Had he stopped after five minutes, we all would have signed up.  His eloquence was in top form for at least that long in his health care speech to Congress, even if he precipitated credit to his own policy for pulling our economy from the brink.  Who needs the Fed anyway?  Ignoring that minor self-adulation, the President correctly postulated [1]: 

- We are the only advanced nation that tolerates the loss of insurance and hardship of individual medical expenditures;

- Insurance prices rise too rapidly [true, in comparison to GDP or real wages];

-  If  “… you move, lose your job or change your job, you’ll lose your health insurance too”.

- “We spend one and a half times more per person on health care than any other country”  [actually, it is closer to two times as much];

- “Our health care system is placing an unsustainable burden on taxpayers [because it raises Medicare and Medicaid costs] …”

Now, if we would give this problem to an Economics 101 class, they might conclude (if Paul Krugman is not teaching the course) that demand must be outpacing supply in both the insurance and health care markets, that both markets may be non-competitive, or that the underlying costs of insurance and health care drive prices too high. 

They might come up with a system that conduces more competition in order to balance supply and demand, increases production and encourages greater choice to put downward pressure on prices, and minimizes all direct and indirect government contribution to structural costs issuing from regulation or institutionalized waste and fraud. 

Instead, the President proposed:

- No change in employer-provided health insurance; in other words, for 85% of Americans who have insurance and for their employers, the President’s plan offers no relief.  The practice of welfare for corporations in the form of the medical insurance tax deduction will prevail and continue to spread cost escalations throughout our economy.  Employers will still be permitted to pick their employee’s health insurance carrier instead of us allowing consumers to choose in an open market.  Carriers may continue to nominate “in-network” providers, thus maintaining a lid on supply.  There will be no competitive pressure to lower price or to reduce the component costs of health care.  And we certainly will not upset the munificent benefits unions negotiated—you know, the kind that forced GM to become part of the country’s investment portfolio.

 -  For remaining the 15% who have no insurance [2] or for the entrepreneur starting a business, the President offers a “marketplace” of insurance products, although, curiously, not for another four years.  This may sound like a fillip, though there is nothing novel here.  As long as the present market remains oligopolistic, that is, as long as the number of insurance carriers is limited and inter-state contracts proscribed by states, simply selling insurance on the Internet cannot introduce efficiencies.  If those restrictions were lifted, private enterprise would create the necessary exchanges just as it has in other industries if left free by the government, provided the marketplace is open to all insurance companies and all insurance seekers, including the 85% whose sub-efficient, high cost plans are protected under the President’s proposal.  Although Obama sang a paean to ‘competition’, Senior Advisor David Axelrod later clarified the administration will do nothing to open the 50 state-regulated insurance markets.

- What is most odious about this plan, particularly the version in Senator Max Baucus’ Finance committee, who according to some should not be leading this effort because of his ties to insurers and pharmaceutical companies [3], is the maze of penalties and subsidies designed to direct consumer and small business behavior [4].  Behavior modification through economic policy comes with a heavy price: the invidious loss of freedom.  Obama and Baucus intend to oblige small companies and the “irresponsible” self-insuring young to purchase insurance … which insurance can only be government approved … which purchase will be subsidized with tax credits … which subsidies will be financed with surcharges on insurance companies and penalties on non-participating companies (take that you entrepreneurs)  …  which surcharges and penalties are to be defined by Congress … which … 

Only the left thinks in such convulsions. 

While Obama and the Democrats identified the problem correctly, and should be credited with focusing national attention on it, they are building their solution on the vaporous fantasy that government can direct human action with tax policy, penalty, and fiat.   

Their plan increases demand on insurance and health care by forcing 30 million new consumers into the system, but does nothing to increase supply.  It addresses less than one-fifth of the population, and ignores the structural costs driven throughout the system by the existing coverage of the other four-fifths.  It turns a blind eye to the absence of competitive forces that could otherwise fundamentally improve efficiency and lower costs in both markets.  And it expands government at the expense of our freedoms.   

Most of the objectives of health care reform and every one of the President’s axioms can be addressed with a single free market solution.  Unless, as Milton Freidman observed, “Underlying most arguments against the free market is a lack of belief in freedom itself.”  

Twitter.com/FreeCapitalism

AmericanCivility.us

_______________

1- http://www.cnn.com/2009/POLITICS/09/09/obama.health.care.transcript/index.html

2- US Census Bureau: http://www.census.gov/Press-Release/www/releases/archives/income_wealth/014227.html

3- NPR: “Who Has Access To Max Baucus?”, http://www.npr.org/templates/story/story.php?storyId=106655060

4- “The Perils of BaucusCare” http://online.wsj.com/article/SB10001424052970203440104574400800880297272.html