Press-Republican

April 29, 2012

The cost of Obama's medical plan

COLIN READ, Everybody's Business
Press-Republican

---- — The conventional wisdom is that President Obama's medical plan for the nation will be costly and represents an unprecedented mandate.

Let's try to break down this conventional wisdom.

It is argued that the extension of insurance coverage to the uninsured will cause the medical sector to grow. This conclusion defies simple math. At the macro level, the plan will cost us all collectively more only if we each, on average, receive more coverage or more expensive coverage.

However, relatively few of us will be directly affected. Already, almost half our residents are covered by a government plan, either by Medicare, Medicaid or through jobs with federal, state and local government. It is expected that the majority of us will be under a government-sponsored plan soon, as more people retire and move to Medicare.

Still more receive it through government-sponsored agencies such as universities. These individuals will receive no change in coverage.

Most of the rest of the population receives their coverage through their employers or through their own payments as self-employed individuals. Again, these residents will not experience a change in their providers, but the self-employed may have more options, especially if President Obama embraces the Republican idea of allowing one to purchase insurance plans across state lines.

This would hopefully offer people more choice and bust up some monopolies artificially defined by state borders.

Under the new mandate, those who do not currently have insurance will either be required to purchase it or their employers will be given incentives to purchase it on their behalf, or face significant disincentives if they do not.

This system of employers paying for insurance is familiar to us but would be considered odd almost anywhere else. Other nations provide insurance through government because to impose such costs on their businesses would be a burden that makes their commerce less competitive globally.

One might argue that businesses ought to pay for health care as they benefit from a healthy workforce. However, imposition of those costs probably induces employers to provide a level of insurance that isn't optimal. They would like to provide minimal plans, and unions would like to have gold-plated plans. Neither position is based on the best balance of medical insurance costs and health.

We, as a greater society, have an interest in the health care of our residents for the same reason we invest in education. We do not educate our young people to benefit them, although their parents may. Instead, we educate them so we have a productive society. Education is a public good and ought to be linked to society's needs, not necessarily the wishes of the individual.

There is the same interest in health care. Once we have subsidized one's education, we have an interest in protecting our investment by keeping our labor force healthy. We also have an incentive in reducing contagious diseases and ensuring our labor force is productive and self-sufficient.

Obama's plan will, to some, provide health care to those who could not otherwise obtain it, and to others, coerce those who don't want it to purchase it.

Currently, those individuals do obtain health care when they need it. One who cannot afford necessary interventions in serious conditions receive it, and the rest of us pay through higher premiums. In the process, we sometimes leave those uninsured bankrupt and more dependent on government. The rest of us pay for that, too.

I don't think any such plan will end up costing more, although it might force some to pay who aren't paying today. And we should always be wary of any expansion of the private sector with no assurance of greater efficiency and savings.

What could be the blessing in disguise is the creation of a more unified and inclusive approach that might give insurance companies and exchanges more clout in demanding better value. One aspect of Obama's plan is the requirement that insurance companies must spend more than 80 percent of their revenues in the provision of medical services rather than administration and profits.

We need more efforts to wring greater efficiencies and economies of scale out of an industry that represents the highest spending per patient among major nations without providing the best overall measures of health.

This is the challenge of medical reform. We need more clear thinking and a more inclusive approach, within the context of global competitiveness. Certainly, the Affordable Care Act is a significant social program that offends some. The provisions of the act are not unusual, though, when compared with other programs, from Social Security to the income tax. I hope we are up to an honest debate on its merits rather than the usual clash of political ideology.

Colin Read is the chair of the Department of Economics and Finance at SUNY Plattsburgh. His tenth book, Great Minds in Finance — the Efficient Market Hypothesists, is coming out this fall. Continue the discussion at www.pressrepublican.com/0216_read.