Healthcare reform the easy way: chaaarge it!

As I watched the president hold up his medical security card during his nationwide address, two words kept flashing across my mind: "Charge it!"

The $350 billion plan that in February was fabled to reduce the deficit by $300 billion is now said to offer us a $58 billion reduction - and shrinking daily, with each new projection. Given the limited revenues identified - a tobacco tax, a premium tax and Medicare "savings" no one takes seriously - the only alternative for financing the plan is to swell the deficit.

The administration also has seriously underestimated the cost of subsidies both to firms and individuals by failing to take into account the dynamics of business behavior that its plan generates.

Is it any wonder the president's "security" card looks like a credit card?

While defending its numbers, the administration is taking the offensive on job losses. Reform is billed as a job generator, but so far, no one's biting. Labor Secretary Robert Reich and Chairman of the Council of Economic Advisers Laura Tyson write in an Oct. 6 report: "Overall, the net effect on employment is likely to be small. Over time the beneficial effects on employment are likely to strengthen.... The range of uncertainty is too great to use precise numbers. For this reason, we will not present specific estimates of the employment effects." If you were an economics professor giving a grade, how would you rate this analysis?

Reich and Tyson argue that federal subsidies to finance small, low-wage firms will make health insurance affordable and layoffs less likely. But if the subsidies are capped, as the administration now proposes, this will be multibillion-dollar "bait and switch" promotion as small business finds costs going north.

Seventy-four employees qualifies as "small business" under the plan. The employer of 75 is told he is more like General Motors. The leap from "small" to "large" with the 75th worker or with higher wages can increase total insurance costs by 50 percent. Obviously, firms will have a powerful incentive to remain under the 75-employee ceiling and to depress wages or pay some people the books to remain eligible for any subsidies.

The plan also underestimates the employment costs to the low-skilled. Consider the minimum wage worker at a large firm. An entire year's wages come to about $9,000. An individual health policy costing the employer $1,400 a year represents a 16-percent labor cost increase. A family policy at $2,479 is a 28-percent increase. When a business looks for ways to control expenses, the low-wage worker - the very person the administration seeks to help - will be the first to come up on the cost-cutter's radar screen.

The Clinton plan swells the ranks of the unemployed in another way. It redefines "full-time" as 30, not 40 hours a week; the employer must pay 80 percent of that person's insurance cost. With two part-time people working 20 hours per week - each working two-thirds of a Clinton work week - the employer would be required to pay 53 percent of a premium - two-thirds of 80 percent - per person. That's 106 percent of a premium vs. 80 percent for the same 40 hours of work! Bad news for the millions who want flexible part-time work schedules.

Unable to defend their financing scheme, quantify job loss or take into account basic business economies, the administration has seriously underestimated the cost of its promises. It's unlikely that a tobacco tax, a premium tax and savings from the current system can make up the difference.

So what choice does that leave us? We will simply "charge it." But at $4 trillion and counting, haven't we already exceeded our limit?

COPYRIGHT 1993 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2004 Gale Group