Political Football

Let me preface this article with an analogy I heard yesterday.  What are the two most popular surgical proceedures today where costs are going down?

1) Lasik eye surgery
2) bariatric surgery

Why?  Because neither are typically fully covered by insurance =  costs must be competitive =  the free market rules.  It’s that simple.

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Sept. 24 (Bloomberg) — When Hillary Clinton last took a stab at repairing America’s health-care system, advertisements featuring “Harry and Louise” — a fictional couple struggling to comprehend her proposal — aroused nationwide hostility. An overwhelming majority of Americans rejected her grand vision of an enormous government-run health-care bureaucracy.

There is no question that her plan was one of the single biggest domestic-policy political blunders of the past 50 years. We would not have had a House Speaker Newt Gingrich if there had not been a Hillary health-care plan.

But as a frontrunner in a race where every challenger for the 2008 presidential election has a health plan, Clinton has decided she must have one, too. So here we go again.

Putting Hillary in charge of the Democratic health-care plan for the election is a little like asking Mike Dukakis to be in charge of military photo ops. Dukakis, one might suppose, would tell candidates they should stay away from tanks, and if they ever get near one, to at least refuse the headgear. Clinton, for her part, has taken a similar tack, using the 1993 plan like a chart of troubled waters.

The problem is, even without the ludicrous headgear, the famous Dukakis photo would have been a disaster because it showed Dukakis in a tank. It wasn’t the headgear that was the problem, it was the nerdy candidate.

Likewise, a look at the Clinton plan suggests that the fundamental problem from 1993 is still with us: Hillary Clinton and health care do not mix.

The Plan

The crux of Hillary’s plan is an “individual mandate,” which requires that all Americans buy health insurance, but guarantees that the government will make insurance available to everyone at “affordable” prices.

To accomplish this, the plan will create a government- regulated national pool through which individuals can purchase insurance. Those who are already insured would get to choose whether to keep their current health coverage or purchase the new national plan.

Additionally, Clinton would force big businesses that don’t offer health insurance to pay a tax.

In order to sell to the national pool, the government would demand that insurers cover all applicants (“guaranteed issue”) and that premium levels would have to be indiscriminate, regardless of people’s health status when they apply (“community rating.”)

What’s more, premiums wouldn’t be allowed to exceed a predetermined fraction of total household income.

She estimates that her plan would cost $110 billion per year — which is probably low, but who’s counting?

Goodbye, Tax Cuts

To pay for it, Clinton hopes to exploit the significant savings from improved health-care technology, particularly from electronic medical records. She would also use some of the revenue from the repeal of President George W. Bush’s tax cuts. Additionally, she advocated a cap on the tax deductibility of health insurance for wealthy Americans with expensive insurance coverage.

In other words, Hillary is telling every American that they must purchase a health-insurance product the government likes. This is inconsequential if you already have a plan the government will like, but a serious problem if government makes you purchase something you don’t want.

Although Massachusetts is the only state to try out the individual mandate, there have been a variety of experiments with community rating and guaranteed issue by state governments. States with these regulations tended to experience higher premiums and lower rates of coverage, particularly among the healthy.

Failure in Kentucky

In 1995, Kentucky implemented community rating and guaranteed issue for individuals. Two years later, the market for individual insurance collapsed, as almost all the non-group insurers chose to leave the market. In response, these regulations were abolished in 2000.

In 1993, community rating and guaranteed issue were introduced in New Jersey’s non-group health-insurance market. Premiums skyrocketed and coverage rates declined precipitously. In 2003, in order to counter this trend, the government approved high-deductible “basic and essential” plans, permitting adjustable premiums, which immediately became popular.

Today, in the tiny New Jersey non-group market, consumers have two choices: purchase a “basic and essential” plan with minimal coverage or buy a standard health-insurance plan they can’t afford.

Forced Into Pools

The lesson: individuals with costly health problems will want to gravitate toward generous and costly plans. Healthy individuals, especially the young, will want to avoid getting stuck with big insurance bills, either by purchasing the narrowest coverage possible, or by avoiding the purchase altogether.

If we want to avoid the New Jersey experience writ large, government will have to force many people into pools they don’t want to be in, or stick taxpayers in general with the soaring costs of the plans that attract the sick.

The hand of government will have to be heavy indeed. The most likely outcome is that federal law will require proof of insurance of every individual, even those without a job. Penalties for those without insurance would likely be monetary, and steep enough to force many individuals to purchase insurance products they otherwise would avoid.

It would probably take a little while for Hillary’s plan to make a complete mash out of the current health-care universe. When it does, you can bet that the “fix” will be something that looks very much like her 1993 plan. The difference is, this time voters might not see it coming.

HERE is a fair representation of Rudy’s plan

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