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InsiderOnline Blog: October 2008

Obama Would Put Bureaucrats in Charge of Health Care

Heritage’s Robert Moffit and Nina Owcharenko have a new paper examining Sen. Barrack Obama’s health care proposals. The paper covers a lot of ground, but the key takeaway point is that while Obama’s proposals ostensibly preserve a mixed public-private system, they would actually create powerful incentives for people to drop private coverage in favor of government-provided health insurance. Here’s a précis of the analysis:

Obama would create a nationwide health insurance exchange to provide health insurance for individuals who do not get health insurance through their employer. Private plans would compete in this exchange, but they would have to provide a standard benefit package defined by the government. The government, meanwhile, would offer its own competing plan. In other words, the government would be both referee and player in this system. Additionally, the government plan would offer subsidized coverage to low-income workers. It’s not hard to see how these advantages would make the government plan dominant in the health insurance exchange.

Obama would also mandate that employers (except small businesses) provide health insurance for their employees or pay a tax that would be used to fund the national plan. This mandate is not a tax on employers; it is a tax on labor. Employees pay the cost of either the health insurance or the tax in the form of lower wages. Lower-income employees may well conclude that they could get a better deal by having their employer drop their coverage and pay the tax and pay higher wages, while they seek similar coverage from the national health insurance exchange. Far from preserving the employment-based system, as Obama claims he wants to do, his proposals would weaken that system.

A few other problems:

1. Obama proposes subsidies for small businesses to provide coverage, but insurance tied to employment is an inappropriate model for workers in small firms, because they change jobs much more frequently. The coverage should follow the employee, not the job.

2. Obama proposes that the government pick up the tab for employers whose costs of providing coverage exceed a specified threshold per employee. This rebate rewards plans that spend more and undermines efforts to design benefit packages that provide value by controlling costs.

3. Obama proposes expansions of Medicaid and the State Children’s Health Insurance Program, even though such programs provide inferior care and would only add to the building entitlement crisis.

In sum, Obama’s proposals would put more health care choices in the hands of government bureaucrats and make the system less responsive to consumer demand.

Posted on 10/16/08 05:21 PM by Alex Adrianson

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