Healthcare Reform

I can’t resist offering a few thoughts about the healthcare reform discussions in Washington. As I write this, the House bill has passed and the Senate leadership is meeting behind closed doors. I’ll focus these comments on several aspects of the House bill.

First, I’m not sure what problem the Congress is currently trying to solve. Some possible candidates are:

1. Accelerating healthcare costs
2. Uninsured individuals
3. High unemployment
4. Federal deficits increased by existing programs (Medicare, et.al.)

As I read the House bill, it is projected to make only a dent in the uninsured problem, and do so at a very high cost. Furhter, those are the projections, and the Congress is famous for overly optimistic projections. More importantly, the House bill seems certain to increase untemployment by imposing higher payroll taxes or additional costs through mandated benefits. Employers are not going to be encouraged to hire more people.

I’ve heard one Congressman state that the House bill will give everybode access to a plan similar to that available to federal employees. Federal employees represent perhaps the largest and most stable group in the world. We have learned many times that one can’t combine many small and unstable groups and get the same experience as a large and stable group. I guess the federal government is now going to learn this lesson again based on its own mistakes.

In order to control risk in a medical insurance program, one must achieve a mix of at least 80% “healthy” people and at most 20% “sick” people. The sick people are quite happy to buy medical coverage, but the healthy people resist. The House bill encourages the healthy people to by coverage by putting them in jail for five years if they don’t! Why didn’t we think about that in the health insurancce business?

The politics of healthcare are truly challenging. However, we can solve most of the problems listed above by establishing a base plan for everyone that is financed through a payroll tax or (my preference) a federal sales tax. This base plan might be a leaner version of the Medicare benefits. In fact, Medicare Advantage would be a great platform to start from. That would allow employers and individuals the opportunity to “upgrage” their benefits through private plans. Such a plan was designed my Milton Friedman for Chile, and has been copied throughout Latin America. However, someone would need to define the basic plan, and then we would need a tax on the “middle class” to pay for it. Thus, this idea is not likely to go very far.

We’ll see what happens!

Jeff Miller.

NONE, NADA, ZIP, ZILCH

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