Sunday, March 21, 2010

Why Obamacare will be ruinous

The House just passed the Senate health care bill, sending it to the President for his signature. To their credit, all Republicans, even Joseph Cao, who was wavering in his attempt to stay elected in his ghetto district where he won in a fluke because the incumbent Democrat was so foul and corrupt, said hell no. But they are not enough and will not be enough until November 2010, or should I say January 2011.
The Senate bill is costly and ultimately unsustainable, creating a new $938 billion entitlement. Its drafters say it is “paid for” but have engaged in all manner of budget gimmicks that would make Bernard Madoff blush, such as including ten years of tax revenue to pay for only six years of benefits. The bill includes new taxes and penalties, special deals for certain states at the expense of other states, all the while doing nothing to decrease the cost of health insurance premiums. It does nothing to address the cost of health care delivery in this country.

The Senate bill virtually guarantees that many Americans will have to forfeit their existing coverage, contrary to the President’s promise that everyone who likes their current health care plan can keep it. Under the Senate proposal, the Congressional Budget Office estimates that as many as nine million people who are enrolled in employer-based plans now will have to find some other way to get health care coverage.

The Senate bill imposes a one-size-fits-all approach to health insurance. Congress will now dictate the types of insurance plans that can be purchased. Many popular health plans, including Health Savings Accounts that allow individuals to pay for health care services with pre-tax dollars, will be limited under the bill. The bill forces all Americans to purchase government mandated coverage, regardless of their individual needs and preferences.

The Senate bill inflicts heavy tax burdens on small businesses and families at a time when we need to do what we can to foster job growth today. And we need to ensure that changes we make to our health care system do not undermine the prospects for sustainable, long-term economic growth.

Why do I say all this? Because of a fundamental misunderstanding of how "health insurance" works.
Here is a simple comparison between auto insurance and health insurance illustrates why healthcare "reform," as Congress has just adopted it, will probably bankrupt the country:
  • Two weeks ago we smashed the side view mirror on our car and had to take it to the shop. A replacement was $250, the deductible.
  • This week at the dermatologist the doctor took a biopsy on one spot and sent if off to the lab. If it's malignant, I'll have to go back and have a bigger chunk of my cheek removed. The cost of all this? Zero. No deductible.
As far as auto insurance is concerned, we have it like almost everyone else. It covers major damage only. Back when I was younger, I had a minor fender bender. The insurance company paid my repairs but my premiums shot up until I turned age 25 and they went back down. That's what "underwriting" is about. After one accident I got moved into a higher risk category. It's what you might call a "pre-existing condition."

As John Goodman and Robert Musgrave wrote in their brilliant analysis, Patient Power, what we are calling "health insurance" is not insurance at all. It is prepaid medical benefits. Insurance is a way of pooling the risk for major expenses. Prepaid benefit plans try to cover all medical expenses, no matter how small.

Instead of getting a grip on benefits and substituting a policy of health insurance, the Democrats have decided to extend the same unrealistic benefits to everybody.

The Wall Street Journal recently informed us that once Obamacare passed, three big changes would materialize within six months:
  • Insurers wouldn't be allowed to cancel policies just because a person became sick or to place lifetime caps on care.
  • New insurance plans would have to pay full cost of certain preventive care and exempt such care from deductibles.
  • Children could stay on their parents' insurance policies until their 26th birthday.
The last may help the insurance companies since young people are generally healthier -- except that people probably won't sign up until their children get sick. There's that "pre-existing condition" problem again. What would car insurance cost if you could wait until just after an accident to sign up for it? The first two items, however, are a recipe for insurance company disaster. The first will encourage people to wait until they're sick before buying insurance. The second will encourage extraordinary overuse.

The results will be insurance company bankruptcies. At that point we'll have to have a "public option." There will be no one left selling health insurance.

The only way to avoid this road to bankruptcy for the entire country is to restore individual responsibility in the system. Allow everyone $3,000 tax-free savings account to pay for their basic routine medical costs. Then let them buy so-called "catastrophic insurance" -- which is really just ordinary insurance - to cover serious medical expenses.

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