By Peter D. Schiff
Guest Columnist
Money Morning
Misguided government policies have already dealt vicious body blows to our economy, but that hasn't stopped politicians last week from launching two new kicks to the recovery - a national health insurance plan and a carbon emissions regulation system called "cap-and-trade."
Even if these plans could achieve their desired ends, which is highly unlikely, I would have hoped Washington would refrain from throwing more monkey wrenches into the economy until it shows some signs of resurgence. The last thing we need right now is to further encumber our economy with higher taxes and additional regulations.
The meteoric rise in healthcare costs, which has become an unending nightmare for U.S. businesses and consumers, is not an accident. This painful condition arose from excess government involvement in the system, tax provisions that encourage the over-utilization of health insurance, and government support of an out-of-control malpractice industry. Rather than allowing more bad policy to drive healthcare costs further upward, we should be looking at ways to allow market forces to reign them back in.
If left alone, the free market drives quality up and costs down. Government programs produce the opposite result. Despite the president's claim that a federal plan will bring costs down, there is no historical precedent for such faith.
Simply providing more widespread health insurance, as the Obama administration plan offers, is not a solution. In fact, it will aggravate the problem. Since consumers no longer pay for routine medical expenses out of pocket, comprehensive health insurance creates a moral hazard for both patients and doctors. To maximize the value of the health insurance "benefit," most workers opt for low deductibles and co-pays. Therefore, doctors learn that their patients are not concerned with the cost of care, and so they are free to bill insurance companies at the maximum allowable rates.
Given our current tax code, the simplest way to bring down medical costs would be to fully tax healthcare benefits as wages and simultaneously increase the personal deduction by an amount significant enough to neutralize the effect of the tax increase.
This would do two things: First, the uninsured would get a huge pay increase, enabling them to buy reasonably priced catastrophic policies. Second, those currently insured could opt out of expensive employer-provided plans, trading premiums for extra wages, then buy a more economical plan. The savings would go right into their pockets.
The bottom line is that aggregate medical costs won’t come down unless services are rationed more wisely. Rather than being used as a pre-payment plan for routine care, insurance should only cover unpredictable, catastrophic costs.
As a comparison, homeowners often carry fire insurance, but seldom maintenance insurance. You buy fire insurance to guard against a catastrophic loss, which is a low probability but high cost event. As a result, fire insurance is relatively affordable, since premiums paid by all those homeowners whose houses do not burn down more than pay for the losses on those few whose houses do.
On the other hand, no one carries home maintenance insurance to pay for a clogged drain or broken garage door. If insurance paid for the plumber visit every time a toilet overflowed, we would now have a plumbing crisis, and Congress would be looking to reign in runaway plumbing bills with "national plumbing insurance."
In his press conference, U.S. President Barack Obama claimed that government insurance would not drive private providers out of business. This is absurd. As the government provider will not have to produce a profit or accurately account for its contingent liabilities, it will provide insurance on an actuarially unsound basis.
With taxpayer subsidies, the government provider can run losses indefinitely. If private insurers did this, they would either be shut down or go bankrupt. Therefore, the cost of government provided health insurance will not be confined to the premiums paid, but will include the taxpayers' bill to continually bail out the government provider.
When Medicare was first proposed back in 1966, it cost $3 billion per year, and the projection was for inflation-adjusted annual costs to rise to $12 billion by 1990. The actual cost in 1990 was $107 billion, and the 2009 estimate is a staggering $408 billion! So much for government estimates on health care.
As if this were not bad enough, the House of Representatives voted to pass the American Clean Energy and Security Act, otherwise known as the "cap and trade" bill. Disguised as an environmental bill, this proposal is merely another gigantic tax.
The lion's share of the new revenue is already committed to politically connected special interests that will reap windfalls at everyone else's expense. To make matters worse, the bill before Congress amounts to a blank slate, with the Environmental Protection Agency (EPA) empowered to draft the details in any manner they see fit. If Congress is going to shoot the economy in the knee, they should at least be required to pull the trigger themselves.
"Cap and trade" will do nothing to reduce pollution, yet it will drive up production costs throughout the economy - rendering us even less globally competitive than we are today. In addition to the huge cost of paying the tax, its enforcement involves the creation of an entire new bureaucracy, the costs of which will be borne by American consumers in the form of higher prices.
Years of reckless borrowing and spending have left us in a gigantic hole. Getting out of it requires that we make the most effective use of all available resources. We need labor and capital to operate as efficiently as possible so we can save and produce our way back to prosperity.
Unfortunately, national health insurance and "cap and trade" are two steps in the wrong direction. Rather than getting us out of this hole, they will merely cave in the walls around us.
