Posted by
Andrews on Thursday, February 26, 2009 9:37:19 AM
I wrote earlier about Obama's health care plan. At the time I overstated his cost estimates by an order of magnitude, thinking he wanted $500 billion when he wanted $50-65 billion. That is just absurd. The Department of Education has a budget twice that and performs a much more simple task. In addition, health care is much more expensive than education, even education with one administrator for every teacher.
I think I know how Obama thinks this will work, but he is wrong.
You see, Obama keeps talking about "efficiency", but what he means by that is a variation on the DRG model, but with even lower payments. He will cut payments to private insurers on whom previous administrations placed the burden for payments to providers. By cutting this, he basically intends to impose a tax on insurance providers, paying them less than the procedures cost.
However, that will not work. He forgets that insurers can choose to get out of the health insurance business entirely. Of course he could mandate that they provide health insurance, but they can still either close shop or go bankrupt, which is especially likely if they are operating at a loss. That would definitely cause investors to pull out, bonds to be impossible to sell, and generally create a situation perfect for bankruptcy.
Which would mean the government would be back in the business of direct payments to providers, as well as evaluating claims. Which is certain to cause any supposed savings through efficiency to disappear.
But such a situation does favor one other solution, total nationalization of health care, which given Obama's political beliefs, seems something he is likely to do upon the first serious bump in the road.
But there is no way he is nationalizing for $50 billion. At that point, my estimates of $1-2 trillion per year seem modest.