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Crouching Tiger Hidden Costs

March 21, 2010

Can you say “Death Panel“? This is from the Wall Street Journal editorial:

Once the health-care markets are put through Mr. Obama’s de facto nationalization, costs will further explode. The Congressional Budget Office estimates ObamaCare will cost taxpayers $200 billion per year when fully implemented and grow annually at 8%, even under low-ball assumptions. Soon the public will reach its taxing limit, and then something will have to give on the care side. In short, medicine will be rationed by politics, no doubt with the same subtlety and wisdom as Congress’s final madcap dash toward 216 votes.

As in the Western European and Canadian welfare states, doctors, hospitals and insurance companies will over time become public utilities. Government will set the cost-minded priorities and determine what kinds of treatment options patients are allowed to receive. Medicare’s price controls will be exported to the remnants of the private sector.

All bureaucratized systems also restrict access to specialists and surgeries, leading to shortages and delays of months or years. This will be especially the case for the elderly and grievously ill, and for innovation in procedures, technologies and pharmaceuticals.

Eventually, quality and choice—the best attributes of American medicine in spite of its dysfunctions—will severely decline.

Democrats deny this reality, but government rationing will become inevitable given that overall federal spending is already at 25% of GDP and heading north, and Medicare’s unfunded liabilities are roughly two and a half times larger than the entire U.S. economy in 2008. The ObamaCare bill already contains one of the largest tax increases outside the Great Depression or the world wars, including a major new tax on investment income—and no one seriously believes it will be enough.

The French Cowboy believes that Republicans should be careful in predicting that ObamaCare will be unpopular after its enactment. That really depends on how attentive Americans track the causal connections between soon-to-be benefits on the one hand and the costs and rationing that will set in years from now on the other hand. The bill is purposely crafted in a way that will result in some benefits to become obvious early on and the costs stay hidden for a long time.

For instance, as soon as ObamaCare is passed, insurance companies will no longer be allowed to reject people. That’s a palpable benefit for everybody, mostly of course for people with pre-existing conditions. Also, doctors will no longer be allowed to turn down Medicare patients, another evident benefit. That is all well and there is nobody who would not prefer to have it that way. The problem is that such upsides come with costs.

The ObamaCare bill does not try to minimise costs, but to hide them. It does so in two ways: 1) by delaying the onset of tax increases, rationing etc and 2) by making those costs look smaller, eg by sprinkling them over small voter groups (people with rare disease X don’t get treatment) or by spreading them over large groups but in small numbers (“just a tiny 2% out-of-pocket fee”).

The bulk of deficit increases triggered by this bill will come only ten years from now. And it is then when a desperate search for tax bases and possible cost reduction measures will start. Democrats are clearly banking on the public to have a short memory and not draw the direct connection between a fiscal mess and the enactment of ObamaCare ten years earlier, ie today. Unfortunately, that is a bet they can win.

The best thing Republicans can do is to keep on reminding people that there is no such thing as a free lunch. During the first months under ObamaCare people will be well aware of that. But it can happen that they get used to certain benefits while the sky does not fall on their heads (yet) and will wake up only once the health care sector is about to crash. So the best chances to repeal ObamaCare is shortly after its enactment – or when it’s done so much harm that nobody can ignore it anymore.

Republicans also should always keep their proposals to improve the health care system ready at hand at all times. This Obama bill is not the only way to make life easier for those who really need help in their health care situation. But it’s easily one of the worst.

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