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Obama's Plan to End Private Health Insurance

Friday, October 31, 2008

His proposal is far more radical than most people realize.

The centerpiece of Barack Obama’s healthcare plan may not seem revolutionary at first. Obama would seek to establish a new public health insurance program that would be offered alongside private insurance packages. This would give consumers a real choice in deciding whether the government or the private sector is better at providing medical coverage, he says.

When explained this way, the Obama plan sounds like a nonpartisan, common-sense approach to healthcare reform. But don’t be fooled: it would lead to the deterioration of the private health insurance market, with the federal government—read: taxpayers—covering an increasingly large share of the U.S. population.

ObamaCare would create a new National Health Insurance Exchange (NHIE), which would function as a 50-state clearinghouse in which people could connect with insurers. Through the NHIE, participants would be able to purchase private coverage or buy into a new federal insurance program.

On the surface, this arrangement seems fair. But Obama would also stipulate what type of coverage the private plans had to offer. In other words, the federal government would heavily regulate the cost and content of private health insurance, albeit indirectly.

Under ObamaCare, the federal government would heavily regulate the cost and content of private health insurance, albeit indirectly.

Take benefit mandates. Every state government requires that specific medical treatments and procedures be covered by every health insurance plan sold in that state. The services that insurers are required to cover range from mammograms and maternity care to chiropractic treatment and athletic trainers. Insurance rates reflect how much an insurer expects these benefits to cost. The more services a policy covers, the greater the expected payout and the higher the premium. Benefit mandates thus drive up the price of health insurance—by 20 percent to 50 percent, according to the Council for Affordable Health Insurance.

State governments also affect the price of private insurance by managing the underwriting process. “Guaranteed-issue” statutes require insurers to accept all applicants regardless of their health status, and “community-rating” requirements prohibit insurers from pricing their premiums according to expected risk. Both regulations make health insurance significantly more expensive.

If people know they can get insurance at a fixed price regardless of their health status, they have an incentive to buy the policy only after they’ve gotten sick and need medical care. It’s no coincidence that the six states with guaranteed-issue laws have the six highest average premium prices. Of those six states, the three that also have community-rating laws—Massachusetts, New York, and New Jersey—have average annual family premiums that are roughly double the national average.

Nevertheless, Obama supports nationwide guaranteed-issue and community-rating laws. He has pledged that “no American will be turned away from any insurance plan because of illness or pre-existing conditions.” He might as well pledge to double everyone’s insurance rates.

Under ObamaCare, public insurance programs and their private competitors would likely be subject to the same rules regarding benefits and underwriting. But public programs would be supported by a constant stream of tax dollars. They could undercut premiums and offer generous benefits that would bankrupt private insurers—and then cover the losses by drawing on taxpayer subsidies. In other words, the federal government would have the ability to drive up the cost of private health insurance while keeping its own insurance program artificially cheap.

If the Obama plan were implemented, Americans would naturally flock to the new public insurance program. Advocates of government-run healthcare would claim “victory” and demand an expansion of it. Slowly but surely, private insurers would be supplanted by the public program. The new costs would be borne by taxpayers.

If Obama were promoting a full-scale government takeover of the healthcare industry, supporters and opponents alike would call the plan revolutionary. Because he has framed his proposal as incremental change, most people are unaware of its implications.

Obama often says that he wants to communicate directly with his fellow Americans. If that is really the case, he should level with voters and tell them that his plan would eliminate private health insurance rather quickly.

Grace-Marie Turner is president of the Galen Institute, a nonprofit research organization focusing on free-market solutions to healthcare reform.

Credit: Darren Wamboldt/Bergman Group/Shutterstock.

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