Saturday, May 23, 2009

Crowding out

As part of outsourced economic criticism, an essay by Seattle surgeon Roger Stark from last week’s Seattle Times:

During the last presidential campaign, at least six national health-care-reform proposals were discussed and debated. Consensus on the part of the Obama administration and congressional leadership has now formed around a single, government-sponsored alternative to the private health-insurance market
At face value, the proposed government plan would function like Medicare and "compete" with private, non-Medicare insurance. It would offer employers and individuals an alternative to obtaining health insurance in the private market.

That seems all well and good. But in reality the government would set its tax-subsidized pricing well below private plans and "crowd out" the private insurance carriers. The government would also mandate that the private carriers provide a comparable benefit package, hence eliminating any chance for competition with different product lines.

So what are the actual numbers? The Lewin Group estimates that at Medicare rates, the new government plan would cover 130 million people. Out of that group, 118 million will be forced to join after opting out or losing their private coverage. To put this in perspective, there are currently 170 million people in the United States with private health insurance.

To believe that the government would "compete" with private carriers is naive. The government would cut rates well below the private market and make its plan look much more attractive until it controlled all health insurance. After all, it is impossible to compete against an entity that can draw on the full tax resources of the United States.

This is exactly what happened with Medicare. In 1964, senior citizens had access to a wide selection of private health-insurance policies. Medicare was passed in 1965, and by 1970, no private market existed, except for co-pays and deductibles, for the elderly in the United States.
In other words, 90% of the the subscribers to FederalCare will be shifted from existing health insurance and 10% will be those not already insured.

Historically, government intervention in the American economy has been designed to be minimally intrusive to fix market failure. Destroying 70% of the private insurance market is clearly an attempt to increase government control over health care, rather than to serve the unserved.

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