Feel the Momentum

National Review, April 8, 2009

At yesterday’s White House–sponsored Regional Health Forum in Los Angeles, everyone from California governor Arnold Schwarzenegger to celebrity doctor Mehmet Oz called for immediate action on health-care reform. President Obama’s Domestic Policy Council director, Melody Barnes, said that she could “feel the momentum” for health reform this year.

That “momentum” appears to be leading the administration to a brand of “reform” that keeps the health-care system as it was before, but with more money. The president has already injected hundreds of millions of dollars into existing programs that have proved to be inefficient and wasteful.

Showering more money on failed government programs is no way to reform health care. Instead, real reform requires fundamentally altering the health-care marketplace by granting individual patients — not employers, insurers, or public agencies — direct control over their health-care dollars.

In February, Obama offered his first health-reform measure by drafting more kids into SCHIP, a public insurance program originally intended to cover low-income children. Together, Congress and the president increased the program’s federal financing by $33 billion.

This is an inefficient use of scarce taxpayer dollars. For starters, SCHIP “crowds out” private insurance options. Many families who already have private insurance coverage for their children switch over to public coverage once SCHIP becomes available to them.

About half of those newly insured through SCHIP — about 2.4 million kids — will be dropping private insurance policies. By expanding SCHIP, the government is raiding our pockets to provide insurance to kids who already have it.

Second, SCHIP eligibility is so expansive that the program now covers children from families making as much as $65,000 a year, roughly 350 percent of the federal poverty level. These families aren’t super-rich. But they hardly qualify as “low-income.” And now they’re getting taxpayer-financed insurance when they likely could have afforded to buy it on their own.

The president has similarly misappropriated health-care funds by lavishing $25 billion on the federal COBRA program in the recent economic-stimulus package. COBRA requires businesses to allow newly unemployed workers to stay on their old employer-sponsored health insurance policies after they’re laid off. Under the terms of the stimulus legislation, the federal government will subsidize 65 percent of the former employees’ premiums.

This move provides short-term relief to many who’ve lost their jobs during the recession. But it does not address a core problem with our health-care system — that most Americans get health insurance through their employer. This outmoded system — it began when employers, forbidden by FDR’s wage controls to compete for workers by paying more, decided to provide insurance instead — locks people into jobs and discourages the kind of entrepreneurship that makes our economy vibrant. Further, businesses pay for health insurance by reducing employee compensation. The average worker with coverage through his employer is deprived of $9,000 in wages each year.

Instead of pouring even more money into the health-care status quo, lawmakers should deeply reform the health-care market and allow individual Americans to spend their health dollars as they see fit. Allowing individual consumers to purchase insurance policies with pre-tax dollars — just as employers are able to do — would enable millions to take charge of their own health care. Such a reform would also put coverage within the reach of scores of the uninsured.

When people are responsible for buying their own insurance, they have a strong incentive to shop around for the best deal. Insurers will roll out new products that fit consumers’ needs better than the one-size-fits-all regime common at most workplaces. And insurance policies will be for the long term, so if you lose your job, you won’t be stuck with a pre-existing condition that makes you uninsurable.

Instead of bolstering the failed health-care system with more cash, the Obama administration should re-invent the system entirely by allowing American families to reclaim their health-care dollars. Unfortunately, despite the president’s promises of wholesale reform, it looks like consumers will be saddled with a bulked-up version of the inefficient and government-heavy system we have today.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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