Better Than a Poke In The Eye

The recently released “Baucus” senate health care reform plan has the virtue of providing health insurance coverage for a good proportion of the currently uninsured. Everybody will be required to have health insurance, just as we must now have car insurance, but the cost of insurance will be subsidized for the poor and the lower middle class. Those costs will be recovered through “fees” (basically new taxes) on health insurers, pharmaceutical makers, health labs and medical device makers.

Providing health insurance for the poor is a good thing. It could even nominally reduce costs by reducing use of emergency rooms, (which we all pay for in increased costs), the method by which the poor get health care now. It also introduces some slight regulation of the insurance industry, eliminating the more egregious practices, such as denying coverage for pre-existing conditions, and by setting some minimum coverage standards. Regulation like that is badly needed.

However, the plan does not propose to reduce overall health care spending. The high, “unsustainable” cost of health care has been Obama’s main argument for why reform is needed. This plan does not address that argument. There will be non-profit consumer cooperatives established for the purpose of providing health care insurance. These are supposed to provide much-needed price competition, but it is hard to see how they would, unless, over time, they became extremely large and essentially became the “public option” not included in this plan. A small insurance co-op just wouldn’t have enough actuarial muscle to spread the risk.

State-based exchanges, or central markets, would be set up where individuals could easily compare prices and coverage from health insurers. That will help with price transparency, but is not much different than spending a few hours on the internet. You still can only buy insurance from companies licensed in your state, which is a limited choice. And if the pricing information is provided by the industry, it will be about as transparent as mud. Have you ever tried to compare pricing for TV cable services, or wireless services online? There are so many vaguely defined variables, misdirections and subtle subterfuges that a straightforward comparison is impossible. I am not sanguine about the helpfulness of that idea.

We should assume that the taxes levied on the health care industry to pay for the Baucus plan will be passed along to consumers. The companies are not going to just take the hit. They will raise the cost of coverage, probably across the board but mostly on the high end. This will have the effect of employers choosing to offer lower grade coverage or higher prices, and the same for individuals buying their own coverage. There are simply no price controls in this plan. By assigning the new costs disproportionately to higher end consumers, the plan effects a wealth transfer, the rich subsidizing the newly insured poor. That’s not a bad thing in principle, but it does nothing to reduce overall costs, which was the problem to be solved.

So this plan is batting .500. It does address one of the two outstanding problems, health insurance coverage for the 50 million uninsured in this country. But it whiffs the second problem, lowering the overall cost of health care. One out of two is better than none out of two, but it is not the sweeping FDR-like vision many had hoped for. Perhaps it is not the final word.