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The New Independent Party Blog


This Blog is maintained by Mike Barron, Executive Director and Founder of the New Independent Party. The views expressed here are not necessarily those of the Party, its Board of Governors or its Members.


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What should be done about Obama Care, the shut-down, and the debt ceililng?

It would appear that, despite its lack of popularity, Obama Care is an accomplished fact. The Republicans seem to have overplayed their hand on this one and it looks like it's only a matter of time before the Democrats do the same by denying the Republicans any kind of fig leaf victory before retreating. Candidates for an appropriate fig leaf would be ending the special treatment of congressional staff and/or ending the tax on medical equipment revenues. The first first should go because it is shameless; the second should go because it is likely to raise little revenue because it will probably just force this manufacturing off shore.

If the Democrats want to simply change the topic they could easily agree to chain indexation of Social Security and gradually pushing up the age for eligibility for Social Security and Medicare. Both of these are sensible in light of the long-term crisis we face with entitlements and the budget and the Democrats could easily exchange them for a continuing resolution that would end the shut down and approval for raising the debt ceiling. This would end the immediate crisis and make a small dent in postponing the longer term crisis. It would also allow the Republicans and Democrats to save face.

Having said all of that Obama Care is still a problem. It is a problem because, even if it works as planned, it will add to the already crippling entitlement problem that we face. It is also a problem because, as currently structured, it stands an excellent chance of starting a death spiral in insurance rates that has no pleasant end point.

The first point is obvious but the second deserves a little explanation. When Obama Care was passed the fee for not participating in the system was set artificially low in order to gain political support for the program both in terms of individual and corporate participation. As a result, healthy young people will not sign up, as often as hoped, and many corporations will opt to pay the fine and dump their employees onto the exchanges.
Under-participation  by healthy young people will cause the rates for those participating to rise. Higher rates will drive more people off of the system, which will cause the premiums of those remaining on the system to rise and so on. Even if the fee had not been set too low, the fact that the IRS was denied effective enforcement powers under the act would also result in the same outcome.

The Democrats probably knew of these problems when they enacted the legislation but thought they could fix them latter with higher fees and better enforcement powers. This, however, required that they remain in control of the House and the Senate. As we know, they lost the House because the roughshod and fiscally irresponsible manner in which they were governing gave the Tea Party an effective rallying cry.

The only way Obama Care works is if young healthy people become exceptionally cautious and risk averse. Hmm, it looks like another case of the left betting against human nature.

Another problem with Obama Care is that, since some states can and have opted out of expanded Medicaid, a large number of the near poor are ineligible for subsidies. This results in the bizarre and inequitable situation of a few dollars of less income costing the near poor around $5,000 to $15,000 worth of subsidies. It is also likely to result in the vast majority of these people not signing up, since many if not most of them are exempt from even the appearance of facing a fine for non-participation. We should expect to see these people using the traditional route to subsidized medical care, the emergency room, with all its adverse effects on the cost effectiveness of the system.

Well what can be done to fix these problems. First, everyone, and I mean everyone, has to start playing nicer. The Democrats can't fix Obama Care without the cooperation of the Republicans and the Republicans can't get this and other forms of entitlement spending under control without the cooperation of the Democrats. Both sides should give up the dream of every being allowed complete control of the House, Senate, and White House again. Clearly, neither side could or should be trusted with that much power.

Obama Care can be turned into a good and a far less fiscally irresponsible program with a few key steps:
 
1) Raise the penalties on individuals for not having insurance as high as the lowest cost plan and give the IRS full authority to collect those taxes.

2) Tax employer provided health care benefits as income to the employee (just like all other employer provided benefits) and eliminate the mandates and penalties designed to make employers provide health care benefits. This will remove the job killer aspects of the act.

3) Raise the required co-pays and deductibles under all of the qualifying plans except for immunizations, the treatment of communicable diseases, and high-leverage preventative care.

4) Lower the magnitude of the subsidies provided under the program, but extend these subsidies to individuals who are currently not qualified by virtue of their states refusing to accept the expansion of Medicaid.

Doing all of these things would give us a robust individually based health insurance system in which no one could be denied care because of preexisting conditions. This system would also provide better incentives for cost containment, and a more equitable treatment of the poor and near poor.

Any thoughts?

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