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Schwarzenegger's Health Care Socialism

By Ross Kaminsky

Before I get into what I hope to be a well-reasoned and economically sound discussion of Arnold Schwarzenegger's new "universal health care" plan, please bear with the following outburst: Arnold's plan is some of the most muddle-headed, idiotic, socialist crap I have ever seen from a serious politician, much less from a Republican.

The highlights (lowlights?) of the plan:

* California employers of 10 or more workers will be required to offer health insurance or else pay 4% of their payroll into a state insurance coverage program.

* All children will be covered by insurance, either private or through the state, including illegal alien minors.

* Doctors will pay 2%, and hospitals 4%, of their gross earnings to the state to subsidize insurance for low-income Californians.

* The state will then increase Medi-Cal reimbursements by $4 billion annually

* Requires health insurance companies to "spend 85% of every premium dollar on patient care".

Despite Schwarzenegger and his minions repeatedly claiming that this is a market-based solution which does not rely on new taxes, the facts show otherwise.

In an interview on PBS's "News Hour", CA Health and Human Services Secretary Kim Belshé described the plan as about "shared responsibility". The LA Times says that the plan "gave each sector some benefits that are offset by new burdens." These are words that Karl Marx would hear gladly. They mean nothing more than "from each according to his ability, to each according to his need." The idea that somehow health care (or any other big industry) is somehow immune from market forces and human nature has been so repeatedly and dramatically disproved over the past few generations that it is truly shocking and depressing to see serious people still arguing for socialist policies.

It is true that there is a big problem with health care in the US, and particularly in California, but the problems are caused by two things: Illegal immigration and Federal requirements that emergency rooms treat illegal aliens and others who can not pay. The Federal mandates on hospitals create a large group of free-riders among legal and illegal residents of the country, as well as encouraging illegal aliens to come to the US in order to effectively steal health care from America.

Taxing doctors and hospitals will accomplish nothing good but will have tremendous negative unintended consequences. Doctors and hospitals will stop providing service, raise their prices, or both. What would McDonalds do with their prices if 4% of their profits were forced to be returned to their customers? Hmmmm...maybe raise their prices by just over 4%?

Taxing employers with 10 or more employees will crush business development in California. Employers with hundreds or thousands of employees almost all provide coverage already, but they are not the engine of economic growth. It is the growing small businesses which are the target of this plan.

But let's go back to basics, and I understand that these questions represent more of a philosophical position than the current reality. Still they are questions that must be asked, because not asking them (or not getting the right answer) is the cause of most problems caused by government:

* Since when did it become OK for the government to hijack the employer-employee private contractual relationship for them to impose their view of how the world should be?

* Since when does increasing taxes on something not cause a market reaction, usually including less production of that something?

* Since when is it OK for US taxpayers to be explicitly forced to pay for illegal aliens?

* Why should Californians allow government to create a large transfer program from one industry (health providers and their customers) to another (health insurers)?

Taking a look at who supports this plan tells you all you need to know about how bad it is for taxpayers. First and foremost is health insurers who see a guaranteed huge new crop of customers, for which they must spend only 85% of premiums collected on medical care. In other words, up to15% of the premiums these millions will be forced to pay goes to overhead and profits for insurers. Second are businesses who want to force their competitors to have health care costs similar to those that they have taken on voluntarily. As the Wall Street Journal says, talking about Safeway, "they already pay to fund medical plans for their employees, and resent the competitors who don't."

Health care costs are high and rising fast, but it is not because the private market doesn't work. It is because, like the California electricity crisis, the government doesn't let it work. In health care, there is a massive disconnect between consumers and suppliers. The price feedback mechanism which teaches both sides how much health care to use and how much to produce is kept from functioning by imposing a third party in between the actual players in the play. In particular, consumers do not feel the financial burden of their choices that causes them to use just what they need.

The complaints from unions are that this plan puts too much burden on families. While I don't believe that is true, the real problem is that it is not true enough. A family's health care must be its responsibility. It is not the employer's responsibility nor the government's. The solution is not to require anything, but instead to allow people to buy insurance as they want to and to allow hospitals to decide whom to treat. The market will take care of the rest. Yes, it is strong medicine, but in the real world it is only strong medicine that can cure an economic problem, especially one as chronic as this.

Imagine what the effect would be if car insurance were A) mandatory, B) subsidized, and C) covered even the most minor damage with low deductibles, and D) routed through employers. People would go get the smallest scratches repaired, driving up demand and cost for car repair. Employers would hedge to continue to take on the liability, especially with prices "artificially" high because of the implied tax required for the subsidies. They would look to hire people without cars. The equivalent of all of these things is already happening with health care, and Arnold's proposal will only exacerbate the problem.

The claims by Arnold's people that this plan will save $10 billion annually is laughable. It will simply increase the cost of health care and the size and cost of an already bloated government. It will tax more doctors and hospitals out of business while saddling the most important part of the economy, i.e. small but growing businesses, with new taxes and paperwork.

Health care is not a Constitutional right. It is an individual responsibility. The closer we get toward socialized medicine, the further we get from the best medical system we could have. Just imagine when California has to implement a rule like England has: A mandatory minimum waiting time for someone to see a doctor, because the government can't afford the health care system to move any more efficiently.

The single biggest needed change to health care market which has any actual chance of taking effect is much larger deductibles and co-payments. This should be done in combination with health savings accounts so that people really feel like they are spending money when they go to the doctor or the hospital. Keeping demand under control is the real economic piece that is missing from the health care puzzle.

As long as we have politicians who believe that it is the proper role of the state to redistribute money, interfere in private contracts, and use their power to reward their favored constituencies regardless of the cost to taxpayers, we will never be safe from the dead hand of government. When even Republicans are willing to legislate as Communists (and I do not use that term as hyperbole), there is little reason to have hope.

Ross Kaminsky blogs at Rossputin.com

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