[Editor's Note: Peter D. Schiff, Euro Pacific Capital Inc.'s president and chief global strategist, is a well-known author and commentator, and is a periodic contributor to Money Morning. Schiff is the author of two New York Times best sellers: "Crash Proof: How to Profit from the Coming Economic Collapse," as well as "The Little Book of Bull Moves in Bear Markets." For a more-detailed look at the United States' ongoing financial problems - and for some strategies that will help you protect your wealth and preserve your purchasing power before it's too late - download EuroPac's brand-new free special report, "Peter Schiff's Five Favorite Investment Choices for the Next Five Years."
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News and Related Story Links:
- Wikipedia:
Emissions Trading. - Wikipedia:
Medicare. - International Business Times:
Cap and trade bill passes in U.S. after historic vote
I totally disagree with your callous comparison between health insurance and homeowners insurance. While I do understand your point there is no way you can compare rebuilding a house to keeping a human life alive and in good condition. If a house dies due to lack of maintenance (i.e. completely burns to the ground or disintegrates) a construction crew comes along and tears down the old and rebuilds a new structure and the owners move back in. If a person dies b/c he doesn't see the doc to treat a minor illness it could become a major illness and kill him. You can't rebuild the dead person no matter how hard you try (as far as I know there is no $6 million man tech yet available). There is absolutely no comparison between the two and you are 100% wrong about the health care issue.
As far as the cap and trade bill, it was the cap and trade law back in the late 80's early '90's passed to decrease acid rain, well that worked and on an economical basis. Cap and trade on CO2 will work as well.
How about some new Jobs. Real jobs, not cleaning toilets for the Wall Street Financial Geniuses.
The USA has created a situation that US gold; US currency; real estate title to US properties and other US assets are leaving the USA in amounts of annual value that are greater than they would be if US citizens were manufacturing the things that US citizens consumed. We must change this situation or we will become a post WWI Germany economically. This could happen overnight after we have sold title to all of our real estate, farms, agri-businesses, food supplies, dairies, forests, industries, breweries, hotels, factories, casinos, financial institutions, retail businesses, and all of the other assets located in the USA.
the crisis in health care cost is based on a very simple principle of supply and demand like any other SERVICE. The demand have increase with aging population living longer asking for the latest technologies been developed, but the supply side remains stagnant, specially in regards to medical supplies and technologies like scopes, stiches, needles, etc. etc., which is the most costly in the final bill, the government have created so many regulations and obstacles that is very difficult for the supply side to come up into the market and thrive and compete to drive costs lower, If I for example want to come in and produce for example scopes, i will have a living hell just to come up with regulatory compliance on top of a lawyer who is going to sue me for some gains finding any loophole. An orthopedic screw cost a lot compare to the same screw that is sold with the same material with same dimensions and specifications in the warehouse which cost cents of a dollar compare to hundres of dollars. The governmnet have created this political driven environment and have restrain the grow in the supply side of healthcare, they are the ones to blame for this imbalance in the health care service market.
Cap & Trade will further seal the fate of the working man to cleaning toilets or flipping hamburgers.
The Jobless Recovery will further eliminate US citizen employment.
Many US citizens find their situations economically hopeless today since de-industrialization moved their jobs to foreign countries where labor costs are much cheaper.
Riots and insurrections are predictable, ala the French Revolution and/or the Russian Revolution under these desperate conditions.
If the EPA were created in 1865, the USA would be a third world country today, no longer in existance, and probably speaking either German or Japanese.
Free markets cannot control the supply of and demand for health care for several reasons: Consumers do not have "perfect" knowledge of human anatomy, of medical procedures, drugs, or of their alternative choices. Medical care is price inelastic, i.e., we need most care even if the cost is high, very high, or thru the roof. Costs are also kept high by the medical profession, not by the government. The AMA (the largest lobby group) controls the number of medical school admisions, the supply of doctors, and hospital certifications, thus driving up physicians wages far above those that would prevail in its absence. Incomes among consumers are grossly skewed such that at least one-half of workers could not afford medical costs without some assistance by the government and by employer paid insurance. Thus, nearly all the safeguards provided by free markets with respect to most other products and services do not exist in the field of medicine. Schiff conveniently ignores these facts.
Somebody please explain why the government is trying to limit CO2. CO2 cools down the earth, and makes all plant life green. How can you "green" everything by getting rid of CO2? That is totally self-contradictory! Taxing the stuff all animals and man naturally breathe out, that's worse than what the founding fathers had to fight against during the Revolutionary War! Obama = King George??