Democratic Presidential frontrunner Sen. Hillary Clinton (D-N.Y.) outlined her health care plan on Monday. "I believe that everyone—every man, woman and child—should have quality, affordable health care in America," Sen. Clinton declared in a speech in Iowa. The senator is responding to polls that show that health care is the number one domestic issue in the 2008 presidential race. In addition, the Census Bureau released new figures that found 47 million people in the United States do not have health insurance. And premiums have risen 78 percent in the last six years, to an annual cost of $12,106 per family.
At the center of Sen. Clinton's plan is a requirement that every American get and keep a health insurance policy. The good news is that such an individual mandate could be the cornerstone for a thorough-going reform of health care into a private consumer-driven system. The bad news is this is not the direction that Sen. Clinton's plan takes. The senator is right when she declares, "Part of our health care system is the best in the world, and we should build on it; part of the system is broken, and we should fix it." Sadly, she's misdiagnosed what part is broken and what part is best.
The chief broken part of health insurance in the United States is the faltering system of employer-based health insurance. Since 2000, firms offering their employees health insurance have dropped from 69 percent to 60 percent. Clinton's plan maintains the employer-based insurance system by mandating that large employers continue to buy health insurance for their workers.
As Harvard business school professor Regina Herzlinger notes, such a mandate is indistinguishable from a payroll tax. Currently, the big companies that don't offer health insurance to their employees tend to be retailers and banks. Herzlinger points out that if they are required to pay an additional $5,000 for health insurance for a clerk earning $22,000, the companies will immediately start substituting capital for labor. In other words, economically vulnerable clerks would be fired and replaced by automated systems or by offshore workers. Instead of just lacking health insurance they would now be out of a job.
Sen. Clinton's plan would also allow Americans to purchase their health insurance through the Federal Employee Health Benefit Program (FEHBP) or through another government program modeled on Medicare. "Under Clinton's plan if you're uninsured you're going to go to one store, the Federal Employee Health Benefit Program," says Herzlinger. The problem, as Herzlinger sees it, is that this one store offers products designed by federal bureaucrats. She likens FEHBP insurance policies to going to buy a car and finding that only two-door subcompacts by various manufacturers are available. The cars offer different colors and hubcaps, but they are all two-door subcompacts. In other words, there is little consumer choice. The situation is even worse for the Medicare option.
Stretching the car analogy a bit further, Sen. Clinton compares her health care plan to the mandate that all drivers carry car insurance. But it's a bad comparison. Employers don't buy their workers' car insurance or home insurance. Why should they buy their employees health insurance? When someone leaves his or her job, they don't have to change or lose their car insurance. It's portable. A modern health insurance system would really make insurance the personal responsibility of each American.
Another worrying feature of Sen. Clinton's health insurance plan is that she would mandate "fair prices" for pharmaceuticals. This implies the imposition of limits on drug company profits. It is true that the drug companies have given themselves a black eye by abusing the patent system in some cases to prevent competition and keep prices temporarily high. That should be stopped. However, imposing price controls on drugs would dramatically slow the development of new and more effective drugs which is certainly not in the best interests of patients.
In addition, the outline of Sen. Clinton's plan is decorated with a number of vague promises such as reducing costs by stressing prevention and a focus on efficiency and modernization, asking providers to work collaboratively with patients and businesses to deliver high-quality, affordable care, and reducing wasteful health spending. Who could be against any of those good things? Clinton says that the $110 billion needed to pay for her plan would come from raising taxes on people with incomes over $250,000 and from $56 billion in costs savings. "Claiming that she can save $56 billion through the marvelous efficiency of the U.S. government is just absurd," retorts Herzlinger.
How would Clinton make sure that everybody complies with the new mandate? A Clinton campaign spokesperson, Laurie Rubiner suggested that one penalty could be the loss of the standard deduction on their income tax filings. This would mean that the IRS would have to monitor compliance.
Individual mandates could be the cornerstone of a complete privatization of health insurance, giving consumers more choices and much greater control over their health care needs. The first step is allowing employers to pay workers the money the companies have been spending on health insurance. Workers could then buy health insurance fitted to their own specific needs, not the bottom lines of they firms for which they work.
For Americans who can't afford health insurance, why not offer them vouchers so that they can buy their own private health insurance? Such income-based vouchers would be self-enforcing since recipients could spend them only on health insurance and health care. The vouchers could be paid for by reprogramming funds now spent on government programs like Medicaid and the State Children's Health Insurance Programs.
In such a thoroughly privatized system, Herzlinger argues, consumers who would now experience directly the actual costs of their medical insurance and medical care will begin to drive down those costs, just as they do in other markets. Right now health insurance is made more expensive by some 1800 state and federal mandates. "It's like I'm shopping for a car and my state mandates that all cars have heated seats," says Herzlinger. Car buyers would not long stand for a heated car seat mandate that raises the price of a car by $1,000, and similarly individual health insurance shoppers would object to unnecessarily expensive insurance mandates.
Ultimately, Sen. Clinton's plan would greatly expand government control over the health insurance market. She mandates that employers buy insurance; offers a menu of cookie-cutter health insurance policies designed by federal bureaucrats; and expands government insurance schemes like Medicare. Her plan is the wrong prescription for America's health care woes because it would result in poorer quality health care, lost jobs, less consumer choice, and higher taxes.
Ronald Bailey is Reason's science correspondent. His most recent book, Liberation Biology: The Scientific and Moral Case for the Biotech Revolution, is available from Prometheus Books.