What's Wrong with this Plan?

Written by David Frum on Wednesday April 2, 1997

For conservatives, the performance of the Republican Congress is rapidly deteriorating from the depressing to the embarrassing. Each week we wonder, can things get worse? And the answer always seems to be, yes, they can. Now Senator Orrin Hatch of Utah has unveiled a plan to give the Government an even greater role in health care.

For conservatives, the performance of the Republican Congress is rapidly deteriorating from the depressing to the embarrassing. Each week we wonder, can things get worse? And the answer always seems to be, yes, they can.

Now Senator Orrin Hatch of Utah has unveiled a plan to give the government an even greater role in health care. Senator Hatch and his Democratic co-sponsor, Senator Edward Kennedy of Massachusetts, propose to give states up to $5 billion a year to subsidize health coverage for children who lack insurance but whose parents earn too much to qualify for Medicaid. The Senators would raise the money by increasing the Federal tax on cigarettes by 43 cents a pack.

Politically, the plan is perfect -- Dick Morris himself couldn't have triangulated anything more clever. It goes after everybody's favorite bad guy -- the cigarette industry -- and redistributes the money to the most photogenic beneficiaries possible. But the plan begs a follow-up question: If Federal spending is the key to providing coverage for uninsured children, why hasn't the problem been solved already?

After all, back in 1986 Congress greatly enlarged the reach of Medicaid by permitting states to use Federal dollars to provide health coverage to all children under 19 they considered poor, even those whose parents didn't receive welfare. Then in 1990, Congress took a further step and made it mandatory that states provide Medicaid coverage to all poor children by the year 2002.

What has been the result of all this largess? In 1986, Medicaid consumed a little more than $27 billion a year. In 1997, the program cost $105 billion, and by 2002, when the mandate to extend Medicaid is to be fully imposed, it will cost more than $133 billion. Yet despite this colossal tide of money, the number of uninsured youngsters under 19 remains enormous: an estimated 10 million (as compared with 7.8 million in the late 80's).

So Senators Hatch and Kennedy are now suggesting that the Government spend even more: Their program would subsidize even families earning up to 185 percent of the official poverty level, or nearly $20,000 a year.

Some might say, well, why not insure all the kids we can? Because the Hatch-Kennedy plan would not be as helpful as it seems.

First, few people really believe that insurance is a children's issue. The real casualties of the breakdown in the insurance market aren't 15-year-olds -- they tend not to need much medical care in the first place -- but older people, like the 50-year-old salesman who was downsized a year ago and is now working part time without benefits. Health-care reforms that ignore the middle-aged in favor of children are sentimental, not sensible.

Second, the Hatch-Kennedy proposal has a perverse incentive for employers: It would encourage them to quit providing health benefits to their workers. Employers pay the cost of health benefits, for the most part, not because they're kind-hearted, but because they couldn't attract workers otherwise. When unscrupulous employers of low-wage labor hear that Washington is volunteering to take responsibility for every working parent's biggest worry -- his or her children -- they will be tempted to offload that cost.

Third, the financing plan for Hatch-Kennedy is extremely wobbly. The $5 billion it would give the states wouldn't insure very many kids -- probably fewer than half of those now without coverage. And that's before employers accept Hatch-Kennedy's invitation to reduce coverage for their workers' children.

Fourth, nobody can truthfully promise to bring the number of uninsured children down to anywhere near zero through a Government program. Too many of the uninsured young -- at least one million of them and possibly twice that number -- are the children of illegal residents and therefore are ineligible for any Federal benefit.

The sad truth is, the failures of the American health-care system are what doctors call iatrogenic: a problem caused by failed attempts to cure it. Yet members of Congress who complain that insurance is unaffordable ought to remember the enormous new costs they themselves have imposed on providers. For example, it's now illegal to sell a health-insurance policy that does not include mental health benefits and a minimum 48-hour hospital stay for new mothers.

Yes, mental health coverage and 48-hour maternity stays are desirable things. But it makes no sense to require that every plan be as loaded down with features as a brand-new Cadillac if that means that millions of Americans are locked out of the health-insurance market as a result.

What America needs from Washington is not more regulation followed by more subsidies to compensate for those regulations. Rather, the Government should allow insurers and other health-care providers to sell basic coverage that lower- and middle-income earners can afford on their own. And it should give the self-employed and others who buy their own insurance equivalent tax benefits to those given businesses who provide coverage for their employees.

Americans should have a choice among comprehensive health plans, but the 38 million uninsured -- adults and children -- need a stripped-down plan that's adequate and affordable: a Model T for health insurance. This idea may not poll well with focus groups. But over the long term it would do more good than any policy gimmick that's come out of Washington so far.

Originally published in the Financial Post.