Tuesday, August 18, 2009


Economist Arthur Laffer in a beautiful column in the August 5 Wall Street Journal tells why, though we need improvement, we don’t need health-care reform.

Laffer starts off with the proposition that people like their health care; 70% of them are satisfied with it. Pollster Scott Rasmussen writes that in early August, 68% of American voters rated their insurance as “good or excellent,” with 74% rating the quality of their health care as good or excellent, and 50% believing that if ObamaCare becomes law, the quality of health care will decline (WSJ August 7).

Polling last February, Rasmussen found that by 2 to 1, no matter how bad things are, Congress can always make them worse. Then why not give up the idea of reforming health care and just repair it? Some 55% think it could be improved.

The problem is not quality but cost, which is so high that it certainly means higher taxes, probably inflation, and conceivably even bankruptcy. Medicare has unfunded obligations amounting to $36 trillion. “The problem with socialism is that eventually you run out of other peoples money,” as Margaret Thatcher has said.

What Laffer found in his research on the U.S. economy is that a $1-trillion increase in government subsidies is accompanied by higher health-care expenditures and lower growth of the economy.

There is nothing to stop consumers from seeking more than they need as long as they do not pay for it. They don’t care about cost. Only the doctors and drug companies care about cost. If the doctor is free, there is no reason why consumer-patients should not go to the doctor even when all they have to complain about is a hangnail.

Consumers are provided with quality care at very little direct cost to themselves. The problem, according to Laffer, is that there is a huge gap between what health care costs the specific provider, and what that provider receives towards the cost. How to bring those two closer together? Answer: Involve the consumer in the process.

Under the ObamaCare reform, who—beside the usual taxpayers—pays? Small businesses because their insurance costs will be so high; they will have to fire some employees. And large employers, who will have to pay 2% to 8% of payroll if they do not insure their employees. And the rich, who can flee. Unemployment will rise. Medicare cost is presently, in the midst of a recession-depression, increasing at 11% a year.

Rationing, as in Great Britain and Canada, is inevitable. Indeed, signs of rationing have already appeared. Medicare has stopped paying for virtual colonoscopies and has directives or payment policies on the use of certain cancer drugs, diagnostic tools, and asthma medications.

Repair can be instituted and costs controlled by changing certain policies: mandating minimum coverage; mandating that pre-existing health conditions not be ignored; state laws preventing insurance companies from competing across state lines (in Georgia, private policies are available at less than $100 a month); equalizing taxes on employers and individuals that impose higher taxes on individuals’ insuring themselves; tort reform ending ruinous lawsuits that force doctors to call for every imaginable superfluous test to insure against lawsuits. These policies increase costs without increasing revenue.

And, adds John Mackey of Whole Foods Market, we should improve poor health by exercise and diet. Three-fourths of health-care spending is for health problems involving diet and lifestyle behavior (WSJ August 12).

Critics agree that a way must be found to involve the consumer-patient in the cost of Medicare. The process, says Laffer, must be “patient-centered.” When the cost of one’s visit to the doctor’s office is borne by the patient, he will not look upon the doctor as free. He will take an interest in the cost, even perhaps inquire of the doctor how much his visit is costing. When enough patients ask this question, the doctor may post his costs.

These are what patients want: “immediate, measurable ways to make health care more accessible and affordable without jeopardizing quality, individual choice, or personalized care.” We have superb medical care and must not do anything to lose it.

Laffer urges that individuals own their own individual insurance policies, which should have low premiums and high deductibles. They should have their own Health Savings Accounts to pay their medical costs. Senator Tom Coburn, a cancer survivor and a doctor, would give every family $5600 for a Health Savings Account. Senator McCain would give everyone a voucher.

Economist Laffer gained fame as the creator of the Laffer Curve, which shows the relation between tax rates and tax revenue. Lower tax rates stimulate entrepreneurs and investors to change their policies, improving economic growth. High tax rates repel entrepreneurs and investors.

That theme appears in Laffer’s book, "The End of Prosperity: How Higher Taxes Will Doom the Economy—If We Let It Happen." He recently fled from the high-taxing state of California to low-taxing Tennessee. His research on the U.S. economy is available on The Prognosis For National Health Care Insurance.

By Natalie Sirkin
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