Gephardt's Health Care Plan Jude Wanniski May 20, 2003

Memo To: Website Fans, Browsers, Clients
From: Jude Wanniski
Re: It’s a 3X Loser

It’s still a long way to the presidential primary season, but it now looks like we will be getting monthly televised debates from the eight Democratic hopefuls. There have so far not been many new ideas coming out of the group, but Rep. Dick Gephardt of Missouri was first out of the box with a national health insurance plan. These plans have become too complicated for me to follow, especially as they never go anywhere. So I rely on Grace-Marie Turner’s analysis, as she has had her finger on the pulse for the last decade. It was her work with the conservative think tanks in Washington and with Republican Sen. Robert Bennett of Utah that undermined Hillarycare in the first years of the Clinton administration. So I asked her the other day if she had looked at the Gephardt plan and she sent me a commentary she wrote April 25 that appeared in several publications in the weeks since. As you see from her headline, she is not crazy about the plan.

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April 25, 2003
Lose-Lose-Lose
By Grace-Marie Turner

The universal health coverage plan announced by Democratic presidential hopeful Dick Gephardt would provide coverage to an additional 30 million Americans at an initial cost of about $210 billion a year.

That’s a gold-plated price tag of $7,000 per person.

And it’s only the beginning of the high cost of the plan.

Mandates for all. Every employer would be required to provide health insurance. An employer mandate by any other name is an employer mandate. Companies no longer would be able to deduct the cost of health insurance premiums from their gross receipts – worth approximately 30% of the cost of the coverage now – but would instead receive a 60% tax credit.

The National Federation of Independent Business and the National Association of Manufacturers have blasted the plan, saying that they object to making the voluntary system of employer-provided health insurance mandatory.

How would Rep. Gephardt pay for the expanded health coverage? He would rescind all of the tax cuts enacted in 2001 and any that will be passed this year.

Further, employers who want to reduce their health premium costs can forget it. If they do, they forfeit the entire credit.

Play, or else. Companies that don’t offer health insurance would have to start doing so. They would get the 60% refundable credit, and their workers would be responsible for 40% of the premium costs.

Many lower-income workers are opting out of employer coverage right now because they can’t afford it. Opting out would not be an option. Gephardt would, however, provide subsidies to some workers to offset part of their share.

Americans who are not employed most likely would be enrolled in existing federal entitlement programs – Medicare, Medicaid, and the State Children's Health Insurance Program.

In a speech on Wednesday [April 23] before the Service Employees International Union in New York, Gephardt said his plan “covers every American, stimulates the economy and creates jobs”.

The basic organizing concept of the Gephardt plan is to assume that government knows best how to redistribute and spend citizens’ money.

It is based on a Keynesian notion that government spending creates prosperity. By increasing taxes on workers to pay for the plan, he would be cycling money from taxpayers, through government, and to employers to be spent on health coverage or, he says, wage increases for workers.

The higher tax rates would be a disincentive for Americans to work, save, and invest. Instead, workers will have an extra incentive to consume as much health care as they can to get their money’s worth. And that is certain to accelerate health care inflation.

The more the government gets involved in paying for health coverage, the more strings will be attached to specify exactly what the insurance must cover. And history shows the requirements will not be reduced, with the Gephardt price tag likely going higher and higher, already estimated to be more than $2 trillion over 10 years.

And what’s the bottom line? The Gephardt plan would increase the number of Americans with health insurance to 97%, with 30.4 million of today’s nearly 41 million uninsured getting coverage…but with 10 million still outside the system.

The Gephardt plan is a clear employer mandate, paid for with a generous bribe of taxpayer money. Gephardt calls it a win-win-win for health coverage and economic stimulus, but it is a lose-lose-lose for consumer empowerment, market-driven cost efficiency, and continued innovation in health care financing.

The nation learned during the last battles over universal health coverage 10 years ago that sweeping changes in health reform are very difficult to pass.

A more targeted approach, such as providing refundable tax credits to the uninsured to purchase health coverage, would be more politically palpable.

Refundable tax credits would allow uninsured Americans to purchase private health coverage through a new system of health insurance options rather than expanding public programs that already are facing severe financial strains.

Tax credits would be a first step that could provide millions more Americans with health insurance, without the huge costs and disruption of trying to do too much all at once.

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Grace-Marie Turner is president of the Galen Institute, a not-for-profit research organization focusing on free-market ideas for health reform. She can be reached at P.O. Box 19080, Alexandria, VA 22320 or at galen@galen.org