San Francisco |HillaryCare -- The Preview
by Sally C. Pipes 10/19/07
President Bill Clinton famously declared that the era of big government is over -- after the ill-considered scheme to remake American health care his wife helped to cook up in 1993 helped Republicans retake Congress in 1994. Now Hillary Clinton is back, touting an "American Health Choices Plan." Like the earlier fiasco, Sen. Clinton's current scheme would explode government spending -- the plan's initial price tag is $110 billion -- expand bureaucratic regulation, and threaten the health and financial security of millions of Americans.
Sally C. Pipes
[Courtesy of Pacific Research Institute]
C. Pipes is President and CEO, Pacific
Research Institute. Author of "Miracle Cure: How to Solve America's Health Care Crisis and Why Canada Isn't the Answer."[go to Pipes index]
For sure, Sen. Clinton won't make the mistake of releasing 1,300 pages of details, as was done in the 1990s. Yet even in outline form, it is clear that under the plan the government will tell insurance companies how to design their plans and who they must accept as customers. Businesses will be told that they have to spend money on a benefit that they and their employees may or may not value. Individuals will be told that they have to spend their money on health insurance, the price of which will explode past its already too-high level.
The American Health Choices Plan, based on mandates -- including community rating and guaranteed issue for insurance companies -- more regulation and increased taxes, is not a recipe for cost control but for disaster. For proof, you need look no further than Massachusetts.
Last year, then Republican Gov. Mitt Romney and a Democratic legislature enacted a health-care plan with very similar elements to the one proposed by Sen. Clinton. Everyone has to purchase insurance. The government regulates the product design. Companies cannot deny a policy to anyone (guaranteed issue) or charge rates based on health or lifestyle (except for smokers). Businesses must offer insurance to employees or pay a fine. Low-income residents receive completely free or highly subsidized plans.
While Mr. Romney has moved on, Bay state residents are still feeling the aftershocks. Of the 115,418 people who have enrolled in the new plans, more than 90,000 have signed up for the 100% free option -- free to the enrollee, if not to taxpayers. The plans for which people must pay close to full freight have been about as popular as wool sweaters in August. As of Sept. 1, only 7,164 people had signed up for these new plans, despite the July 1 mandate; that's a mere 4% of the estimated eligible uninsured population.
Experts predicted that upwards of 70% of enrollees in the plans with subsidized premiums would be under 45, and fewer than 15% older than 55. In fact, 27%-40% were older than 55, depending on the plan. This is not surprising, since older people are more likely to be heavy users of health insurance. The flood of these enrollees is called adverse selection. This causes costs to spiral upward and coverage to dwindle.
This problem was supposed to be addressed by the universal mandate, but when the bureaucrats actually began implementing the plan they discovered health insurance is expensive because health care is expensive. Since they couldn't repeal this reality they repealed the universal mandate, exempting 20% of the uninsured from the mandate.
Who was exempted? People earning between roughly $15,000 and $50,000 who couldn't afford coverage. The lower-income earners were not expected under the law to have to spend more than 2.7% of their earnings on premiums; at the high end the cutoff is 9%. But insurance turned out to be too expensive for these individuals and the government was out of money for direct subsidies.
Sen. Clinton claims that her plan would not require a new bureaucracy. That is hard to square with the fact that it offers a new government health plan as one option. More to the point, consider the Massachusetts Health Connector, an entity that was supposed to be merely a clearinghouse of private plans, but in reality sets the standards for what health plans do and do not pass the state mandate muster. Necessarily, this function would have to be performed by government at the state or national level if Ms. Clinton's plan is adopted.
In Massachusetts, more than 200,000 people have been told that their existing health plans aren't good enough to pass muster. They had until July 1 of this year to buy up or face fines commencing next year.
Costs have turned out to be higher than expected in Massachusetts -- and they promise to keep climbing. In a bond filing, government officials told Wall Street that health spending under its plan would increase total state spending by $151 million. This was before the administration of Gov. Deval Patrick, in the face of a collapsing coalition, pushed $13 million more into the plan. On a household level, citizens have found that their government expects them to spend as much as 10% of their household income on health insurance, and then face deductibles and copays.
These high expenses will erode public support for the program. Officials active in designing and implementing the plan are fretting publicly about the need to control costs and how failure to do so will cause the scheme to collapse.
The lesson here is plain for Ms. Clinton's plan. It already projects an increase in spending of $110 billion and, unlike the state, cannot hide cost increases by shifting some of them to the federal taxpayer.
The number one problem in American health care is the bouts of uninsurance that many people experience throughout their working life. The problem is not caused by too little government. The problem is not even, in the main, caused by poor health. The culprit is costly premiums.
Half of uninsured adults are under age 35, mostly healthy, and simply don't want to spend the money on a product that they won't use. Imposing the layers of regulation sought by Sen. Clinton simply increases the cost of insurance, making it even less attractive to the uninsured. Mandating that people and businesses purchase it simply taxes them.
The answer is not more taxes, more costly premiums and more government regulation. The solution is tax-code changes that create a level playing field between health spending by individuals and groups and between insurance and out-of pocket-spending. We also need to ensure the freedom of people to purchase insurance under the laws of any state.
President Clinton didn't understand this in 1993, when he put his wife in charge of remaking the U.S. health system. His party paid a deep price at the ballot box. Hillary Clinton still doesn't get it in 2007. This may just keep her from the Oval Office. CRO
This piece first appeared at the Wall Street Journal
2007 Pacific Research Institute