Review of the Obama Speech

2. The $900 billion figure is phony, in that it is an (under)estimate for the first decade in which the various tax increases are implemented before the increased federal spending takes effect. On a ten-year basis — even if we accept all of the other assumptions implicit in the $900 billion figure — spending is much greater.

3. There will be an increase of tens of millions of people with coverage. There will be no annual or lifetime limits on insurance benefits for anyone. Preventive care will be “free.” There will be no rationing, and no one — no one — will come between patients and doctors. The president also says pre-existing conditions will not matter, so that price controls will be imposed on insurance contracts (no other outcome is possible), and all of this largesse will be financed largely by eliminating waste in Medicare and Medicaid. No doubt about it: That is “change.” Can anyone actually believe it?

4. “. . . buying insurance on your own costs you three times as much as the coverage you get from your employer.” Can President Obama actually believe that employer costs for health coverage do not affect wages? Actually, I think that he really does believe that, in that his ignorance with respect to how markets work seems to be both absolute and invincible.

5. Speaking of price controls, President Obama complains about denial of coverage due to pre-existing conditions, apparently without realizing that this is the perverse outcome of price controls, imposed largely by state governments. With appropriate underwriting (pricing), pre-existing conditions would not prevent coverage, and in the absence of the federal tax subsidy for employer-provided insurance, John Cochrane has shown that markets would develop insurance products against the risk of changes in health status. And so what is President Obama’s answer? More price controls!

6. Notwithstanding President Obama’s assertions about U.S. health-care spending and the lack of greater health to show for it, he simply is wrong: It is far better to get sick here than elsewhere precisely because U.S. health care, as actually delivered, is so much more advanced. Life expectancies are the wrong metric; it is survival rates after diagnosis that matter.

7. American businesses purportedly are “at a huge [competitive] disadvantage” because of health-care costs. Really? Are British, Canadian, and French firms mopping the floor with American competitors? Or, do they have their own problems due to the onerous taxation needed to pay for “free” health care?

8. “. . . nothing in our plan requires you to change what you have.” That is true and wholly irrelevant: Incentives yielded by the plan will drive the market to opt for the government option (whatever form it takes). And because the federal government has interest groups rather than patients, budget pressures over time will force bureaucratic constraints onto medical decisions. No other outcome is possible.

9. Preventive care, whatever its virtues, does not save money: It costs a lot to prevent, say, a statistical future cancer by screening thousands of patients.

10. “Insurance companies will have an incentive to participate in [the insurance] exchange because it lets them compete for millions of new customers.” Sigh. So they will be subjected to price controls, to a number of new bureaucracies, to a myriad of new regulations, and to an obvious adverse selection problem — participants in the exchange will be disproportionately sick, almost by definition. However, Obama says, they still will be eager to take on these “millions of new customers.” Lose a little on each sale, but make it up in volume: no longer an old joke.

11. Mr. Obama believes that it is “irresponsible” for the young and healthy to go without coverage merely because they find it not worth the cost, because doing so “costs all the rest of us money.” Actually, it doesn’t: Uncompensated care is a surprisingly small part of national health-care spending (around 3 percent); and those without coverage do not benefit from the tax preferences for (employer-provided) insurance, and so pay higher income and payroll taxes, ceteris paribus. John Graham has a good paper on this.

12. Why is a failure to buy coverage, presumably because it is not worth the cost, is classified as “gam[ing] the system,” while eager acceptance of the tax subsidies for coverage not an example of “gaming the system”? The gold-plated health coverage negotiated by the various labor unions, taking advantage of the tax subsidy, is not an obvious gaming of the system? The failure of employers with mostly low-skill, low-wage workers to offer insurance coverage instead of higher wages? Is that “gaming the system?” Etc.

13. With respect to “killing off senior citizens”: No, Gandma won’t be unhooked from the machine. Instead, she won’t be allowed onto the machine in the first place, if it is expensive. Can President Obama actually deny this, given that resources are limited always and everywhere? And who will decide how to allocate such limited resources? Well, let’s be honest: Sarah Palin is absolutely right about death panels, however emotive that phrase might be. As for illegal aliens: Has President Obama proposed some sort of verification process for those seeking non-emergency care? In a word: No.

