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Executive Summary #2197 on Health Care

October 15, 2008

Executive Summary: The Obama Health Care Plan: More Power to Washington

By and

Senator Barack Obama (D-IL) has unveiled an ambitious health care plan that is comprehensive in scope, sparse in detail, and therefore uncertain in its cost and savings estimates. His proposals focus on three stated objectives: offering affordable, comprehensive, and portable coverage; containing spiraling health care costs and improving quality of care; and promoting and strengthening prevention and public health. These key goals would appeal to most Americans, but the coercive means to accomplish them will be far less attractive.

Very little in the Obama health plan is new or original. Many of its policy initiatives are recycled from the ill-fated Clinton health plan of 1993 and the Kerry health plan of 2004 and strongly resemble a detailed proposal by the Commonwealth Fund, a prominent liberal think tank. In general, the Obama plan would give the federal government even more control of health care dollars and decisions-accelerating the federal domination of the U.S. health care system.

Instead of using the federal government to change the health care system from the top down, policymakers should transfer direct control of health care dollars back to individuals and families. Such a system of personal ownership would allow Americans to exercise real personal choice of health plans and benefits by choosing those plans that best meet their needs. This would also make health plans and providers compete directly for their dollars. Personal ownership of health care would help to control costs and guarantee better quality.

The Obama Plan. The Obama plan proposes a comprehensive, standardized federal health benefits structure; a massive expansion of federal regulatory authority over health insurance; and an enlargement of federal regulatory power over health care delivery, including the defining of what constitutes "quality" care. Moreover, the plan would prop up the existing employer-based health insurance system and government health programs, such as Medicaid and the State Children's Health Insurance Program (SCHIP), to expand health insurance coverage.

Centralizing Control. The most significant change in the Obama plan is a proposal to consolidate even more control of health care dollars and decisions in Washington, D.C. This is a radical departure from the decentralized decision-making system that sets the United States apart from other developed countries. His plan includes several initiatives that would give the federal government extensive control of the financing, delivery, and management of health care. These government initiatives would likely precipitate a rapid evolution toward a federal monopoly over the health care sector. These initiatives include:

  1. New federal provision and control of health care. Obama's new government-run national health plan would compete directly with private health plans in a National Health Insurance Exchange. Federal officials would not only run the new government plan but also use the exchange as a "watchdog" over participating private health plans. The federal government would decide the level of health benefits that Americans would receive through the exchange. These rules would apply to the new national health plan and all participating private health plans.

  2. Additional federal involvement in employer-based coverage. The Obama plan would mandate that employers provide a federally approved level of health benefits to their workers or pay a tax to help finance the government's new health plan. The plan does not specify the level of the employer contribution, value of the required health benefits package, or size of the payroll tax. The federal government would also assume the high-end costs of employer-based coverage and provide a new taxpayer subsidy to small businesses to encourage them to offer coverage. In any case, the Obama prescription would end employer-based health insurance as millions of Americans know it.

  3. Expansion of existing government health programs, restrictions on state experimentation, and mandated coverage for children. The plan calls for unspecified expansions of Medicaid and SCHIP and would severely limited states' ability to develop health care reform proposals on their own. Additionally, it would require parents to ensure that their children have health care coverage.

  4. Federal regulation of health care delivery. The federal government would regulate the delivery of medical care through specific initiatives, such as those that would govern medical reimbursement and determine the "comparative effectiveness" of medical treatments and procedures. It would also increase the federal regulation of medical liability reform, prescription drugs, and health insurance.

Cost Implications. How much the Obama health plan would cost American taxpayers is unclear. Independent economists have attempted to offer some estimates, but the lack of concrete details makes the true costs uncertain.

A Better Way. Despite the Senator's rhetoric of "choice and competition," his plan is laden with new regulations and government authority that would leave ordinary Americans with even less control of their health care dollars than they exercise today.

Instead of using the massive power of the federal government to impose a top-down change on the health care system, Senator Obama and other policymakers would be wise to transfer direct control of health care dollars to individuals and families. This would enable Americans to exercise real personal choice of health plans and benefits while making health plans and providers compete directly for consumers' dollars by providing value to patients.

The next President and Congress should start to level the playing field through tax and regulatory changes designed to harness the power of freemarket competition to improve access, promote portability, and restrain health care spending. Specifically, they should reform the tax treatment of health insurance, expand options for employers and individuals to purchase health insurance, and restructure poorly performing public programs to help those in need buy superior coverage through private health insurance.

Such policies would constitute real change. They would empower individuals to make informed choices and enable the marketplace to respond rapidly to their needs and wants rather than placing them at the mercy of government bureaucrats and politicians in Washington.

Robert E. Moffit, Ph.D., is Director of and Nina Owcharenko is a Senior Policy Analyst in the Center for Health Policy Studies at The Heritage Foundation.

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