The Magazine

The Next Worst Thing

As Obamacare fails, the president turns to Plan B.

Aug 10, 2009, Vol. 14, No. 44 • By FRED BARNES
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Watch out for Plan B. It's President Obama's fallback position on health care reform. It's Obamacare without the most controversial part, the creation of a government-run, "public" health insurance plan open to all comers at cut rate. And Plan B is something that Obama and the health insurance lobby both agree on.

Plan B is no day at the beach for health insurers. By imposing an exhaustive array of regulations and installing a powerful national health commissioner, it would turn health insurers into public utilities. They'd be assured a small profit, but competition among insurers would be gone and bureaucrats would be in charge.

Why would America's Health Insurance Plans (AHIP), the fancy moniker of the health insurance lobby, agree to this? Survival. They're reconciled to a sort of plea bargain to avoid the death penalty--that is, the government-run plan, which more likely than not would drive them out of business and lead to a single-payer health insurance system like Canada's.

To avoid this, AHIP is now supporting two provisions that insurers with good reason have long opposed. They've dropped the right to turn down anyone with a preexisting ailment and agreed to something called "guaranteed issue and renewal." It means they'll insure anyone basically forever.

To tout their new position, AHIP is running a 30-second TV ad. The spot begins with gloomy-looking people and lugubrious music, then switches to happy folks and sweeter music as the announcer chirps:

Illness doesn't care where you live or if you're already sick or if you lost your job. Your health insurance shouldn't either. So let's fix health care. If everyone's covered we can make health care as affordable as possible. And the words preexisting condition become a thing of the past.

AHIP's only demand--besides no government-run plan--is that everyone be required to buy insurance, the so-called individual mandate. Since Plan B would hike the cost of coverage, insurers would lose money unless the market is enlarged. They want dropouts who insist on being uninsured held to a minimum (they'd have to pay a penalty under Plan B). No problem there. Obama and congressional Democrats favor an individual mandate anyway.

As you might expect, there are many, many problems with Plan B. Its first impact would be on health insurers. All but the largest five or six of 1,300 insurers across the country would be out of luck. Since Plan B would reduce the profits for insurance companies, and those with smaller margins--namely, regional, state, and local insurers--probably wouldn't be able to compete.

"It's another chapter in the book on crony capitalism," says Republican representative Paul Ryan of Wisconsin, who first described Obamacare 2.0 as "Plan B." "The government erects barriers to entry against the smaller and most innovative insurance companies and leaves the big, established firms in place."

Insurers would be allowed to offer new policies after 2013 only if they joined a government-operated "exchange." And the policies would have to include a minimum--and more extensive and expensive--set of benefits. This would deny smaller firms their competitive advantage of offering insurance packages with fewer benefits, specially tailored for a client's needs.

Ryan raised this point recently during a hearing of the House Ways and Means Committee, asking about a small Milwaukee insurer. The answer he got was unequivocal. The firm couldn't offer new policies outside the exchange.

The biggest impact of Plan B would be on all of us, assuming it retains most or all of the regulatory requirements and details of Obamacare. There would be victims and beneficiaries. As insurers go out of business, people would lose the coverage they've chosen. Young people, the healthy ones, would suffer even more. They'd have to pay far more for their coverage. Cheap catastrophic plans and cost-saving health savings accounts would be unavailable. By paying more, those in their 20s and 30s would subsidize the old and sick.

With all the new benefits--for mental health treatment and "professional services" and "well baby/child" services--the total cost of health insurance is bound to soar. The poor and uninsured will need a subsidy. Caps on out-of-pocket expenses will increase the cost of insurance. And so on. The price will have to be paid through higher premiums and tax hikes.