Contemplating Health Care Reform

Thursday, August 6, 2009

Michael F. Cannon, director of health policy studies at the Cato Institute, on proposed health care reform

In this podcast (radio interview from The Brian Wilson Show), Michael Cannon points out that the President’s claim that taxes will not be raised on the middle class is untrue. As currently configured, the proposed health care reform legislation requires everyone to buy insurance. Requiring people to spend their own money on something is a tax.

The current proposed legislation also includes an explicit 2-10% employment tax levied on employees of businesses that either 1) don’t offer health insurance, or 2) whose health insurance doesn’t meet the government’s guidelines. It’s highly unlikely that this employment tax will be borne exclusively by “the rich,” i.e. those earning over $250,000 per year.

While the President has promised that you will be able to keep your private insurance or choose a private insurance option from the Health Care Exchange, it’s very likely that the government will sweep everyone into the government option over time – even if the government option is worse. As Michael Cannon points out, government has the unique ability to keep premiums for its plan artificially low by subsidizing the plan with tax revenue, a competitive advantage unavailable to private market providers.

The current proposed legislation gives government the right to mandate the terms of coverage and pricing for plans that qualify for the Health Care Exchange (which will be the only plans that may legally be sold after the passage of the reform bill). Restricting the remaining private market participants will allow the government to artificially inflate the price of qualifying private coverage, thereby driving more people into the government program, even if it provides worse coverage.

Michael Cannon’s article on “Fannie Med,” mentioned in the interview, is available here.

1 comment:

  1. In regard to dropping private coverage for a "bad" government plan, a question sometimes asked is "Why would someone choose something worse than they already have?"

    The answer explains people's attitudes toward public schools, Medicare, Social Security, and many other programs. People know that they have already been made to invest a great deal of their productive lives toward those programs through taxes. It is understandable, then, that they would try to recoup some of that loss back by using these programs when they become eligible to do so. This economic incentive has nothing to do with whether one likes, or completely resents, the existence of such a program.

    It is also why getting rid of such prepaid programs, whether they are functional or not, is always extremely difficult. For revocation of a disfunctional program, like e.g. Medicare, to be politically achievable, you would have to pay back all the money that was taken in taxes--or return the equivalent value.