A Critical Milestone

And so, the Senate Finance committee passed their version of national health care legislation, setting the stage for broad negotiations between the House and Senate versions of the bill. President Obama commented immediately after the bill was passed out of committee:

Today we reached a critical milestone in our effort to reform our health care system. After many months of thoughtful deliberation, the fifth and final committee responsible for health care reform has passed a proposal that has both Democratic and Republican support.

Our health care system is in need of reform, so the President’s enthusiasm is understandable, but like most things, the devil is in the details. As it stands at the moment, the CBO has declared that the so-called Baucus bill will pay for itself over the next 10 years. Part of the reason (something that the CBO readily admits) is that taxes are collected to fund the bill immediately, but the main elements of the bill will not be implemented for three years. That means that 10 years of tax increases will be used to pay for 7 years of healthcare. That’s fine, until you think about the following 10 years and the 10 years that follow those. That’s when enormous deficits begin to accrue, just in time for today’s 10 year olds to be faced with accelerating and onerous payroll and income taxes in order for the government to remain solvent.

But it’s actually worse than that. The viability of the first 7 years is predicated on the addition to the medical insurance rolls of many young healthy Americans who currently see no need for insurance. Dick Morris comments:

Will a young, healthy, childless individual or couple buy health insurance costing 7.5 percent of their income, as required by Obama's health legislation? Not until they get sick. Then they can always buy the insurance [because the legislation mandates that pre-existing conditions do matter, and the Obama bill requires the insurance companies to give it to them. And if the premiums come to more than 7.5 percent of their income because they are now sick, no problem. Obama will subsidize it.

Instead, young, healthy, childless people will likely opt to pay the $1,000 fine (aka slap on the wrist) mandated in the bill. After all, even if they make as little as $50,000 a year, the fine is a lot cheaper than 7.5 percent of their Bottom of Form
So ... these young households will not contribute to the coffers of any health insurance company until they are sick and need the coverage. By then, their costs will come to vastly more than their premiums.

Who will subsidize the difference? We will.

And there’s the rub. For all of his rhetoric about no new taxes on the middle class, Obama’s health care reform will create an enormous tax burden or alternatively, an enormous deficit. It’s all very nice to want every person to have health insurance. It also fiscally and morally responsible not to saddle future generations with enormous new government entitlements. Somehow, the Obama administration seems obsessively focused on the first objective and blissfully unconcerned about the second.