despite Obama’s rhetoric and protestations, his plan would destroy employer-based insurance, not preserve it, by pricing it out of business and subsidizing government-run alternatives. That would put the country on a fast track to government-run health care for everyone.
It’s not hard to see how this would unfold. The Obama plan is built on four interrelated provisions. First, he would impose on all employers a new “pay or play” mandate. Businesses would be forced to either offer coverage and pay a substantial portion of the premium or else pay a tax to the federal government. Second, he would create a new national insurance exchange, through which uninsured Americans and others who don’t have employer-based insurance would get their coverage. The government would dictate what would and would not be covered by the insurance offered through the exchange. Third, he would include among its offerings a new, government-run insurance option. And fourth, he would offer expensive new subsidies to offset the premiums for millions of low- to moderate-income households that get their insurance through the exchange.
The fallout from such a plan is entirely predictable. Under “pay or play,” employers would find it increasingly attractive to drop their company-sponsored plans in favor of paying the tax. The tax, after all, would be based on wages, not health care, and wage growth has lagged far behind health-care cost inflation for more than three decades. Over time, without other reforms, paying the tax would almost certainly be less expensive for most businesses than organizing coverage themselves. And with the government making other options available, employers would finally be able to drop their insurance plans without simply abandoning their workers.
As more and more employers chose to “pay” instead of “play,” millions of workers would be pushed into the national insurance exchange, where they would, in theory, have a choice between private insurance and the new, publicly run option. Obama and other Democrats like to say this structure would foster healthy competition between the public and private sectors. But this would not be real, market-style competition. The government would run the new, public insurance option just as it runs Medicare and Medicaid, with plenty of price controls and cost shifting. Doctors and hospitals would have no choice but to accept the government-dictated fees imposed by a federal bureaucracy. These below-market fees would allow the public option to charge premiums considerably lower than those charged by private insurers. And with these artificially low premiums, the public insurance option would become the de facto plan of choice for millions of workers. A recent analysis of an Obama-like plan projected 40 million new enrollees in the public option in Year One. That would be like doubling the size of Medicare — overnight.
Once the plan had been set in motion, the momentum toward a full government takeover would be impossible to reverse. Congress would have every incentive to cut doctor and hospital fees further, to control the costs of the new insurance subsidies promised by Obama. It would not be long before private insurers, lacking this ability to control their costs by fiat, abandoned the marketplace entirely.
