Sen. Obama’s Health Care Proposal Favors Government, Cuts Choice

Published September 1, 2008

In late July, presumptive Democratic presidential nominee Sen. Barack Obama (D-IL) announced a plan he hopes will help businesses be able to afford health insurance for their employees.

Unfortunately, his plan would perpetuate today’s problems and add new bureaucracy in the process.

Under Obama’s plan, small businesses would get refundable tax credits to offset 50 percent of the amount they pay for health insurance for their workers. The federal government would take over a share of the catastrophic costs of high-cost employees.

Discriminatory Subsidies

What’s wrong with that? Several things.

Obama’s plan would build on today’s regressive, discriminatory subsidies for employment-based health insurance, which have been driving up costs for decades.

Health insurance is part of the compensation package for workers, and Section 106 of the Internal Revenue Code says whatever compensation employees receive in the form of health insurance is exempt from all taxes. It’s a big deal. The tax break is worth much more to Americans–at least $200 billion a year–than the mortgage interest deduction, but most don’t even know they get it.

By creating a new tax credit for small businesses instead of for workers themselves, Obama would perpetuate the fiction that employers pay for health insurance, which robs workers of control over that part of their salary, ties health insurance to the workplace, and drives up health costs because a proper competitive market is not engaged.

Price Controls, Paperwork Nightmare

Another problem is that having the federal government take over health expenses for high-cost workers is a back door to price controls and would create a paperwork nightmare for employers.

Sen. John Kerry (D-MA) proposed a similar plan when he ran for president in 2004. Under Obama’s plan, government would have to set out a schedule for payments for all medical expenses to make sure all companies reached the threshold at the same pace. You couldn’t have one company paying $600 for an MRI and another paying $1,000, because the second company would reach the trigger point for government payment sooner. And every company would have to document that every penny it spent was legitimate.

Hello, government auditors!

And what about the patients? Instead of being covered by their private health plan, they would more likely be thrown into a program with government determination of allowed benefits and services, with all the ancillary restrictions and distorting price controls.

Heavy Regulations

Obama also would heavily regulate health insurance companies and how they do business, to the point that they would become little more than functionaries in a new federal government regulatory regime.

For example, he wants to impose guaranteed issue for health insurance and community rating of premiums nationwide–regulations that have driven up health costs in state after state experimenting with them.

Many of the provisions of Obama’s plan, in fact, seem borrowed from the SHOP Act (Small Business Health Options Program of 2008, S 2795) and from ideas offered by Sen. Hillary Clinton (D-NY) that open large new portals for a much bigger role for government in our health sector.

Encroaching Bureaucracy

More government or a properly functioning market in the health sector–that really is what the national debate over health reform is all about.

The results of this fall’s election will be decisive in determining the direction of that debate. Obama sees a much bigger role for government in trying to solve the problems in the health sector, while Sen. John McCain (R-AZ) believes in unleashing incentives to create more competition in the private health sector, thus giving people more choices of more affordable care and coverage.

The next president will be determined to do something on health care, and thus his ideas on the subject will have a big impact on the direction Congress takes in shaping legislation. The stakes are enormous for the future of the one-sixth of our economy the health sector constitutes.

Many of the problems with the U.S. health care sector are rooted in the encroachment of regulation and bureaucracy stifling its ability to call on the genius of our economy to respond to demands for lower costs and higher quality.

Tax Credits

Instead of tax credits for small businesses, credits could be offered directly to individuals to help them purchase health insurance, as McCain proposes. People eligible for the credits could purchase the coverage of their choice, either through their places of work, on their own, or through new groups that would emerge in a market where health insurance and subsidies are more portable. This reform would make the insurance market more competitive and policies more affordable.

Those who don’t purchase health insurance could have their tax credit assigned to one of several private insurers offering coverage in their state or region. Thus they could be covered even if they don’t take specific action to choose and purchase a policy.

Making insurance more affordable and accessible would dramatically increase the number of Americans with coverage. Making the subsidies assignable to an insurer even if people don’t take action to buy coverage would further boost coverage. And other reforms could ensure people currently shut out of the market can get coverage.

These actions together would likely get us as close to universal coverage as any of the other, more onerous proposals being offered–especially imposition of an individual or employer mandate.

Grace-Marie Turner ([email protected]) is president of the Galen Institute.