Common Sense University

With the following proviso: Reprinted by Permission from Imprimis, a publication of Hillsdale College, Common Sense University finds the timing of this article very appropriate. It was adapted from a speech given by U.S. Representative Paul Ryan on January 13, 2010, in Washington, D.C., at an event sponsored by Hillsdale College’s Allan P. Kirby, Jr. Center for Constitutional Studies and Citizenship.

Reference to P1/2:

But if one begins with the idea that health care reform to reduce costs should be guided by the principles of economic and political liberty, what would such reform look like? Four changes to the current system come immediately to mind.

One, we should equalize the tax treatment of people paying for health care by ending the current discrimination against those who don’t get health insurance from their jobs—in other words, everyone paying for health care should receive the same tax benefits.

Two, we need high-risk insurance pools in the states so that those with pre-existing conditions can obtain coverage that is not prohibitively expensive, and so that costs in non-high-risk pools are stabilized. To see the value of this, consider a pool of 200 people in which six have pre-existing heart disease or cancer. Rates for everyone will be through the roof. But if the six are placed in a high-risk pool and ensured coverage at an affordable rate, the risk profile of the larger pool is stabilized and coverage for the remaining 194 people is driven down.

Three, we need to unlock existing health care monopolies by letting people purchase health insurance across state lines—just as they do car insurance and other goods and services. This is a simple and obvious way to reduce costs.

Four, we need to establish transparency in terms of costs and quality of health care. In Milwaukee, an MRI can cost between $400 and $4,000, and a bypass surgery between $4,700 and $100,000. Unless the consumer is able to compare prices and quality of services—and unless he has an incentive to base choices on that information, as he does in purchasing other goods and services—there is not really a free market. It would go a long way to solve our health care problems to recreate one.

These four measures would empower consumers and force providers—insurers, doctors, and hospitals—to compete against each other for business. This works in other sectors of our economy, and it will work with health care.

So why can’t we agree on them? The answer is that the current health care debate is not really about how we can most effectively bring down costs. It is a debate less about policy than about ideology. It is a debate over whether we should reform health care in a way compatible with our Constitution and our free society, or whether we should abandon our free market economic model for a full-fledged European-style social welfare state. This, I believe, is the true goal of those promoting government-run health care.

If we go down this path, creating entitlement after entitlement and promising benefits that can never be delivered, America will become like the European Union: a welfare state where most people pay few or no taxes while becoming dependent on government benefits; where tax reduction is impossible because more people have a stake in welfare than in producing wealth; where high unemployment is a way of life and the spirit of risk-taking is smothered by webs of regulation.

America today is not as far from this tipping point as we might think. While exact and precise measures cannot be made, there are estimates that in 2004, 20 percent of households in the U.S. were receiving about 75 percent of their income from the federal government, and that another 20 percent were receiving nearly 40 percent of their income from federal programs. All in all, about 60 percent of U.S. households were receiving more government benefits and services, measured in dollars, than they were paying back in taxes. It has also been estimated that President Obama’s first budget alone raises this level of “net dependency” to 70 percent.

Looked at in this way, I see health care reform of the kind promoted by the Obama administration and congressional leaders as part of a crusade against the American idea. This is a dramatic charge, but the only alternative is that they are ignorant of the consequences of their proposed programs. The national health care exchange created by their legislation, together with its massive subsidies for middle-income earners, would represent the greatest expansion of the welfare state in our country in a generation—and possibly in history. According to recent analysis, the plan would provide subsidies that average a little less than 20 percent of the income of people earning up to 400 percent of the Federal Poverty Level. In other words, as many as 110 million Americans could claim this new entitlement within a few years of its implementation. In addition to the immediate massive increase in dependency this would bring on, the structure of the subsidies—whereby they fade out as income rises—would impose a marginal tax penalty that would act as a disincentive to work, increasing dependency even more.

And before I conclude, allow me to clear up a misperception about insurance exchanges: it makes absolutely no difference whether we have 50 state exchanges rather than a federal exchange, as long as the federal government is where the subsidies for consumers will be located. In other words, despite what some seem to believe, both the House and the Senate versions of health care reform set up a system in which, if you are eligible and you want a break on your insurance premium, it is the federal government that will provide it while telling you what kind of insurance you have to buy. In this sense, the idea of state exchanges instead of a federal exchange is a distinction without a difference.

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