The Health Care Mandate Is Bad For Your (and the Economy’s) Health

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Before we try to solve the problem of lowering healthcare costs so more Americans can buy health insurance, one needs to ask how we got here. Why are rates so high? The answer is the very existence of healthcare insurance (medicare, medicaid), which was established or subsidized or promoted by the government to help “ease” the previous burden of medical care.

If your house burns down and you have fire insurance, you receive (if you can pry the money loose from your friendly insurance company) a compensating fixed money benefit. For this privilege, you pay in advance a fixed annual premium. Only in our system of medical insurance does the government pay, not a fixed sum, but whatever the doctor or hospital chooses to charge. In economic terms, this means that the demand curve for physicians and hospitals can rise without limit. The suppliers can literally create their own demand through unlimited third-party payments to pick up the tab. If demand curves rise virtually without limit, so too do the prices of the service. In order to curtail the flow of these subsidies, the government and other third-party insurers have felt obliged to restrict somewhat the flow of goodies: by increasing deductibles, or by putting caps on Medicare payments. All this has been met by howls of anguish from medical customers who have come to think of unlimited third-party payments as some sort of divine right.

Too few people have spent the necessary time to understand the role of the much-beloved medical insurance and how it has brought about the decline in quality, as well as the astronomical rise in prices. No other industry provides a more dramatic illustration of the failure of government intervention than medical care. Our very real medical crisis has been the product of massive government intervention, state and federal, throughout the century; in particular, an artificial boosting of demand coupled with an artificial restriction of supply. The result has been accelerating high prices and deterioration of patient care.

Government intervention in the private market has failed to deliver the promised benefits and caused unintended consequences, but Congress never blames itself for the problems created by bad laws. Instead, we are told more government — in the form of “universal coverage” — is the answer. But government already is involved in roughly two-thirds of all health care spending, through Medicare, Medicaid, and other programs.

Without government interference family physicians used to make house calls, spending a great deal of time with and getting to know the patient, all while charging low fees. For decades, the U.S. healthcare system was the envy of the entire world. Not coincidentally, there was far less government involvement in medicine during this time. America had the finest doctors and hospitals, patients enjoyed high-quality, affordable medical care, and thousands of private charities provided health services for the poor. Doctors focused on treating patients, without the red tape and threat of lawsuits that plague the profession today. Most Americans paid cash for basic services, and had insurance only for major illnesses and accidents. This meant both doctors and patients had an incentive to keep costs down, as the patient was directly responsible for payment, rather than an HMO or government program.

When government and other third parties get involved, health care costs spiral. The answer is not a system of outright socialized medicine, but rather a system that encourages everyone — doctors, hospitals, patients, and drug companies — to keep costs down. The way you get lower prices is through a free market where companies compete with each other which both lowers prices and increases quality. In 1993, a 55” hd tv cost about $25,000. Today that same set with much more technology and a better picture costs about $1500. This is how the free market works.

As long as “somebody else” is paying the bill, the bill will be too high.  Costs are out of control because they do not reflect prices created by the voluntary exchange between patients and providers like every well-functioning industry. Health costs reflect the distortions that government regulators have introduced through reimbursement mechanisms created by command-and-control bureaucracies at federal and state levels. It is theoretically and practically impossible for a bureaucrat — no matter how accurate the cost data, how well-intentioned and how sophisticated his computer program — to come up with the correct and just price. The (doctor-patient) relationship has been corrupted by the intrusion of government and its intermediaries (HMOs) to such an extent that we can no longer speak of a relationship that can produce meaningful pricing information.

Laws and mandates are not the answer. Instead, we need to allow a market system to operate that reflects consumer choices while rationally pricing services. In a market system patients likely would pay cash for basic services, while maintaining relatively high-deductible catastrophic insurance for serious illnesses and accidents. The cost of most routine medical care would drop if the patient paid the bill on the spot, especially if doctors no longer needed to employ large staffs solely to deal with insurance and billing. “Health maintenance” is the responsibility of each of us individually. We cannot continue to collectivize the costs of healthcare and expect things to get better.

Not only is the mandate unconstitutional; it is a violation of the basic freedom to make our own decisions regarding how best to meet the health care needs of ourselves and our families. Politicizing health insurance inevitably makes it more expensive. As the cost of government-mandated health insurance rises, Congress will likely respond by increasing subsidies for more and more Americans, adding astronomically to our debt burden. The federal government is already set to spend more than $1 trillion over the next decade to subsidize coverage and expand eligibility for Medicaid. An insurance mandate undermines the entire principle of what insurance is supposed to measure – risk.

