This is a detour from my current research on monetary policy/fiscal policy. However, I just got done doing some research on this topic as well and also a friend posted his viewpoint on healthcare reform, so I’d like to retort. This will mostly likely be a brief and too the point post.
Couple of things. Going forward I will refer to healthcare reform/Obamacare as HCR. Second, the title is Obamacare, but my target is really any socialized healthcare, regardless of which party it comes from. Obama is the one proposing it, so it opens him up for criticism. I have not researched GOP version of the bill, so I cannot comment on that at this time. Regardless, it will most likely be just as bad as the Donkey version.
I’ll start with some excerpts from an article in Economist March 2010:
“What will it mean for America? The short answer is that the reforms will expand coverage dramatically, but at a heavy cost to the taxpayer. They will also do far too little to rein in the underlying drivers of America’s roaring health inflation. Analysis by RAND, an independent think-tank, suggests that the reforms will actually increase America’s overall health spending—public plus private—by about 2% by 2020, in comparison with a scenario of no reform (see chart). And that rate of spending was already unsustainable at a time when the baby-boomers are starting to retire in large numbers.”
“recent studies done by the Cato Institute, a libertarian think-tank, which, they claim, are early warnings of trouble to come. Cato recently examined the impact of introducing health reforms similar to Obamacare in Massachusetts a few years ago. It estimates that the law has not improved people’s health, but has led to a “substantial crowdout of private coverage” and to 60% fewer young (and presumably healthy) adults moving to the state. It claims that the “leading estimates understate the law’s cost by at least one third.” Premiums have also risen.”
“If coverage is the new law’s strong point, cost control is its weakness.”
These three quotes come from: Economist March 2010. http://www.economist.com/node/15769767
I bolded the last quote because it is extremely important. After all, the battle cry for reform is that insurance cost too much. Yet, HCR doesn’t even address these costs. Right now, $5 out of $6 of healthcare costs are paid by someone other than the patient (insurance companies, govt, employers). (WSJ February 24, 2010) This completely insulates the patient from the actual cost of healthcare. If you could go to the mall shopping for new clothes and you knew you’d only pay $1 for every $6 you spend, would you be conservative with your spending. If you paid $5 or every $6, would your spending habits change?
Right now healthcare costs are rising faster than per capita GDP. This means Medicare and Medicade (M&M) will continue to consume a larger portion of GDP. Because healthcare costs are rising so fast, Washington has resorted to increasing taxes to fund M&M. Both sides of the aisle are guilty of this. Under HCR, Medicare taxes will increase from 1.45% to 2.35% for upper income filers ($200,000 individual/$250,000 couple). It doesn’t stop there. HCR will include a 3.8% tax on unearned income.
If allowed to stand, the new health-care law will tether America’s middle class to the federal government in ways that will fundamentally alter — and not for the better — the relationship between citizens and the state. The result will be worse health care, distorted politics, less medical innovation and economic vitality, and depleted wealth.” Heritage Foundation April 2010
Democrats are praising the closing of the ‘donut hole’ in Medicare, however they fail to answer two fundamental questions. First, who is going to pay for this? Right now, the President is marching too the drum beat of ‘tax the rich’. However, taxing the rich suppress a key GDP driver: investment. Thus hindering economic growth. The real source of funding will be higher payroll taxes for the youth as well as additional government debt. That was really the only question I had, however Glen Hubbard, Dean of Columbia Business School and former economic advisor to President W) brought up another great question in his book “Seeds of Destruction”: Why are we offering such benefits to every senior citizen regardless of income level? Glenn points out that Social Security (SS) and M&M were only suppose to be safety nets, not entitlements. HCR has no answers to these questions.
Also, do you remember the promise that HCR would reduce our federal deficit by $138 billion (per the CBO)?
“In reality, if you strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges: The health care reform legislation would raise, not lower, federal deficits, by $562 billion.” – NYT March 2010. Written by DOUGLAS HOLTZ-EAKIN former Director of the CBO (2003-2005)
What does Holtz-Eakin consider ‘gimmicks’? He lays them out well in his article, so I’ll summarize: The bill front-loads revenue and back-loads cost. This is something Enron did and it didn’t workout too well for them. Projected costs of $114 billion to run NCR is left out of the projections. $70 billion in premiums collected in the first 10 years do not include the cost of the entitlements that those premiums fund. He continues on so if you’d like more, the link has been provided.
I’ll finish with one more flaw in HCR reformed. This flaw is that the burden of funding HCR will be carried by our youths. The term ‘youths’ includes me, at least for a couple more years.
“Beginning in 2014, most Americans will be required to buy insurance or pay a tax penalty. That’s when premiums for young adults seeking coverage on the individual market would likely climb by 17% on average, or roughly $42 a month, according to an analysis of the plan conducted for The Associated Press” Carla Johnson, Associated Press March 2010. As printed in USAToday.
Adding entitlements does nothing but make a bad problem worse. I’ve stated my case against the HCR bill as written/passed. This is not ‘reform’ since I define reform the same manner as the dictionary: to amend or improve by change of form or removal of faults or abuses. Based on this definition, Obamacare is anything but healthcare reform.
Christian Glupker, January 21, 2011