Impossible Promises

Obama says his health care plan will cut costs and increase patient choice. It won't.

I keep reading about health-care "reform," but I have yet to see anyone explain how the government can make it easier for more people to obtain medical services, control the already exploding cost of those services, and not interfere with people's most intimate decisions.

You don't need to be a Ph.D. in economics to understand that government cannot do all three things. (Judging by what Paul Krugman writes, a Ph.D. may be an obstacle.)

The New York Times describes a key part of the House bill: "Lawmakers of both parties agree on the need to rein in private insurance companies by banning underwriting practices that have prevented millions of Americans from obtaining affordable insurance. Insurers would, for example, have to accept all applicants and could not charge higher premiums because of a person's medical history or current illness."

No more evil "cherry-picking." No more "discrimination against the sick. But that's not insurance. Insurance is the pooling of resources to cover the cost of a possible but by no means certain misfortune befalling a given individual. Government-subsidized coverage for people already sick is welfare. We can debate whether this is good, but let's discuss it honestly. Calling welfare "insurance" muddies thinking.

Such "reform" must increase the demand for medical services. That will lead to higher prices. Obama tells us that reform will lower costs. But how do you control costs while boosting demand?

The reformers make vague promises about covering the increased demand by cutting other costs. We should know by now that such promises aren't worth a wooden nickel. The savings never materialize.

Some of the savings are supposed to come from Medicare. The Times reports "Lawmakers also agree on proposals to squeeze hundreds of billions of dollars out of Medicare by reducing the growth of payments to hospitals and many other health care providers."

With the collapse of the socialist countries, we ought to understand that bureaucrats cannot competently set prices. When they pay too little, costs are covertly shifted to others, or services dry up. When they pay too much, scarce resources are diverted from other important uses and people must go without needed goods. Only markets can assure that people have reasonable access to resources according to each individual's priorities.

Assume Medicare reimbursements are cut. When retirees begin to feel the effects, AARP will scream bloody murder. The elderly vote in large numbers, and their powerful lobbyists will be listened to.

The government will then give up that strategy and turn to what the Reagan administration called "revenue enhancement": higher taxes on the "rich." When that fails, because there aren't enough rich to soak, the politicians will soak the middle class. When that fails, they will turn to more borrowing. The Fed will print more money, and we'll have more inflation. Everyone will be poorer.

The Times story adds: "They are committed to rewarding high-quality care, by paying for the value, rather than the volume, of [Medicare] services."

Value to whom? When someone buys a service in the market, that indicates he values it more than what he gives up for it. But when the taxpayers subsidize the buyer, the link between benefit and cost is broken. Market discipline disappears.

Listening to the health-care debate, I hear Republicans and Democrats saying it's wrong to deny anyone anything. That head-in-the-sand attitude is why Medicare has a $36-trillion unfunded liability. It's not sustainable—and they know it.

They've given us a system that now can be saved only if bureaucrats limit coverage by second-guessing retirees' decisions. Government will decide which Medicare services have value and which do not. Retirees may have a different opinion.

One may be willing to give up the last year of life if he's in pain and has little hope for recovery. Another may want to fight to the end. But when taxpayers pay, the state will make one choice for all retirees.

Now, to reduce the financial burden of the medical system, Obama proposes a plan that inevitably will extend the second-guessing to the rest of us. So much for his promise not to interfere with our medical decisions.

John Stossel is co-anchor of ABC News' 20/20 and the author of Myth, Lies, and Downright Stupidity. He has a new blog at http://blogs.abcnews.com/johnstossel.

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