Y ou probably missed it. But a new school of economics was unveiled last
week shortly after health care reform passed the House of Representatives.
Speaker Nancy Pelosi stepped to the podium in the House chamber and said the
legislation will “unleash tremendous entrepreneurial power” and create
millions of jobs. “Our economy needs something new, a jolt,” she said. And
she and her Democratic colleagues had just delivered it.
Pelosi, author of the new departure in economic thinking, said we should
now “imagine a society and an economy where a person could change jobs
without losing health insurance, where they could be self-employed or start
a small business.” With health care reform, “their entrepreneurial spirit
will be unleashed.”
That’s not the half of it. While insuring 32 million more people, making
insurance “more affordable for the middle class,” producing “a healthier
America through prevention, through wellness and innovation,” and a whole
lot more—in addition to all that, the legislation creates “4 million jobs in
the life of the bill and [does] all that by saving the
taxpayer $1.3 trillion.”
The proper response if you believe Pelosi even a little bit is, “Thank
you, Nancy!” or perhaps simply, “Wow!” But restrain yourself. Pelosi has a
gift for economic lunacy. This wouldn’t be especially worrisome, except
Pelosi is second in line to the presidency and would be prime minister if we
had a parliamentary system.
So far as I know, Pelosi is the first person in the universe to regard
the lack of portability of health insurance as a deathblow to
entrepreneurship. This idea is, to put it mildly, farfetched. Is there
evidence that budding entrepreneurs have been deterred by the fear of losing
health insurance for a spell? Don’t bet on it. Are future Michael Dells or
Ted Turners or Pierre Omidyars suppressing their entrepreneurial juices
because their doctor visits aren’t covered? Please.
Pelosi, as is the habit of Democrats, cited an uncheckable and probably
imaginary case. “If they had a child with diabetes who was bipolar … they
would be job-locked,” she insisted. Maybe so. But a job-locked entrepreneur?
It’s surely overkill to revolutionize our entire health care system for the
sake of that rare bird. Besides, there’s COBRA, the federal law that permits
an employee who quits to stay insured for months.
The prospect of 4 million new jobs as a result of health care reform is
also fanciful. It’s based on a study by two economists sponsored by the
Center for American Progress (CAP), an advocacy group for liberal Democratic
legislation. The study claims the reform legislation will modernize the
health care system, generate administrative savings, slow the growth in
insurance premiums, and allow businesses to hire between 250,000 and 400,000
employees a year for a decade. On the basis of this, Pelosi acts as if
4 million new jobs are a slam dunk. She actually appears to believe
it.
The problem is the assumption about savings. Any savings from
modernization are likely to be more than offset by medical breakthroughs
that balloon the cost of care. The Beacon Hill Institute in Boston, using a
less rosy scenario than CAP, reached the more realistic conclusion that
health care reform will destroy 120,000 to 700,000 jobs over the next 10
years.
The CAP study echoes one of Obama’s cherished claims. Since his days as a
presidential candidate, he’s been insisting reform will “bend” health
spending downward. But this is more than a stretch. It’s a dream. History
tells a different story. When free or subsidized health care is offered by
the government (Medicare, Medicaid), the cost far exceeds initial (and
later) projections. This has been the case for state as well as federal
programs. Indeed, it’s a worldwide phenomenon. The one exception is the
Medicare prescription drug benefit, which uniquely relies on free market
competition. Pelosi, true to form, wants to replace that competition with
price controls.
Pelosi is a faithful believer in the notion you can defy the laws of
economic gravity and get more for less, once government steps in. Logic
suggests otherwise. Health insurers will be forced to offer more benefits,
including free preventive care, no annual or lifetime limits on coverage,
and insurance for those with preexisting conditions. That’s just for
starters. New taxes will be imposed on insurance companies and medical
device manufacturers. A package of new benefits and tax hikes is hardly a
recipe for cheaper premiums and lower overall health care costs.
Companies have already begun to figure out that their cost of doing
business will rise, which means they won’t be hiring. Layoffs are more
likely. Medtronic, which makes medical implements, said it might have to cut
1,000 jobs. It’s not only what businesses will pay for health insurance that
is bound to increase. They’ll lose a tax break for providing drug coverage
for retirees. And they’ll pay a higher Medicare tax for each employee.
There is one potential cost-cutting measure in the health reform
legislation. High-cost, “Cadillac” insurance plans will face a 40 percent
tax, which is certain to kill such plans and trim insurance costs.
But wait a minute. Pelosi didn’t like that tax. Four days after the
reform bill passed, the Senate and House passed a second measure, dubbed
“reconciliation.” Among other things, it delayed the 40 percent tax until
2018, a pretty good indication that the tax will never be levied.
Pelosi was in a joyful mood when reconciliation sailed through the House.
It boosted health care spending, increased regulation, raised doctors’ fees,
and added new taxes. Nonetheless, she asserted: “With this legislation in
place, families will have access to even more affordable care”
[emphasis added]. Her perverse school of economics had been vindicated
again.
Fred Barnes is executive editor of The Weekly Standard