Truth To Power

3 10 2009

Health ‘Reform’ Is Income Redistribution

Let’s have an honest debate before we transfer more money from young to old.

While many Americans are upset by ObamaCare’s $1 trillion price tag, Congress is contemplating other changes with little analysis or debate. These changes would create a massively unfair form of income redistribution and create incentives for many not to buy health insurance at all.

Let’s start with basics: Insurance protects against the risk of something bad happening. When your house is on fire you no longer need protection against risk. You need a fireman and cash to rebuild your home. But suppose the government requires insurers to sell you fire “insurance” while your house is on fire and says you can pay the same premium as people whose houses are not on fire. The result would be that few homeowners would buy insurance until their houses were on fire.

The same could happen under health insurance reform. Here’s how: President Obama proposes to require insurers to sell policies to everyone no matter what their health status. By itself this requirement, called “guaranteed issue,” would just mean that insurers would charge predictably sick people the extremely high insurance premiums that reflect their future expected costs. But if Congress adds another requirement, called “community rating,” insurers’ ability to charge higher premiums for higher risks will be sharply limited.

Thus a healthy 25-year-old and a 55-year-old with cancer would pay nearly the same premium for a health policy. Mr. Obama and his allies emphasize the benefits for the 55-year old. But the 25-year-old, who may also have a lower income, would pay significantly more than needed to cover his expected costs.

Like the homeowner who waits until his house is on fire to buy insurance, younger, poorer, healthier workers will rationally choose to avoid paying high premiums now to subsidize insurance for someone else. After all, they can always get a policy if they get sick.

To avoid this outcome, most congressional Democrats and some Republicans would combine guaranteed issue and community rating with the requirement that all workers buy health insurance—that is, an “individual mandate.” This solves the incentive problem, and guarantees that both the healthy poor 25-year-old and the sick higher-income 55-year-old have heath insurance.

But the combination of a guaranteed issue, community rating and an individual mandate means that younger, healthier, lower-income earners would be forced to subsidize older, sicker, higher-income earners. And because these subsidies are buried within health-insurance premiums, the massive income redistribution is hidden from public view and not debated.

If Congress goes down this road, health insurance premiums will increase dramatically for the overwhelming majority of people. Even if Congress mandates that everyone have health insurance, many will choose to go without and pay the tax penalty. If you think people are dissatisfied with health care now, wait until they understand that Congress voted to mandate hidden premium increases and lower wages.

There are wiser and more equitable ways to ensure that every American has access to affordable health insurance. Policy experts and state policy makers have experimented with different solutions, including high risk pools and taxpayer-funded vouchers subsidized for those who are both poor and sick. Medicaid, charity care, and uncompensated care provided by hospitals cover some of these costs today.

These solutions are imperfect, but so are the reforms being proposed in Congress. Congress should be explicit about who will pay more under its plans.

Mr. Leavitt, former secretary of Health and Human Services (2005-2009), has served as the administrator of the Environmental Protection Agency and a governor of Utah (1993-2003). Mr. Hubbard (2005-2007) and Mr. Hennessey (2008) served as directors of the White House National Economic Council.

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6 responses

3 10 2009
bkeyser

Alright, wait a minute- I thought he told us this morning that health care reform was about JOBS… ooops, maybe its not jobs, but economic stability… No? Abortion? No, that’s not it… Illegals?… Spreading the wealth? Well, we know he likes that idea. Racial equality, maybe?

I have a suggestion -and maybe I’m way off base here, but- I’m thinking we oughta make heath care reform be about…health care. Just a thought.

3 10 2009
Eowyn

Yes, I’m now confused as well. LOL 😀

3 10 2009
giovanniworld

If the Dems make it about healthcare they are never gonna win, and they know it.

Gio-

3 10 2009
littlemissmuffin

It’s never been about health care – it’s about power and control.

4 10 2009
Steve

What amazes me is how you could have 1000 pages and not get 1 thing right…..sheesh chimpanzees would be bound to get at least a couple of things right………….Marooons………..all of em

4 10 2009
Doc's Wife

I truly believe that thay want to keep us confused. I am afraid that things are going to be passed in the dark of night. Just found out that Barry is meeting w/ a group of docs on Monday, but they have been hand-picked by them and are on their side. They don’t want people to truly know how docs feel. They are worn-out w/ the paperwork as it is. Many that we know, including us are going to scale-back or quit altogether. Most of us believe they plan on bringing in foreign docs to replace us. What a mess he is making!

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