Health Care Disaster

Obama and the democratically controlled Congress are determined to ram through some sort of health care reform bill this year. I have mentioned this topic in two previous posts: “The Prescription Drug Conundrum” and “Your Health – Who Pays For It?” As Congress comes closer to a bill I thought it would be a good idea to talk about the ideas and costs on the table.

Fox News recently reported that the CBO estimated the cost of the draft health care reform bill at $1.6 trillion dollars. Let’s put that number in perspective - it is equivalent to approximately 12% of our annual economic output. We currently spend something close to 16% of our economic output on health care. Obama’s plan would probably take a little from the private system and add new people to the system so it doesn’t look like it is going to save us money. If we pass this bill health care expenditures could approach 25% of our annual economic output! The repercussions of this are huge. That leaves only 75% of our economic output for every other activity we engage in or we have to borrow massively to finance those activities. The federal government doesn’t have this $1.6 trillion dollars just lying around either – they will borrow to fund at least part of it. According to the article Congress has paid for about half of it.

What exactly are we getting for our $1.6 trillion dollars? Well first a large portion of that money is to subsidize the government health care premiums for low income people and households. The current form of the bill would allow subsidies for families with incomes up to 500% above the federal poverty line or $110,000 a year. I am sure that everyone would prefer not to have to pay for health care, but families making $110,000 a year are paying for health insurance now and are doing just fine. In fact if the supposed cost savings of this program pan out they could have the same coverage for less, so why do they need federal money. I’ll tell you why – so they have a vested interest in voting to continue funding the program, that’s why! Thankfully many Senators and Representatives baulked at the price tag, so they penciled in a change to reduce subsidies to only those making 400% of the poverty line or less, or $88,000 for families. That change alone would save the government $600 billion of the $1.6 trillion bringing the cost of the plan down to $1 trillion dollars.

Why would we want the government in the health care business again? The argument made by the Democrats is that the government can hold the industry’s feet to the fire by creating a low cost, efficient competitor that they have to match. Now just thinking off the top of my head I cannot think of anything that the government has proven to be the lowest cost or most efficient provider of…if you think of something please leave a comment. At least then we could say there might be a tiny of sliver of hope in all this mess!

One thing I was curious to know is how the government plans to pay for this new program. There are three clearly defined funding sources and a couple of fuzzy ones. The clearly defined ones are: raising a special tax on the rich, making employers that don’t offer insurance pay a fee/fine, taxing employee health care contributions and the benefits your employer covers. Let’s look at each of these a little more closely. First, Obama would like to make the rich pay more. His definition of “rich” is an income over $250,000 for couples. I don’t know about you, but particularly in cities like New York or San Francisco I doubt you feel rich if you make $250,000. Also, this is Obama’s default option for paying for everything he wants to spend money on – the catch is the rich cannot pay for it all or they won’t be “rich” any longer. Second, making employers pay a fine for not offering coverage is just stupid. First, if it was cost effective to offer coverage they would, but most will find it simply easier and cheaper to pay the fine. Of course the fine will not really amount a significant portion of the costs, because business will fight this tooth and nail. The other thing that I think Obama and the democrats have forgotten is that business never bears these costs in full they pass them on to consumers in high prices, lower quantity, or reduced quality or they pass it on to employees by reducing salaries or other non-health benefits. Third, taxing employer health benefits is among the dumbest idea of all. It is basically a tax that will fall hardest on the lower income, since most employers provide fairly flat benefit levels across employees. It is also a declining revenue base over time as the tax will encourage people to chose the government option so in the long run this source of income will generate precisely zilch.

Now we come to the fuzzy sources of income. The first is taxing things like alcohol, cigarettes, soda, and candy because they are unhealthy. The problems with this are huge. What right does the government have to dictate what I want to eat! This is also ludicrous because out of all of those only cigarettes are definitely bad for you. The others in moderation will have no significant impact on your health. This choice also suffers from the problem of a declining revenue base over time. If we tax these things to pay for this people will simply buy less of them and then we get less tax revenue. It’s a self-reinforcing cycle. The final source of so called funding is the fuzziest of them all – cost savings. I don’t know about you, but when was the last time that you managed to take over something and cut costs by enough cover half the cost of the program without sacrificing quality. My guess is somewhere close to zero. The notion that we can pay for health care through cost savings from the government is the dumbest idea I have heard in a long time. It is rather like predicting that we can reduce hurricane damage costs by making hurricanes less damaging! The fact that our elected leaders expect the American people to buy this just shows how dumb they really think we are.

Oh, don’t worry it gets better. It is likely the government will start taxing your employer based health benefits. This is something that is certain to irk a lot of people, particularly the democrats’ close friends the unions. After all, unions get the sweetest benefits so they would get the highest taxes, but alas Obama needs their support to ram this through. So what’s a politician to do – I know exempt them! You got it the current version of the bill would exempt union benefits from the tax. This is outrageous. Most Americans don’t work for unions so the loophole wins votes at a minimal cost. So much for the government stepping to get everyone insured so we all bear and spread out the costs – isn’t that what Obama claims to be doing. I guess unions just don’t fit the definition of everyone. This policy will have two effects. First, it will reward unions for supporting Obama and punish everyone else. Second, it will help unions to expand, because they can offer this as another benefit of membership, which if they are successful will probably disappear because then it would cost too much. You should definitely write your Senator and Representative about this one.

Luckily this one will not go down without a fight. The cost of this enormous program is turning heads on both sides of the aisle. Republicans are working to mount an effective opposition, but they need your help. Let your voice be heard – let your representatives know that you support their opposition to this bill. Do it for the sake of your pocketbook and the futures of your children and grandchildren before it is too late.