14. Mr. Obama “just want[s] to hold [insurance companies] accountable.” That is the argument for a public option in the insurance exchange, but “no one would be forced to choose it, and it would not impact those of you who already have insurance.” Really? Would employers be prevented from paying a fee (clearly to be included in the legislation), and then dumping their employees into such an option? Nope — because the government erroneously claims lower administrative costs than those for private insurers, the fee necessarily would be lower than the cost of private coverage. And the proposed requirement that employers offer coverage without the option of paying a fee is a nonstarter politically, because the basic goal of the left is a single-payer system. It is obvious that employers will be given the option of paying a modest fee and sending their employees to the public option. And by the way: Who holds the government “accountable”? If you find yourself dissatisfied with the public option into which your employer has directed you, with the decisions of the life-or-death panels, with the drug formulary adopted by the “best practices” bureaucracy, etc., writing a letter to your congressman is unlikely to yield positive results.

15. “. . . the public insurance option would have to be self-sufficient and rely on the premiums it collects.” It will avoid such overhead as “profits [and] excessive administrative costs and executive salaries.” Sorry; that cannot work. Profits are the cost of attracting capital inputs (just as salaries and wages are the cost of attracting labor inputs). Without profits, the public option will have to have its capital costs subsidized. As noted above, Medicare’s administrative costs, computed properly, are at least double those of private insurers. And do we really believe that government bureaucrats, paid less than private executives, will manage large insurance organizations as efficiently as the latter? Is there no self-selection process in the market for executive talent? By the way, Mr. Obama’s use of the example of public universities is laughable: They are subsidized heavily.

16. The promised “spending cuts if the savings we promised don’t materialize” looks like a circumvention designed to force CBO to score the forthcoming legislation as deficit-neutral. People with whom I have spoken to this morning believe that this will not fly: CBO will not attribute “savings” to an amorphous system of spending cuts unless there is an explicit sequestration or other procedure that does not require a Congressional vote. And how does President Obama propose to deal with the possiblity that a future Congress might simply do away with the constraint on future increases in deficits. Would he (or future presidents) veto those future health-care budgets? The question answers itself.

17. Obama argues that the subsidies for Medicare Advantage (which provides expanded services) do “nothing to improve [the] care” received by Medicare beneficiaries. Really? How does he know that? On the order of 20-25 percent of Medicare beneficiaries are enrolled in Medicare Advantage. Do they actually receive nothing in exchange for the extra spending? That was not the case for my late stepmother, and I cannot see how her case was anything other than typical.

18. “The (independent) commission can help encourage the adoption of these common-sense best practices by doctors and medical professionals throughout the system.” So: Precisely what form will this “encouragement” take? And how will this effort to “encourage… common-sense best practices” be made consistent with the promise that “nothing” in the proposal will force anyone to change their relationship with their doctor? Short answer: It cannot, because the doctor-patient relationship is bottom-up, while the very concept of “best practices” is one-size-fits-all top-down.

19. It truly is amazing that President Obama can claim that most of the costs for this plan will be financed by reducing waste in Medicare and Medicaid. How will this expansion in government involvement in health care avoid the very same waste? This problem is utterly obvious, unless by reducing “waste” Obama means reductions in the reimbursements paid to doctors and hospitals, that is, further price controls. That is what he must mean in substantial part, and so the relationship between the providers and patients cannot remain unaffected even in principle, and these changes cannot be salutary in terms of the availability and quality of care.

20. Will the fees on insurers and drug producers not be passed on to consumers to some degree? (Is the demand for health care goods and service perfectly elastic?) In reverse order: No and emphatically yes.

21. We already have demonstration projects on lawsuit reform in California and Texas, and the results have been highly positive. As an aside, why is this a federal issue? Equally important: This has the potential to introduce enormous abuse, as the federal bureaucracy would have powerful incentives to offer lawsuit protection only to doctors following federally-approved treatment protocols.

22. President Obama’s paean to the importance of freedom in the context of limited government is laughable: What expansion of government power has he ever opposed?

These are my initial reactions. I may have more as I read the speech more closely.

Benjamin Zycher is a senior fellow at the Pacific Research Institute.

This blog post originally appeared on National Review’s Critical Condition.

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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