High-ranking Democrats recently signaled that they might exploit a procedural maneuver in congressional protocol to pass major healthcare legislation without a single Republican vote.
Through “budget reconciliation,” a fast-track process that allows the Senate to pass the government’s budget without debate and with just a simple majority, Democratic leaders hope to create a government-run alternative to private health insurance.
This move would be the death knell for private insurance in this country and would eventually leave the nation with a single-payer, government-run healthcare system. This is a terrifying proposition.
On the surface, the substance of the Democrats’ plan seems reasonable. The new public insurance program would be modeled on the generous — and expensive — plan currently enjoyed by federal employees. Americans could sign up for this public option through a new National Health Insurance Exchange.
The Exchange would serve as a government-run clearinghouse that connects private and public insurance providers with individual customers who may not have easy access to health insurance, like those who work at small businesses or the self-employed.
Proponents claim this arrangement would settle the longstanding debate about whether private or public insurance gives the best value to patients. Participating insurers would have to compete for business. Customers would naturally gravitate toward plans that provide the most benefits for the lowest cost. Through the Exchange, supporters say, public and private plans could duke it out against one another and thus let “market competition” decide the winner.
But private plans would face significant disadvantages from the start. Legislators will impose a host of burdensome regulations on policies sold through the Exchange. This will drive up costs for companies that participate.
For example, Democrats have indicated that insurers will have to comply with “community rating” and “guaranteed issue” regulations in order to sell their policies through the Exchange.
Community rating prohibits insurers from setting premiums according to an applicant’s health status; instead, insurers must charge the same price to all members of a particular demographic group.
Guaranteed issue, meanwhile, forces insurers to accept all applicants, regardless of family history or pre-existing conditions. It’s easy to see how regulations like these drive up the price of insurance.
If there were a “guaranteed issue” law for fire insurance, no one would buy coverage unless his or her home was actually on fire. With health insurance, negative selection would be just as bad. Most patients would simply avoid purchasing insurance until they got sick. After all, if you can’t be turned down when you are sick, why should you bother wasting money on insurance when you don’t need it?
Sick patients cost more, of course. Insurance premiums would gradually become more and more expensive, because the only people in the insurance pool would be ill.
Community rating would have a similar impact, because insurers would be forced to charge the same prices to the sick and the healthy, to smokers and non-smokers, and to the obese and those who are fit.
Such measures guarantee that all customers will end up paying higher prices. The average state-level community rating ordinance increases insurance premiums by over 10 percent. The average guaranteed- issue ordinance drives up premiums a whopping 227 percent.
Exchange officials will also impose a battery of benefit mandates, which would require insurance plans to cover certain procedures that are hardly critical components of a good health insurance policy — like acupuncture, chiropractic services, or hair prostheses.
Such mandates will drive up insurance prices.
For evidence, consider the impact that benefit mandates have had at the state level. As of 2007, the average state had 38 benefit mandates. These mandates increase the premium of a basic insurance package anywhere from 20 to 50 percent, according to the Council for Affordable Health Insurance.
All this government meddling will force private insurers to raise prices to levels that will simply not be competitive with the public plan.
After all, the government-run public plan won’t have to resort to unpleasant options like hiking prices to cover its costs. It will be able to tap the public purse to keep prices artificially low. Unlike the federal government, private insurers don’t have the luxury of operating at a loss for long.
Understandably, customers will flock to the lower-priced government alternative. Private insurers will slowly exit the marketplace as they find themselves “crowded out,” or unable to compete with a government plan that has tilted the rules in its favor. Before long, the government “public option” would be the only game in town.
This “crowd out” process will only be hastened if Obama and congressional Democrats proceed with plans to mandate that employers provide their employees with health insurance. Employers who refused to comply would be assessed a payroll tax to offset the cost of signing their employees up for the new public plan.
With health insurance already quite expensive, employers will jump at the chance to offload insurance expenses onto the government. The Lewin Group estimates that 130 million employees will be shifted to a public plan if Congress implements an employer mandate.
Americans have by and large indicated that they’re not interested in moving toward a Canadian-style, government-run, single-payer healthcare system, replete with waiting lists and rationed care. But under the Obama plan, such a system is exactly what they may get.
That’s probably why Democratic leaders are contemplating the “reconciliation” framework as a means of enacting their reforms. The Democratic plan is more radical than the brand of health reform with which most Americans would be comfortable. It’s far easier to avoid pesky matters like debate and the typical give-and-take of the legislative process.
Among the first lessons medical students learn is “First, do no harm.” If congressional Democrats ram their healthcare reform plan through Congress without allowing for the debate it deserves, the American public will be quite harmed indeed.
Sally C. Pipes is president and CEO of the Pacific Research Institute. Her latest book is “The Top Ten Myths of American Health Care: A Citizen’s Guide.”