Monday, July 20, 2009

Don’t mark his words. “[I]f you are happy with your plan, and if you are happy with your doctor, we don’t want you to have to change,” President Obama promised on the ABC News Health Care Forum late last month. The reality of the market is less accommodating.

Many rules proposed in the Democrats’ health care reform plan will ensure that private health insurance won’t be around for long. Take increased cost shifting, in which the government pays hospitals and doctors below cost. This results in private insurance picking up those losses. Private insurance also will find it difficult to compete against the subsidized rate charged for government insurance.

Another change proposed by Mr. Obama and the Democrats is forbidding insurance companies from considering pre-existing conditions when granting insurance or determining what to charge. By itself, this means that most people will not want to pay for insurance when they are healthy but instead will wait to buy it only when they “need” it. After all, there’s no reason to pay premiums when you’re healthy if there is no deterrent to picking up coverage later, when you are sick.

Mr. Obama’s proposed plan to force everyone to get insurance will not solve this problem unless the government ensures that all insurance companies provide exactly the same coverage and quality of service. Otherwise, people will get the cheapest coverage available to fulfill the mandated requirement and wait until they get sick to purchase better care. In short order, high-quality insurance will be driven out of the market because it will be too expensive for most people given cheaper short-term options.

We already see this phenomenon with Medicaid, where pre-existing conditions do not exclude people from joining the government program. Because anyone can join at any point regardless of pre-existing conditions, 14 million of the currently “uninsured” are in practice covered by Medicaid. These millions are eligible but don’t sign up until they are sick because they don’t have to.

It’s easy to see where things are headed. With more and more rules on how health insurance can and cannot be offered, the industry will head toward a government one-size-fits-all system.

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