Unhealthy alternative - health care reform

National Review, Sept 26, 1994

SUPPORTERS of a radical health-care overhaul lost the argument about whether there's a health-care crisis, so they have moved to a fall-back position: creating one. The bipartisan Chafee-Breaux "incremental" proposal--the last best chance for government-run health care this year--would undermine the nation's health-care system, and create a whole new class of welfare dependents in the process. That Chafee-Breaux is called "moderate" is testimony only to the revolutionary implications of the benchmark, the original Clinton plan.

Under Chafee-Breaux, Americans would in effect be forced to turn in their current health insurance for a package of standard benefits that employers would be obliged to arrange for, but not necessarily to pay for. (Supplementary insurance would be available, but highly regulated.) Meanwhile, the plan's community-rating provisions would prohibit insurers from varying premiums according to the insuree's age and medical condition.

Both these measures would tend to reduce the number of Americans with health insurance. Companies that now pay for plans less generous than Chafee-Breaux's standard package would not be permitted to do so: they would have to choose between paying more, or not paying at all. And community rating would increase rates for the young and healthy, prompting many of them--as it has done in New York--to drop coverage. The upshot could be that in 2002, when a new government commission would recommend ways to reach universal coverage, fewer Americans would be insured than today. The employer mandate might then look like the only way out of a health-insurance meltdown.

Chafee-Breaux rests its hopes for increasing coverage on huge new insurance subsidies for the poor and not-so-poor. The subsidies wouldn't phase out until a family's income reached 200 per cent of the poverty level (about $29,000 for a family of four). The immediate problem is how to pay for them. Chafee--Breaux claims to raise about $474 billion over ten years through Medicare cuts and increased taxes, including a 0.6 per cent tax on all insurance premiums and a 25 per cent tax on the priciest premiums. About $20 billion of that would go to sundry other programs, another $100 billion to deficit reduction. That leaves about $350 billion for a subsidy program whose cost in the roughly comparable Finance Committee bill was estimated at $900 billion. It's obvious that Senator Chafee's "mainstream" group will have to dip into its list of other funding options, which includes delaying the indexation of income brackets, raising the corporate tax rate to 36 per cent, and jacking up cigarette and alcohol taxes.

The more fundamental problem with the subsidy program (one it shares with the new Rowland-Bilirakis legislation in the House) is that it threatens to force low-income working people out of their jobs and onto the dole. Under these plans, if you're anywhere near the poverty line, you lose money by earning it--because your insurance subsidies are taken away. If you combine the phase-outs of the Earned Income Tax Credit, of food stamps, and of Chafee-Breaux/Rowland-Bilirakis subsidies, then the after-tax difference between an annual income of $32,000 and one of $16,000 is almost zero; the marginal tax rate in these income ranges reaches 80 to 90 per cent. So why work?

This perversely effective legislation it would create not just a health-care crisis, but a welfare crisis too. And Congress, when it gets back from its recess, could do it all in just a month! Going to the voters empty-handed never looked so good.