Senator Max Baucus (D-Mont.) will make one more attempt this week to get Republicans to join the Democrats health care reform plans. Some breathed a sigh of relief that his health care bill does not include a government-run insurance program. Those who listened to President Obama's health care address to Congress last week noted that much. But the proposed regulations will destroy private insurance, guaranteeing another debate in a couple of years to fix the disastrous shape that these regulations will leave health care in.
The most striking part of the plan is that it is partially paid for it with taxes on different health care companies. Health insurance is thus taxed at the same time Democrats are claiming they want to encourage more people getting private insurance. Democrats seem to think that taxes (or "fees" as the bill calls them) won't raise costs and thus prices for insurance. But of course it does. Yet, an anonymous source in the Senate told Politico: "If insurance companies pass this fee along to customers, they run the risk of losing out in a newly competitive environment." Unfortunately, taxes would raise prices no matter how competitive insurance markets are. Furthermore, the proposed regulations will reduce competition by driving insurance companies out of business.
Regulations would eliminate any caps on the benefits insurance companies provide. It sounds wonderful, whether your health care costs total a million or ten million dollars, insurance companies will be required to cover it. Right now people have a choice over how much coverage they want. The more they pay in premiums, the more coverage they receive. But Democrats are promising that we can get these unlimited benefits as well as tax the insurance companies and enjoy lower insurance premiums at the same time.
On CBS's "60 Minutes" this past Sunday, President Obama promised that these reforms will stop insurance premiums from going up. "And if people look and say, 'you know what? This hasn't reduced my costs. My premiums are still going up 25%, insurance companies are still jerkin' me around,' I'm the one who's going to be held responsible," Obama said. His claim that he is going to be "held responsible" seems debatable because the safe guess is that he will continue to blame the insurance companies for any future problems.
There are even worse provisions in the Obama/Baucus plan. One of them prevents insurance companies from charging more to those with pre-existing conditions before they bought insurance. If people are not required to have insurance, this rule would encourage people to wait until they were sick enough to get insurance. Since it would primarily be those who were already sick who would chose to get insurance, premiums would soar. And even if people are required to have insurance, people would initially get the lowest benefit plan. Once they are sick, they would then switch to the best insurance plan available. Pretty soon only the lowest benefit plans would be left.
The Obama/Baucus plan doesn't force people to buy insurance; it requires them to pay a tax if they don't. But the tax is so low that the end result will be the same as not requiring people to buy insurance. The tax for those who don't buy insurance ranges from $750 for the poorest single people to as high as $3,800 a year for families. Even without unlimited insurance benefits, the average insurance cost today is much higher: in 2008, it was on average $4,704 for individuals and $12,682 for families. But with no penalty for having a pre-existing condition, people will pay the tax and wait to buy insurance once they get sick. If people only buy insurance once they are already sick, insurance premiums will soar dramatically. In short order there will be much higher insurance premiums.
Of course, the bill also imposes taxes on pharmaceutical manufacturers, medical device makers and clinical laboratories. Obviously that would simultaneously raise health care costs and lower the return to developing new drugs and medical devices. Yet, we keep on hearing that Democrats want to lower health care costs, not raise them. If Democrats really think that all these other taxes also won't raise prices, we suggest that they try consulting with an economist or two.
Even without a public option, this bill will create massive problems for private health insurance. The regulations will decimate private insurance and make it easier for Democrats to then pass their government-run insurance bill.
John Lott is a FOXNews.com contributor, economist and the author of Freedomnomics. John Lott's past pieces for FOX News can be found here and here.
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