The Ludwig von Mises Institute

The Mises Institute monthly, free with membership

July 1996
Volume 14, Number 7

Two years ago, the Clinton administration fell into near total disrepute among the public. The primary reason was its plot to socialize and nationalize the entire medical industry and conscript doctors and patients into a central plan.

Conservatives, Republicans, and free-market economists fought back in a well-financed PR blitz. These groups roundly, and rightly, denounced the administration as nearly totalitarian for assuming it could override the free market and provide equal health care to all.

This campaign was a model of how threats to liberty and the free market can be defeated once exposed. The public has no desire for big government today. People need only be told about the plans of the elites, inspired into political action, and those plans will be reduced to tatters. The same fate should befall any similar Republican scheme.

What was the core of Clinton's "Health Security Act"? Let's look at Health Security: The President's Report to the American People. "Every American," wrote Clinton, "must have the security of comprehensive health benefits that can never be taken away.... We must--and we will--outlaw insurance company practices that discriminate against consumers and small businesses and make care available to all Americans, no matter where they live or how old or sick they are."

Is that socialism? Of course. If insurance companies aren't allowed to take into account how sick a person is, or is likely to be, there is no way to compute risk, assess profits and losses, cut costs rationally, or otherwise allow a market to work the way it should. The voluntary market system, in which medical services are delivered on a free enterprise basis, is pushed aside by a command-and-control system that ends up creating more problems.

There were plenty of spin-off complaints. The plan would have required premium caps and price controls. It would have dictated a benefits package for insurance companies. It would have forcibly created risk pools based on demographic lines and caused population shifts. It would have required federal coercion for enforcement. All this and more was in the massive arsenal of the bill's opponents.

Political experts also say the Clinton medical fiasco--led by his wife Hillary, called a Marxist by Congressman Dick Armey--was key to the Republican takeover of Congress. Some observers even suggested that the president, much less his wife, would never recover from this legislative fiasco.

Then: it was the Republican's turn at bat, and history quickly turned to farce. The leadership decided it needed to pass a health care bill before the November election. Democrat Ted Kennedy, a longtime proponent of socialist medicine, then cooperated with Republican Nancy Kassebaum to produce a bill in the Senate, while the House introduces its own version. The Senate bill covers mental health (in case the Senators have to reenter the private sector?), while the House bill offers some specialized tax breaks, but otherwise the bills are identical.

Incredibly, the core of this Republican-backed bill is exactly the same as the Clinton bill. Look at the section of the bill called "Guaranteed Availability of Health Care Coverage," and compare Bill Clinton's grandiose promises with the actual language from the Republican side:

"An insurer may not decline to provide whole group coverage to employers; and a group health plan (whether an insured health plan or self-insured health plan) may not establish eligibility, continuation, enrollment, or contribution requirements for participants or beneficiaries based on: health status, medical condition, claims experience, receipt of health care, medical history, evidence of insurability, or disability of a participant or beneficiary."

That's legislative language for a mandate to replace the market with a broad government demand for exactly what Bill Clinton promised: "We must--and we will--outlaw insurance company practices that discriminate...."

There's more that links the repudiated Clinton plan with the beloved Republican plan. There's "Guaranteed Renewability," mandated and state-certified "Health Plan Purchasing Coalitions," and vague insinuations of premium caps. A "study," for example, will assess "the need for Federal standards that limit the variation in health insurance premiums...."

There are criminal penalties for "federal health care offenses," as Jane Orient of the American Association of Physicians and Surgeons discovered. It imposes fines up to $10,000 "for each instance" of what it calls "health care fraud"--meaning not complying with the new dictates--and prison terms up to 10 years. For violations involving less than $100, one year in jail is the penalty.

Are the Republicans attempting to legislate socialism? Of course, just like Clinton before them. As James Glassman has written, "Inevitably Americans will arrive at the destination they rejected when Bill and Hillary Clinton proposed it: government-controlled health care."

Their bill, like Clinton's, forces insurance companies to fork over money for medical services for anyone and everyone, no matter how sick or healthy a person is, and equalizes premiums among all groups. This is the abolition of free enterprise. It is a command-based system that nationalizes insurance companies and socializes medical care in a piecemeal fashion.

The Republicans were right to ridicule the Clinton plan, predicting that it would lead to high prices, fewer services, shortages, and generalized disaster. But the Republican version of the same passed it overwhelmingly in the House; the Senate passed it unanimously. Bill Kristol's Weekly Standard and the Wall Street Journal, which were on the warpath against Hillary's bill, have cheered the new version to the skies.

The truth is that all respectable sides are pumping for a universal right to health care--or its equivalent in health-care insurance. The government is pleased to see to it that everyone can exercise that right. Already having endorsed the ends, Washington will have to go all the way and mandate the means.

In due course, the "poor" and the unemployed will be insured. Insurance companies will be forced to lump in high-risk, high-payout customers with low-risk, low-payout ones. The middle class will subsidize the poor, the healthy will subsidize the sick, and traits that cause people to be poor and unhealthy will no longer be discouraged.

Insurance is suppose to work like a business. Like all businesses, insurance companies survive and profit by providing consumers valuable products and services. When consumers pay premiums, they avoid financial risk, and these premiums cover losses and expenses incurred by the insurer. The insurer, in a free market, provides only what the consumers demand. Consumer are paying to reduce risk, not to subsidize other consumers. If they wanted to do that, they would contribute to charity.

What if, for example, Chevrolet attempted to raise its price by thousands of dollars To give extra revenue to the customers of Cadillac dealers. In short order, Chevy would be in financial trouble because consumers would shift to other sellers. They would have to lower their price if they are so allowed.

To prevent such involuntary subsidies, insurers must stratify consumers according to the probability of accidental loss. Where the probability is higher, premiums cover high insurance payouts. It also requires preventing intentional "accidents" by consumers. If life insurers were prevented from discriminating based on age and health they would be forced into bankruptcy.

The only mystery is how the Republicans got away with this. The answer is that they guaranteed profits for the largest and most influential special interest groups while providing just enough favors to potential opponents of the bill to buy their support. They knew leftists would have no incentive to expose the plot; in fact, the left secretly cheered.

We do need medical reform. But real reform would have to strike at the heart of the system. Today, 18% of total federal outlays go to Medicare and Medicaid. That must stop. If we removed the subsidies and mandates, prices would plummet, perhaps enough to remove the need for health insurance altogether. We also need to break up the medical monopoly and decontrol drugs and delivery services. The Republican bill does none of this; it is not a choice but an echo of the Democrats.

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Jeffrey Herbener teaches Economics at Grove City College

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