Obama’s Health Care Reform “Paints the Roses Red”

Posted: Jun 06, 2009 12:01 AM
Obama’s Health Care Reform “Paints the Roses Red”

Painting the roses red; And many a tear we shed; Because we know; They'll cease to grow; In fact, they'll soon be dead; And yet we go ahead…

 [Alice:] Oh, pardon me; But mister three; Why must you paint them red?

Well, the fact is, miss; We planted the white roses by mistake; And...

The queen; She likes them red; If she saw white instead; She'd raise a fuss; And each of us would quickly lose his head; Since this is the thought we dread; We're painting the roses red…

Just like Alice, we are skipping our way through a Wonderland where up is down, back is front, and fact is fiction. This story will only end when, like Alice, we wake up to reality. 

The latest stop on our tour of Wonderland is the debate over health care reform.  President Obama has correctly identified that Americans spend a great deal more on health care than any other developed nation.  According to the Administration’s website, the U.S. spent over “$2.2 trillion on health care in 2007, or $7,421 per person – nearly twice the average of other developed nations”. 

But, if Americans are spending too much for health care as the Administration contends, why does the President’s health care reform set aside an additional $634 billion over 10 years, over half of which will come from tax increases?  Apparently, as the Cheshire Cat might say, the new Wonderland logic means that you lower costs by spending more.      

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The Administration’s other major premise for health care reform is the need for expanded coverage.  In order to simultaneously contain costs and expand coverage, the centerpiece of the Administration’s health care reform plan is a “public insurer program to compete with private insurers.”  A new government bureaucracy designed to compete with the private sector is not the answer.    

The government rarely competes on a level playing field with private industry – the government always tilts the field in its favor.  The federal government will be operating with guaranteed taxpayer subsidies that will pressure the industry to price at uneconomical levels in order to ensure that “all of the white roses are red.”  Private insurers will have no choice but to follow the government’s lead until they are forced to close up shop. 

Florida’s experience with storm (e.g. hurricane) insurance exemplifies the fate of health care insurance under the Obama plan.  As we all know, every so often hurricanes come ashore in Florida.  And, once in a while, the hurricane is “a big one.”  Storm insurance provides protection for residents against significant or catastrophic wind damage caused by the occasional hurricane. 

Originally, storm insurance plans were offered by both private insurers and the state government.  Under Governor Charlie Crist, the state lowered its storm insurance rates to an actuarially unsound level – under any reasonable scenario the costs from storm insurance claims from the next large storm would overwhelm the insurance premiums collected and bankrupt any insurance fund silly enough to extend these rates.  When combined with other market restrictions, the state all but assured that insurance companies operating in Florida would lose money.  Wanting to avoid all but certain bankruptcy, insurance companies have been fleeing Florida leaving the state government as the primary storm insurer.  The state of Florida is now insuring millions of people and faces financial devastation once the next big hurricane comes ashore.

The end result from the Obama plan on the health insurance market will be the same as it was in Florida’s storm insurance market.  The Federal insurance program will drive out the private sector and become the primary health insurer in the United States.  The U.S. health system will effectively become a single-payer government run health care system. 

The experience of countries with single payer systems is not encouraging.  Health care costs are contained under single payer systems only by compromising the quality of health care services, denying patients the services they need or want, and forcing patients to endure possibly life threatening lines and delays.

The issue of pharmaceutical drug costs illustrates another inherent problem with the Obama health reform.  The drug development process is risky and costly.  According to the pharmaceutical trade association (PhRMA), it takes 12 to 15 years and over $800 million to discover and develop a new medicine.  The U.S. is the only major developed country that does not impose price controls on branded pharmaceutical drugs.  Because the other developed economies are shirking their responsibilities, Americans pay more for branded pharmaceutical drugs than any other major developed country. 

While a large source of the problem is beyond our control (the price controls in the other nations should be repealed), the Obama plan only adds additional distortions and price controls into the pharmaceutical market.  Price control policies threaten the future viability of branded drug development without which the quality of health care in the U.S. will decline.  Ironically, discouraging new drug therapies could have an adverse impact on overall health care costs as more expensive surgical procedures will comprise a larger than necessary share of medical therapies.

Serious problems with the U.S. health care system exist, and must be addressed.  But, reforms based on “Alice in Wonderland” principles will not work.  If the choice is between bearing the costs of the status quo or bearing the costs of the Obama health care reforms, then we are better off with the former.  At least then we will then still have the capability of solving the fundamental problems with the health care system tomorrow.