Another likely response to rising costs is the imposition of price controls on medical treatments, and limits on what procedures and treatments mandatory insurance will have to reimburse. This is happening in other countries where government is intrinsically involved in these decisions and people suffer and die because of it. Massachusetts, who already has the mandate, has the highest prices and insurance premiums in the nation. They are now trying to solve this catastophe with price controls.

This mandate will only increase the bottom line of the very insurers the legislation was supposed to control. Meanwhile, alternate methods of healthcare delivery and financing, services like what my family business delivers (alternative medicine), concierge doctors, or physician owned hospitals will be greatly harmed, if not put out of business altogether, when the entire country is forced into the insurance model.

Under the law, businesses with 50 full-time equivalent employees that do not provide health insurance coverage must pay a penalty of $2,000 per full-time employee. Interestingly, a recent poll indicated that some 70 percent of those businesses are considering paying the penalty and dropping insurance for their employees since it is cheaper than providing the insurance. Small businesses are already struggling and this mandate takes astronomically increases what is already the biggest expense for a small business owner (the labor force). A lot of small businesses are already tightening belts to stay alive and this is going to drive a lot of people out of business. This is the reason why more than 90 percent of small businessesfavor repeal this new law. In addition, the unemployment rate is already around 15% and this will cause many small businesses to lay off employees in order to stay under the 50 employee limit. Government needs to get out of the way of small businesses, so they can get back to growing their business and creating jobs. New taxes mean less money being re-invested into the business, into employees and into growing and expanding. Small businesses already pay 66 percent more in tax compliance than larger businesses. This law levies $570 billion in new taxes.

Government-sponsored healthcare also means government-controlled healthcare. I.e., if you want to try a different kind of treatment, say a more integrative approach that combines conventional Western medicine, Eastern medicine, diet, nutrition, acupuncture, massage therapy, homeopathy, or some other complementary treatment of your choosing, you are out of luck. Obamacare won’t cover it.

Increasing healthcare coverage for more Americans is a laudable goal, but expanding coverage by chipping away at the freedoms afforded to individuals and small-business owners in the U.S. Constitution is unacceptable. The law contains a complex employer mandate requiring some firms to provide insurance, pay expensive penalties or both. This structure ultimately creates perverse incentives for hiring and growing. The individual and employer mandates in this law are bad for small employers, bad for low-income workers, and bad for the economy.

Individual Mandate – All U.S. citizens and legal residents must have “qualifying” health coverage or pay penalties starting in 2014. Requiring every individual to purchase health insurance or face a fine is an unprecedented and unconstitutional act of Congress. This is the first time the government is telling individuals they have to do something simply because they are alive. The National Federation of Independent Business (NFIB) has filed a lawsuit with 20 states challenging the constitutionality of this provision.

Employer Mandate – The employer mandate imposes costly and confusing penalties on businesses with more than 50 full-time employees or full-time equivalents. It adversely affects small employers by raising payroll costs, eroding competitive positions, and increasing operating costs, making it particularly difficult for firms operating on small margins. Adding one new employee or having one more employee qualify for insurance subsidies can result in employer penalties of thousands of dollars. This structure gives businesses a powerful incentive to downsize, replace full-time employees with part-timers, or outsource.

Flexibility Gone, Choices Limited: Instead of offering reforms that provided more choice and greater flexibility, the new law leaves small-business owners with even less choice than they had previously. In a time when small businesses are already encumbered by an expensive and uncompetitive market, eliminating once-affordable options or setting the rules so as to price small businesses out of the market will harm the economic outlook for small businesses. Small businesses don’t need greater economic uncertainty and unpredictability.

Cancelled Plans – In addition to increased rates, now small businesses have to worry about whether their plan will even exist because of the new healthcare law.

Grandfathering – New and restrictive rules have been set by the government on what changes small employers can make to try to keep up with the ever-increasing cost of plans. These rules make it harder for small firms to “keep what they’ve got,” driving them to absorb huge cost increases or, worse, being forced to buy even more expensive products.

Not only with this have a devastating effect on small businesses, it will also make it difficult for families to come up with extra money to pay for alternate healthcare of their choice when their budget has been squeezed by this mandate to buy insurance. This will in turn reduce competition for healthcare dollars. Health insurers, like many other corporations in other industries, have now used the legislative process anti-competitively to corner the healthcare market. Instead of calling this socialized medicine, we should call it corporatized medicine, since the reform is to force us all into being customers of these corporations, whether we like it or not.

The mandate violates fundamental principles of individual liberty, and will lead to further government involvement in health care.

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