(This article was submitted to the Wall Street Journal as an opinion piece on September 10, 2009)
The linchpin of President Barack Obama’s health care plan is the public health insurance exchange. It attempts to create a large marketplace within which both suppliers and buyers of insurance abide by government legal constraints to sell and buy health insurance.
First, if the President is saying that people who do not have health insurance through their employers can access the exchange and that the idea is to expand the economies of scale, risk pools and negotiating leverage that government workers, members of congress and large corporations enjoy, why should any employer, large or small, provide health insurance going forward after the plan is put into place? A large marketplace cannot be created without employers dropping coverage to reduce their health care costs.
Second, the operating assumption underlying the President’s plan is the expectation that universal health insurance can reduce health care costs. But will it? Does a mandate for universal auto insurance enabled by a public insurance exchange reduce the cost of automobiles? No. The same applies to health insurance.
If for a moment we are to give the President the benefit of the doubt and understand by implication that what he is in fact saying is that restrictions on insurance companies and a more competitive insurance market place can put pressure up the value chain on the providers of health care to not raise costs because they cannot get paid what they ask for. Is the plan imposing an indirect ceiling on the health care costs through the mechanism of the insurance exchange?
If the above reasoning is to be accepted, what is the mechanism by which the government can put a ceiling on insurance costs over time if the exchange price is too high for too many? Inflation or something else? How high is high? The current costs of health care frozen over some time into the future or some form of stealth subsidy through taxation?
Further, if the President’s argument were to be true, given the rise of the boomer population over the next 30 years or so, Medicare costs should come down because of the same economies of scale, risk pools and negotiating leverage. Why are they not by the President’s similar estimations? If they would, the budget deficits he is citing as a reason for reform would not be as big of a problem?
Third, if the President is going to mandate all employees (and the rest of the society) and employers to carry and provide health insurance respectively so that employers do not dump their workers into the public insurance exchange on the one hand, is that necessarily a good thing for his own plan? Is he shooting himself in the foot? On the other hand, if employers indeed provide coverage as required by the new law he wants to put into place, will there be a marginal gain on every insurance dollar they pay because of the public insurance exchange and if so how large would it be? Will insurance companies reduce their costs because of market transmission effects? Politically, will costs actually rise (and not fall per his expectations) in 4 years, by the time the exchange is implemented, because workers would want to drop employer coverage or employers would want to drop the workers into the exchange? In other words, would the employer mandate be contentious? A useful example here is SOX after Enron. Could it avert the 2007 crisis? The answer as we now well know is “no”.
Fourth, the insurance exchange idea per se as extended to the uninsured is a good idea, but why cannot the government instead help create such voluntary private pools at the community and small business levels rather than itself creating an exchange? This was the approach suggested by the Bush 43 administration.
Fifth, the not-for-profit health care option can alternatively emulate the credit union model to offer health care at the community level. Why should it be a part of the public option? Further, the analogy to public universities simply does not work because public university tuitions are on the rise to pay for the choices the President says they are providing to compete with the private colleges whose wealthy endowments are in fact helping them drop their tuitions below some major public university tuitions to attract students.
Sixth, as a matter of principle and character, it is important to provide access to health care to all people on U.S soil, illegal, visitors, permanent residents and citizens. It is the case that this indeed occurs in the United States today, whatever the law. Therefore, the issue is to reduce the numbers of those who access health care without paying for it and thereby transferring those costs to others who do. This suggests the need for a comprehensive immigration reform, not proscribing and prosecuting the sick. It makes little sense as a matter of public diplomacy to worry about the sick elsewhere if we cannot do it within the country first.
Seventh, the President has not addressed the physical accessibility issue raised by several in the United States Senate. Does his plan, as is, provide equal accessibility to all Americans? It appears not thus far.
Eighth, the President made no mention or has indicated any interest in consolidating and streamlining all the existing health care spending by the government. He is still seeing these expenditures in the federal budget a la carte?
Ninth, the idea of a fee for “most expensive plans”-a relative concept-even if it is administered without other corporate tax loopholes against it to neutralize it cost to the insurance companies, is an impossibility for all practical purposes because such plans and others will be priced to pass on the fees to the consumers or the government.
Tenth, everybody would like to see the President’s claim about the costs of reform to indeed materialize. And if he sees that happening through efficiency gains in spending, the public insurance option may not be the way to go, but consolidating and streamlining existing government spending is. Most importantly, a fundamental change of perspective is necessary to begin seeing health care as a growth sector for the economy rather than as a cost. Cost reductions, however, can serve as the transition to fixing the health care market into ultimately becoming a viable growth sector, similar to the agriculture and auto markets (people buy food and cars), which should be the purpose of reform.
Disappointingly, the subtext of the speech was one of civil partisanship, true to the political style of this President. Perhaps this was gratuitous in rhetoric and could be counterproductive for the purposes of the reform and the desired outcomes, especially if he wants to be the last president to have to worry about health care.