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President Obama has made it clear thatreforming the American health care system will beone of his top priorities. In response, congression-al leaders have promised to introduce legislationby this summer, and they hope for an initial votein the Senate before the Labor Day recess.While the Obama administration has not, anddoes not seem likely to, put forward a specific re-form plan, it is possible to discern the key compo-nents of any plan likely to emerge from Congress:
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 At a time of rising unemployment, the gov-ernment would raise the cost of hiring work-ers by requiring employers to provide healthinsurance to their workers or pay a fee (tax)to subsidize government coverage.
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Every American would be required to buy aninsurance policy that meets certain govern-ment requirements. Even individuals whoare currently insured—and happy with theirinsurance—will have to switch to insurancethat meets the government’s definition of “acceptable insurance.”
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 A government-run plan similar to Medicarewould be set up in competition with privateinsurance, with people able to choose either pri- vate insurance or the taxpayer-subsidized pub-lic plan. Subsidies and cost-shifting would en-courage Americans to shift to the governmentplan.
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The government would undertake compara-tive-effectiveness research and cost-effective-ness research, and use the results of thatresearch to impose practice guidelines onproviders—initially, in government programssuch as Medicare and Medicaid, but possibly eventually extending such rationing to pri- vate insurance plans.
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Private insurance would face a host of new regulations, including a requirement to in-sure all applicants and a prohibition on pric-ing premiums on the basis of risk.
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Subsidies would be available to help middle-income people purchase insurance, whilegovernment programs such as Medicare andMedicaid would be expanded.
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Finally, the government would subsidizeand manage the development of a nationalsystem of electronic medical records.Taken individually, each of these proposalswould be a bad idea. Taken collectively, they woulddramatically transform the American health caresystem in a way that would harm taxpayers, healthcare providers, and—most importantly—the quali-ty and range of care given to patients.
Obamacare to Come
Seven Bad Ideas for Health Care Reform
by Michael Tanner
_____________________________________________________________________________________________________
 Michael Tanner is a senior fellow with the Cato Institute and coauthor of 
Healthy Competition: What’sHolding Back Health Care and How to Free It
(2007).
Executive Summary 
No. 638May 21, 2009
 
Introduction
President Obama has made it clear thatreforming the American health care system willbe one of his top priorities. Administrationofficials have repeatedly referred to health carereform as Obama’s “top fiscal priority” andcalled the need to restrain the growth in healthcare costs “the single most important thing wecan do to improve the long-term fiscal healthof our nation.”
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In his first address to Con-gress, President Obama said, “Health care re-form cannot wait, it must not wait, and it willnot wait another year.”
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 And at a February 2009 White House Summit on health care re-form that included many of the congressionaland industry stakeholders, President Obama insisted that health care reform must be passed“this year.”
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Obama’s proposed 2009 budgetincluded $634 billion as a “down payment” topay for health care reform, although it con-tains no details about how that money wouldbe spent.
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In response, congressional leaders havepromised to introduce legislation by thissummer, and they hope for an initial vote inthe Senate before the Labor Day recess.
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President Obama apparently does not planto put forward a specific plan for reform.Rather, the Obama administration is offeringgeneral guidance and direction, while leavingthe details up to Congress. As Obama’s budgetdirector, Peter Orszag, told a congressionalcommittee, “On exactly what the administra-tion does and does not favor on the benefitsand coverage side, you should not expect andyou will not be receiving definitive answersfrom me.”
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This strategy stems from the belief of many administration analysts that one reason forthe failure of President Clinton’s attempt athealth care reform was that the Clintonadministration developed a specific plan insecret, without congressional input, thenattempted to force Congress to accept it. AsPresident Obama told ABC News, “They wentbehind closed doors and tried to come up witha plan all by themselves.”
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Still it is possible to discern the outlines of what a health care reform proposal acceptableto the White House will look like. PresidentObama outlined his ideas in considerabledetail during the campaign. His first choice forsecretary of health and human services, formerSouth Dakota senator Tom Daschle, wrote a book on health care reform last year.
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WhileDaschle’s nomination had to be withdrawndue to his failure to pay income taxes, his coau-thor, Jeanne Lambrew, remains as deputy director of the White House Office of HealthReform, ensuring that Daschle’s views remainprominent. And Obama’s second choice forsecretary of Health and Human Services,Kathleen Sebelius, pushed several health initia-tives during her time as governor of Kansas.
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In Congress, Sen. Max Baucus (D-MT),chairman of the Senate Finance Committee,has released the outlines of a proposal.
