Obama's Health Plan

Widely expected, Sen. Barack Obama introduced his universal health plan today at a speech in Iowa. There is nothing particularly new or inventive about the plan. It would retain private insurance for those who can afford to pay or have employer provided health care. Those without health insurance would get a subsidy based on a sliding scale. Obama would pay for it by "taxing the rich."

Obama said his plan could save the average consumer $2,500 a year and bring health care to all. Campaign aides estimated the cost of the program at $50 billion to $65 billion a year, financed largely by eliminating tax cuts for the wealthy that are scheduled to expire. President Bush wants to make those cuts permanent.

"The time has come for universal, affordable health care in America," Obama said in a speech in Iowa City, at the University of Iowa's medical school.

While Obama's plan is aimed at expanding coverage, he said cutting costs was also essential.

"We have reached a point in this country where the rising costs of health care has put too many families and businesses on a collision course with financial ruin and left too many with no coverage at all," Obama said. "This cost crisis is trapping us in a vicious cycle."

All three front running candidates have a preference for universal health care, through different mechanisms, but paid for in much the same way, through taxes (although Obama calls his the ending of tax breaks for the rich, it is still a tax increase).

The problem with all three plans and indeed any plan designed to increase coverage or reducing costs is that the American health "insurance" industry is not really insurance, but a third party payor system. The only difference is that the payer is a private insurance company and not the government.

Insurance is protection against catastrophic costs or costs beyond the means of most people to pay. A good example of true (or at least truer insurance) is homeowner's insurance. Homeowner's insurance covers damage caused by fire, storms, burglary, faulty construction or just household accidents, like pipes bursting or (as in my case) the wash machine springing a rather nasty leak. What homeowneer's insurance doesn't cover is maintenance, like lawn care, or everyday maintenance items.

But American health insurance pays for the everyday maintenance items like going to the doctor for a visit because you have the sniffles. The fact that most Americans only pay between $5 and $20 for a visit to the doctor's office (which the doctor charges between $50 and $80 on average) means that most of a doctor's bill is covered by insurance. Because the actual out of pocket cost is hidden for maintenance items, people consume more healthcare. The more healthcare they consume, the more the "insurance" company pays out and the more it must take in to cover the added payouts.

The never-ending spiral leads to higher healthcare spending, and higher premiums, pushing more and more people out of the insuranble realm.

The only way to cut healthcare costs over the long term is to change the way in which health insurance really works and go back to a true insurance system. Under a true insurance system, individuals have to pay out of pocket for maintenance visits. They can claim insurance coverage only after a certain deductible is reached, say $250 or $500 or whatever that individual is comfortable with.