Senate health reform bill would increase costs, reduce quality

December 27, 2009|By Peter Morici

Senate Democrats have managed a compromise on a health care bill that is a fraud on the American public, which is increasingly leery about a government-run health care option.

Instead of a government health service to provide coverage to individuals not covered by company plans, the Senate bill authorizes the federal Office of Personnel Management to contract with a nonprofit insurer to provide an alternative to private health care plans. (The post office is such a nonprofit - it walks, talks and doles out mediocre service just like the motor vehicle office and Veterans' Affairs Department.)

This public-private plan would have a disproportionate share of participants with expensive pre-existing conditions and chronic problems. Although it would have slightly lower administrative costs than the likes of Aetna or Humana, this adverse selection of clients would compel it to provide inferior service and curtailed benefits - unless the federal government empowered this nonprofit to force doctors, hospitals, pharmaceutical and medical device companies to accept significantly lower reimbursements than they do from most private insurers. Inferior patient care is the more likely outcome.

Just as with the House bill, private companies will find it cheaper to drop coverage and pay a tax, thus pushing their employees into this public-private option.

Ordinary Americans are correct to fear that they will lose their private insurance. Once a few competitors (or even just one large one) in an industry opt to drop their private insurance in favor of paying a tax and pushing employees into the public-private option, other firms must follow or face competitive cost disadvantages.

By adding another 31 million people to the health insurance rolls, the Senate and House bills will add another $1,000 to $2,000 to the cost of a private family health care plan. Americans fortunate enough to hold onto to their private plans may not be taxed directly, but they will face a combination of higher co-pays, bigger payroll deductions for health care and lower wages to permit employers to absorb higher costs.

Health care will be more expensive and good health care less accessible for many taxpaying middle-class workers.

As for out-of-control health care costs, the Senate and House bills "bend the cost curve" all right - in the wrong direction. By increasing entitlements without truly taking on the special interests - tort lawyers, pharmaceutical companies and insurance companies - these bills would raise the cost of health care.

Americans already pay at least 50 percent more for health care than the French and Germans and perhaps double what the British pay. By pushing health care from 18 percent of gross domestic product to 20 percent, these "reforms" will make the typical middle-class family poorer and the U.S. economy less competitive. More jobs will be lost.

That is not health care reform Americans should accept - and the polls indicate they don't.

Sadly, Senate and House Democrats believe they know better than most Americans what is good for them. These elitists don't know much about effectively managing health care or the economy, and we are all losers for that.

Peter Morici is a professor at the University of Maryland's Smith School of Business and a former chief economist at the U.S. International Trade Commission. His e-mail is pmorici@rhsmith.umd.edu.

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