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Con: Costs will skyrocket as bureaucrats exert control over health insurance

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Gregory D'Angelo
April 9, 2008
EDITOR’S NOTE: The writer is addressing the question, Will Sen. Barack Obama’s health-care proposal provide coverage for all Americans at a reasonable cost?

Democratic presidential contender Barack Obama is mostly right when he says, “The reason people don’t have health insurance isn’t because they don’t want it, it’s because they can’t afford it.”


Unfortunately, the Illinois freshman senator’s big government, bureaucratic reforms would only push health-care costs higher.


Obama hopes to achieve universal coverage by an employer mandate to provide coverage, sweeping expansions of existing government programs, and creation of a new government health plan to cover the remaining uninsured. These are standard liberal prescriptions, but Obama has introduced a new ingredient into the mix.


Innocuously characterized as a federal clearinghouse for private health insurance products and information, his proposed National Health Insurance Exchange would be much more than that. The NHIE would be a regulatory agency empowered to set benefits and determine the terms under which Americans could get health insurance coverage. In effect, under ObamaCare, Washington bureaucrats would run the health insurance markets in every state.


The Heritage Foundation has long advocated a “health insurance exchange” at the state level, but the Heritage HIE and Obama’s are two very different animals. The Heritage HIE works to foster employers’ defined contributions to health coverage tax free, and to promote personal ownership and portability of insurance, enabling individual workers to take their policy from job to job.


We propose state HIEs to sidestep the single greatest barrier to affordability of health insurance: the federal tax code. The current tax code imposes a tax penalty of up to 50 percent of the cost of an individually owned policy, effectively pricing millions of working families out of coverage.


Absent a change in federal tax and employment law, a statewide health insurance exchange is the best way to help consumers get and keep affordable and portable private health coverage.


But there’s no need for a national HIE. Operating at the national level, all President Obama would need to do to make affordable coverage accessible to all Americans is to change the federal tax code, offer health-care tax credits or direct assistance to the needy, and allow Americans to buy insurance across state lines. This would create a real national market characterized by personal choice, private competition and portability of coverage. Such an approach would expand coverage as widely as ObamaCare without creating a new federal bureaucracy. And it would represent real change.


ObamaCare, however, merely adds big government, bureaucratic features to the status quo. That’s no way to guarantee affordability.


The tacit premise of ObamaCare is that inefficiencies can be reduced and costs contained if only Washington exercises even greater control in health-care decision-making and funding.


Yet experience shows that replacing competition with federal regulation and restricting consumers’ choices is a prescription for higher—not lower—costs.


Obama’s advisers see it differently, of course. Their “best guess” is that their plan would save $200 billion annually by investing in health information technology, reducing industry overhead, better disease management and care coordination, and “payments for excellence.” It’s a heavy list, but the actual savings are lighter than air.


Independent health economists aren’t buying Obama’s projected savings.


“The numbers don’t seem to work very well” because “the (savings) are just dramatically overstated,” John Sheils of the Lewin Group told The Los Angeles Times.


Sheils calls the claim that ObamaCare would save the typical family up to $2,500 annually “nonsense.” MIT health economist Jonathan Gruber agrees there is “zero credible evidence to support that conclusion.”


Equally unrealistic are suggestions that the plan would cost only $50 billion to $65 billion annually. Analysts have pegged similar plans as costing twice as much … or more.


ObamaCare is clearly a triumph of hope over economic reality. To extend health coverage to all Americans, the senator from Illinois should go back to the drawing board and embrace real change—health insurance markets driven by personal choice and real competition.


Gregory D’Angelo is a policy analyst at the Heritage Foundation’s Center for Health Policy Studies. Readers may write to him in care of The Heritage Foundation, 214 Massachusetts Ave. NE, Washington, D.C. 20002; Web site: www.heritage.org.

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