Health Law’s Demise May Permit Better Plan: Laurence Kotlikoff

U.S. District Judge Henry Hudson’s ruling that forcing people to buy health insurance (or pay a fine) is unconstitutional may be the death knell for President Barack Obama’s plan to cover the nation’s uninsured.

Talk about literal interpretation of the Constitution. Had the health-care law used different words and levied a tax (equal to the fine) on all Americans and provided a tax credit (equal to the fine) for those with health-care coverage, nothing of substance would have changed, and the judge would have had no objection.

It’s a sad legal system that confuses linguistics for principle. But adherence to original language may trump concern for original intent, even on appeal to the Supreme Court. If it doesn’t, Republicans in the House of Representatives have a fail-safe plan to derail the law’s implementation -- block the program’s funding.

If you’re pleased by this prospect, think again. You or your loved ones may be next to join the ranks of the 50 million uninsured and learn firsthand that self-insurance doesn’t substitute for actual insurance when it comes to paying potentially astronomical health-care bills.

Don’t get me wrong. I think Obamacare is a third-best answer to our health-care woes. It adds another expensive entitlement -- federally subsidized health exchanges, with no solid cost controls -- to Uncle Sam’s continually skyrocketing Medicare and Medicaid obligations. Moreover, given the way the health-exchange subsidies and employer fines are structured the law will likely lead to the unraveling of employer-based health care, leaving the government paying the bills of the entire population.

Current System

The government’s involvement in health care, per se, is no sin. We’re already far down that path. Our private, employer- based health-care system is heavily subsidized -- to the tune of $200 billion through federal and state income tax breaks. Medicare and Medicaid cost federal and state governments another $962 billion. And the uninsured are now being covered, albeit poorly, through emergency room and other services, at another $323 billion in public expense.

Add it up, and government health-care spending is $1.5 trillion, or more than 10 percent of gross domestic product. We’re spending another $1 trillion privately, making our total bill 17 percent of GDP. Germany’s population is older, but its total health-care bill is only 11 percent of GDP. At an extra 55 percent cost, we’re delivering unequal health care and worse outcomes. On average, Germans live longer and have lower infant mortality.

‘Socialized Medicine’

Our government is heavily involved in health care -- paying 60 cents of each dollar -- for good reason. Left on their own, the private insurers will cherry pick the healthy and charge astronomical premiums for those with pre-existing conditions. This is why one in six Americans is uninsured.

Call our system “socialized medicine,” “subsidized medicine,” or something else. It doesn’t matter. Whether we are blue, red, or purple, we agree that everyone needs a basic health plan, that everyone who can pay for health insurance, should pay, and that those with bad genes or bad luck (that is, pre-existing conditions), as opposed to persistent bad habits, shouldn’t face higher insurance costs.

We want universal health insurance. What we don’t want is inefficient and unaffordable universal health insurance. Obamacare delivers both, which explains its reception.

Medical Security System

If the health-care law is killed by the courts or Congress, its opponents will celebrate a Pyrrhic victory. They’ll defeat something they don’t like, but leave us all in the lurch -- at risk of losing our lives or our shirts if we get sick while uninsured.

Defeating the new health-care law can represent a real victory only if we replace it and our entire health-care system with something that insures us all at reasonable cost.

The Medical Security System, which I proposed in my 2007 book, “The Healthcare Fix,” is what’s needed. Every American - - rich, poor, old, young, sick or healthy -- gets a voucher, each year, to buy a basic health plan from an insurance company. Vouchers are larger for those with pre-existing conditions. Insurers can turn no one down and will offer us financial incentives to stop smoking, lose weight, or otherwise improve our health.

Supplemental Policies

A panel of doctors determines what’s covered by the basic plan within a strict budget. Those who want additional coverage may buy private supplemental policies. The vouchers, in total, can’t cost more than 10 percent of GDP -- what we are now spending. We would finance this system not by raising taxes, but by using the tax dollars we are now spending at all levels of government on Medicare, Medicaid, employer-based healthcare and the uninsured. This combines public health-care finance (all who can pay do pay through their taxes) with private health-care provision. Private insurers contract with the doctors and hospitals we choose for our care.

This took two paragraphs, not 2,000 pages to describe. It’s not pie in the sky. Something similar is in place in Germany, The Netherlands, Switzerland and Israel. It’s already implemented in Medicare Part C -- the red part of the blue Medicare system. And it’s what former Clinton Budget Director Alice Rivlin and the next House Budget Committee chairman, Republican Paul Ryan, just proposed as a long-term fix for Medicare.

It’s time to look beyond the words and focus on the substance of what we have, what we need, what we can afford, and what must be done. Obamacare is also short for “Obama cares,” and because our president cares more about the nation than himself, he’s just the man to transform his defeat into our victory.

(Laurence Kotlikoff is professor of economics at Boston University, president of Economic Security Planning, Inc. and author of “Jimmy Stewart Is Dead.” The opinions expressed are his own.)

To contact the writer of this column: Laurence Kotlikoff at kotlikoff@bu.edu

To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net

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