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The high cost of health care reform

By Peter Morici
web posted November 23, 2009

Americans are rightfully dissatisfied with the high cost of health care and the rough treatment they receive from private insurers, but the reforms Democrats in Congress are cooking up will only make things worse

The law that will emerge from the House and Senate bills will include five central elements:

      Universal Coverage and Community Ratings. Insurers can't deny enrollment, cancel policies or charge higher premiums for preexisting conditions.

      Tax Penalties on businesses that do not provide employees with insurance, and on individuals without employer insurance who choose not to purchase a plan.

      Subsidies for low-income individuals and small businesses who can't afford a basic plan.

      A Public Plan to provide an assured option for those without employer insurance and some small businesses.

      Taxes on the wealthy and high-end health plans to pay the subsidies to low income families and small businesses.
Together, those would get almost everyone insured, but many Americans fear loss of their private health plans.

Many employers will calculate paying the tax for not covering employees is cheaper than providing a plan, drop coverage and push employees into the public plan.

Having seen how poorly the Veterans Administration administers its public plan and endured moribund service at Post Office, many Americans believe a new government agency will deliver worse service than the hassles and rationing now imposed by Aetna and others.

Health care costs are at least 50 percent higher in the United States than in Canada, Germany, France, and Britain. The U.S. system is handicapped by huge malpractice costs, higher drug prices and physician fees, and expensive hospital and insurance company bureaucracies foreign systems do not bear.

Overall, the bills moving through the House and Senate hardly dent those problems. By requiring everyone to purchase a policy, the new law will drive up demand and prices for doctor visits, hospital stays and drugs, and enrich health insurance companies,

Ultimately, the reforms that emerge will raise the cost of health care for a typical family policy at least $1500 a year.

The Democrats in Congress and the White House are unwilling to take on the malpractice lawyers, drug companies and health insurers who so generously contribute to their campaign coffers.

In fact, the health care legislation likely to emerge will enrich those special interests by throwing more cash at an inefficient system sorely in need of real reform.

Just like the bank bailout that is making Democratic contributors on Wall Street rich this holiday season, the Democrats' health care reform will reward their pals and stick the ordinary citizen with the bill. ESR

Peter Morici is a professor at the Smith School of Business, University of Maryland School, and the former Chief Economist at the U.S. International Trade Commission.



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