber more limited and more expensive individual plans 10 to 1.  

Obama also decries "the problem of rising costs," which is crippling businesses and pushing the federal deficit to stratospheric highs. But again, he fails to identify the real factors at work. 

Health insurance in America is typically comprehensive,intended to cover almost any medical expense, including routine care. This would be like using car insurance to pay for tune-ups and oil changes, and history has shown that this model increases (marginal) demand for medical services. But government interventions have favored the comprehensive model for decades, beginning in the 1930s with the granting of nonprofit status to Blue Cross and Blue Shield, which pioneered the model. Comprehensive coverage was further entrenched by Medicare and Medicaid in the 1960s, as well as by the imposition of more than 2,100 federal and state mandates dictating who insurers must cover and what services they must pay for.  

As a result of these distortions, 95 percent of insured Americans--some 240 million of us--have comprehensive insurance paid for by a third party, either our employer or the government. As consumers of medical services we are cut off from their costs. When we go to the doctor, we don't even see the price until it shows up on the invoice--with all but a small co-pay or deductible (relative to the total bill) paid by our insurance. When the cost to patients is low, we view any test or treatment as "necessary" no matter how minor the benefits. This apparent free lunch has led to the exploding spending we see today. 

Because Obama fails to grasp the cause of our problems, his proposed solutions will fare as badly as every previous "reform." 

Past attempts to limit the expenditures of Medicare and Medicaid by lowering reimbursements to physicians and hospitals, for instance, have left medical providers loath to take on new Medicare and Medicaid patients and forced them to make up the losses by raising prices on private consumers. These "cost-cutting" measures have also done little to stop the hemorrhagic spending--Medicare alone is expected to consume nearly 50 percent of all federal income tax revenue by 2040. 

Similarly, the use of mandates to increase coverage has had disastrous results. While state mandates have benefited special interest groups, they've raised the cost of basic coverage an estimated 20 to 50 percent. Moreover, in order to prevent the skirting of state mandates, federal law prohibits insurance companies from offering plans across state lines--effectively banning competition and prohibiting market forces from driving prices downward.  

No honest observer of our health-care system could deny it is in need of reform. But the basic question is: Have existing government interventions proved positive? Obama and his supporters on both the left and the right answer "yes"--but the facts say otherwise. Rather than trying to expand government control over health care--as Obama would do--we should be working to eliminate it. ESR

Jeff Scialabba is a writer and research coordinator at the Ayn Rand Center for Individual Rights. Copyright © 2009 Ayn Rand® Institute. All rights reserved.

 

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