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Sinceany health care legislation will have to passthrough his committee, Baucus will help shapeany final bill. Baucus has been working closely with Sen. Edward Kennedy (D-MA), who seeshealth care reform as his final legacy.
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SenatorKennedy has been meeting with industry stakeholders and is preparing to draft legisla-tion. While the meetings have been held insecret, some conceptual outlines have leakedout.
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In addition, a bipartisan bill, sponsoredby Sens. Ron Wyden (D-OR) and RobertBennett (R-UT), has drawn White House atten-tion.
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 And finally, the $1.3 trillion stimulus bill,officially known as the American Recovery andReinvestment Act, contained a number of pro- visions laying the groundwork for PresidentObama’s vision of health care reform.
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If one looks at these various proposals,outlines, and statements, the broad parame-ters of the final proposal begin to emerge. Itwould not initially create a government-run,single-payer system such as in Canada orBritain. Private insurance would still exist, atleast for a time, but it would be reduced to lit-tle more than a public utility, operatingmuch like, for example, the electric company,with the government regulating and control-ling every aspect of its operation.
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It is possibleto discern theoutlines of ahealth carereform proposalthat would beacceptable to theWhite House.
 
Coverage would be mandated, both foremployers and individuals. A government-runplan, similar to Medicare, would be set up incompetition with private insurers. Peoplecould choose either private insurance or thepublic plan. The government would under-take comparative-effectiveness and cost-effec-tiveness research, and use the results of thatresearch to impose practice guidelines onproviders—initially in government programssuch as Medicare and Medicaid, but possibly eventually extending such rationing to privateinsurance plans. Private insurance would facea host of new regulations, including a require-ment to insure all applicants and a prohibi-tion on pricing premiums on the basis of risk.Subsidies would be available to help low- and(most likely) middle-income people purchaseinsurance. And the government would subsi-dize and manage the development of a nation-al system of electronic medical records.The net result would be an unprecedentedlevel of government control over one-sixth of the U.S. economy and some of the most impor-tant, personal, and private decisions that Americans make. This approach sets the stagefor the eventual evolution into a single-payersystem. The result would be disastrous for American taxpayers, the health care industry,and most importantly, health care consumers.Let us look at some of the likely provi-sions of a health care reform plan in moredetail.
An Employer Mandate
 As a candidate, Barack Obama said hewould require all employers to provide theirworkers with insurance through a “play orpay” mandate. Employers who do not provide“meaningful coverage” for their workerswould be required to pay a penalty equal tosome percentage of their payroll into a nation-al fund that would provide insurance to thoseuncovered workers.
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This is an idea that will almost certainly findfavor with congressional Democrats. SenatorBaucus, for example, has endorsed such anapproach, using a sliding scale for the requiredcontribution with small and mid-sized compa-nies paying less than large firms.
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 And SenatorKennedy has long supported an employer man-date. In the House, the chairmen of the threemost relevant committees—Charles Rangel (D-NY) of the Ways and Means Committee, Henry Waxman (D-CA) of the Energy and CommerceCommittee, and George Miller (D-CA) of theEducation and Labor Committee—are all back-ers of an employer mandate.
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It is easy to understand why reformerswould consider an employer mandate. Healthinsurance through their employers is already the way that roughly 70 percent of Americansunder the age of 65 get their health insurance,which makes it an obvious platform on whichto build.
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In addition, large group purchasers,such as employers, enjoy economies of scalethat may reduce average administrative costs.However, there are several problems withan employer mandate. First, such a mandate issimply a disguised tax on employment. AsPrinceton University professor Uwe Reinhardt(the “dean of health care economists”) pointsout, “[Just because] the fiscal flows triggeredby mandate would not flow directly throughthe public budgets does not detract from themeasure’s status of a bona fide tax.”
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 And although it might be politically appeal-ing to claim that business will bear the new taxburden, nearly all economists see it quite dif-ferently. The amount of compensation that a worker receives is a function of his or her pro-ductivity. The employer is generally indifferentto the composition of that compensation: itcan be in the form of wages, benefits, or taxes.What really matters is the total cost of hiringthat worker. Mandating an increase in the costof hiring a worker by adding a new payroll taxdoes nothing to increase that worker’s produc-tivity. Employers will therefore seek ways to off-set the added costs by: raising prices (the mostunlikely solution in a competitive market);lowering wages; reducing future wage increas-es; reducing other benefits (such as pensions);cutting back on hiring; laying off current work-ers; shifting workers from full-time to part-time; or outsourcing.
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Althoughit might bepolitically appealing toclaim thatbusiness willbear the new taxburden, nearly alleconomists see itquite differently.
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