Government-run Healthcare Is Still a Terrible Idea

April 17, 2009
Mike Hennessy

Few would deny that our current health system needs a fix, but the consensus ends when we get to the questions of how to fix it and who should fix it. Now, the Obama administration and a Democratic congress are diving in head-first.

The U.S. healthcare system is complicated. One reason is the splintered public/private system we currently have for funding healthcare, and the number of interests—including third parties such as pharmacy benefit managers—that have carved out a business model based on serving some subset of the market or helping providers make sense of the market.

At best, it’s a mash-up of a system with a host of flaws, not least of which is the employer-based model that was constructed for a different era of workers and used to be much more limited in scope. My father, though he worked for a major pharmaceutical company, paid out of pocket for prescription drugs. Now, employer-sponsored coverage has evolved into an entitlement program. Though some employers are looking for a “reset” button, most continue to be intimately involved in providing benefits to their employees, and the system hangs on in part because figuring out how to change it has flummoxed even domestic policy experts.

Few would deny that our current system needs a fix, but the consensus ends when we get to the questions of how to fix it and who should fix it. Now, the Obama administration and a Democratic congress are diving in head-first. In a recent Wall Street Journal article, Kerry N. Weems and Benjamin E. Sasse wrote, “Congress is currently away on a two-week recess…but staff negotiators are trying to come to agreement on a budget framework for 2010 and beyond… It appears likely that the budget deal will eventually include a government-run health-insurance option, or ‘public plan,’ to compete with private health insurance under the comprehensive health-care reform called for by President Barack Obama.”

President Clinton tried healthcare reform years ago, and you may remember that it was a spectacular failure. The Clinton plan failed for many reasons. An article by pollster John Zogby in the next issue of Campaigns & Elections’ Politics magazine makes the point that, “disunity 16 years ago helped bring down the Clinton plan.”

Perhaps this administration and this Congress believes that such disunity was a thing of the past, and that their current majority and a wave of good feeling post-election will give government-run healthcare a better shot this time around. Let me suggest that the same factors were in place for Clinton. “Disunity,” when it came, was mostly the result of schisms within the Democratic party.

History is about to repeat itself.

Advocates of government-run healthcare often point to Medicare as the model for expanding government control of all healthcare. In so doing, they ignore many key weaknesses of Medicare and its sister program, Medicaid, and they also underestimate the disincentives that public-run care would create.

But don’t take my word for it. Let’s read some more from the article by Weems and Sasse. (Weems served 28 years in the government, most recently as the head of Medicare and Medicaid.) “The comparison between public and private plans is a false comparison. Private insurance and public benefits are not the same business. For all its warts, private insurance tries to manage care. Medicare is mostly about paying the bills presented to it.”

The authors point out four key reasons a public plan replacing private insurance would lose some of the “efficiencies” Medicare provides. I’ll just quote from the first, though all four are valid: “First, private insurers must build provider networks. These networks can include high-value providers and exclude low-quality providers. Except for certain circumstances, including criminal acts, Medicare is forbidden from excluding poor quality providers. It lets in everyone who signs up. So one question to ask is, will the public plan have Medicare’s indifference to quality—or invest in the cost of a network?”

Other problems raised by the authors include Medicare’s inability to control fraud and abuse, and the need for a public plan to market itself if it is in competition with private plans. Weems and Sasse conclude, “The impulse to ‘just pass something’—a refrain heard often in the halls of Congress this spring—is not good enough. There are more governmental paths to making things worse rather than better. Ultimately, the desire of many advocates of a government-run health plan to exaggerate Medicare's efficiency derives from the fact that the program does not make a profit. These folks are motivated by the naïve assumption that most of the health sector’s ills could be cured if profit-seekers were excluded.”

In another WSJ article, Fox News medical contributor Marc Siegel, MD, wrote, “Here’s something that has gotten lost in the drive to institute universal health insurance: Health insurance doesn’t automatically lead to health care. And with more and more doctors dropping out of one insurance plan or another, especially government plans, there is no guarantee that you will be able to see a physician no matter what coverage you have. More and more of my fellow doctors are turning away Medicare patients because of the diminished reimbursements and the growing delay in payments.”

Siegel also directed some criticism at private insurers, who he says also make reimbursement too complicated and too small. He concludes, “Of course, we’re promised by the Obama administration that universal health insurance will avoid all these problems. But how is that possible when you consider that the medical turnstiles will be the same as they are now, only they will be clogged with more and more patients? The doctors that remain in this expanded system will be even more overwhelmed than we are now. I wouldn’t want to be a patient when that happens.”

In the long run, the status quo of the employer-based system will change. It has to. But it will be a slow evolution, and I sincerely hope it doesn’t involve public funding any more than it does now.

Mike Hennessy is Chairman and CEO of MJH & Associates. Click here for more Hennessy's Highlights