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An Entitlement Too Far

August 12 is Cost of Government Day (COGD), the day of the calendar on which most  the average American worker …

August 12 is Cost of Government Day (COGD), the day of the calendar on which most  the average American worker has earned enough gross income to pay off his share of government spending and services including regulatory costs imposed by government at the federal, state and local levels.  According to Americans for Tax Reform, COGD falls 26 days later this year than in 2008 when it fell on July 16, 2008. This means in 2009 the average citizen  had to work 224 days out of the year to meet all costs posed by government.

This begs the question how much would the cost of government go up if the President’s health care plan or something like it becomes law? Turns out it’s a lot.  When the Congressional Budget Office director  Douglas Elmendorf appeared before the Senate Budget Committee,  Sen. Kent Conrad (D-N.D.),  focused his questions on the House and Senate committee measures, which were drafted without Republican input. “I’m going to really put you on the spot,” Conrad said. “From what you have seen from the products of the committees that have reported, do you see a successful effort being mounted to bend the long-term cost curve?”

Elmendorf responded: “No, Mr. Chairman.” Although the House plan to cover the uninsured, for example, would add more than $1 trillion to federal health spending over the next decade, according to the CBO, it would trim about $500 billion from existing programs — increasing federal health spending overall.

The CBO  assumes that only 3 million people will switch from employer-provided coverage to government insurance. But the Lewin Group, a health care policy research and management consulting firm, estimates that 119 million Americans will switch from their current private insurance to government insurance. If these figures are accurate, the program’s cost could easily be $4.5 trillion over 10 years, not the $1 trillion CBO is claiming. That’s $7,199 for every taxpayer in America today.  That new financial burden would be a ticking time bomb for the deficit.

One doesn’t need to be a deficit hawk obsessing about the national debt to start fidgeting at this number.  We’re looking at double-digit deficits as far as the eye can see. Over the next ten years, the CBO predicts federal debt in the hands of the public will absorb 80 percent of GDP. And that doesn’t include the real cost of state-run health care. Other than the temporary financial conditions surrounding WWII, the country has never seen anything like this.

The President  believes, sincerely one assumes, that his plan will not add measurably to the deficit. Can anyone name a federal program that ever cut costs for anything? Let’s not forget that the existing Medicare system is roughly $80 trillion in the hole. The cost of government programs are always understated and always increase dramatically. Consider that when  Medicare, Part A was launched in 1965 it was projected to cost $9 billion in 1990. The actual cost for that year was $67 billion. In 1987, a special Medicaid hospital subsidy was supposed to cost $100 million annually; but by 1992 it was already costing $11 billion. In 1988, Medicare’s home care benefit was projected to cost $4 Billion, in 1993 it actually cost $10 Billion, according to the Cato Institute’s Michael Tanner and Chris Edwards.

Additionally, government funded health care will cause shortages. Any time the equilibrium between supply and price is disturbed the risk of  removing suppliers from the market until such time as demand and supply are again balanced, is great.  Despite the relatively high level of health expenditure in the U. S., there are fewer physicians per capita than in most other OECD countries. In 2002, the United States had 2.3 practicing physicians per 1,000 population, below the OECD average of 2.9.

Considering that the rates government pays doctors to treat Medicare and Medicaid patients are, on average, less than the cost for providing care to these patients, is it any wonder why Medicaid patients, and increasingly Medicare patients, struggle to find doctors?  “Putting more people on these programs will destabilize the remaining private system and create a coalition for price and wage controls,” argues Sally Pipes, president of the Pacific Resources Institute.

President Obama’s grand scheme to overall one seventh of the U.S. economy may be an entitlement too far and will likely make the situation worse.  It is astonishing that various businesses  have bought into the plan considering that there are numerous  pro-competition, private-enterprise alternatives to consider.  For example,  tax breaks for health care should go to individuals and small businesses and not be the exclusive privilege of major employers. Health  savings accounts should be promoted.  If people are allowed to shop for the best health deal  they can find with  pre-tax dollars they will bring a degree of price discipline to a system that has thus far avoided it. In addition, insurance companies should be allowed to sell their products across state lines. Consumer choice and market competition will not only lower costs, or slow the rise in costs, bit it will  strengthen the private health-care system.

About J.P. Donlon

J.P. Donlon
J.P. Donlon is Editor Emeritus of Chief Executive magazine.