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Subsidies Old and New

The system Obamacare destroys.

Jul 16, 2012, Vol. 17, No. 41 • By IRWIN M. STELZER
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President Obama has one thing right: Obamacare will end the process by which insured patients, or those capable of paying from their own pockets (e.g., the rich Saudi princes who inhabit the best suites in our hospitals), subsidize patients who show up in the emergency room, are treated, and then cannot pay their bills. That raises the cost charged to insured and self-paying patients as hospitals recoup their bad debts from caring for the poor.



But let’s talk about what subsidization in health care is really like, or at least until now has been like. When I was a kid on the Lower East Side of New York City, the family doctor operated out of his apartment on the ground floor of what today would be called a brownstone. Some of his patients paid cash, at varying rates based on the doctor’s understanding of the financial circumstances of his neighbors. Those who were really strapped paid either in kind— chicken soup was one of the coins of choice—or not at all. Those in more comfortable circumstances paid fees somewhat higher than they otherwise would have been to support the neighborhood doctor. Call it subsidization.

Later, when creeping affluence enabled those who did not fully appreciate the romance of the neighborhood’s urban attractions (including sewer covers to measure the distance of stickball hits) to move to Queens—apartments with sunken living rooms in large buildings were the escape of choice—and the next generation of doctors took up offices in Manhattan (Queens had so few hospitals that almost no one died in that borough, permitting its boosters to claim a health-giving climate), subsidization took a different form. My doctor, alas no longer with us, having passed from this life taking with him the idea that a doctor can make a house call, considered it his duty to serve the poor at a clinic in a hospital to which he devoted at least one day every week. There I was, once again subsidizing health care for the poor, since the doctor had to make a living, and charge in four days what he would have earned in five had he not devoted some time to the needy. No intervening government penalty if I refused.

Now, subsidization takes a different form, the one that so vexes President Obama. My insurer and I, between us, pay whatever bills our “health care provider” renders. Meanwhile, in the emergency room of Johns Hopkins in downtown Baltimore, the urban poor are being treated—in one instance by the same physicians who once cared for my mother-in-law in that same ER. She and her insurer paid whatever bill Hopkins rendered, as did I for whatever was being done to me upstairs. In effect, I joined my 90-year-old, far from affluent mother-in-law in subsidizing the health care of those who could not afford to pay for their own care.

Fast forward to President Obama and the Patient Protection and Affordable Care Act, aka Obamacare. The act does not, as the president claims, eliminate subsidization of the uninsured. It replaces a system of private, willy-nilly subsidization with a government-organized system of subsidization that transfers income from small businesses to their workers, from healthy to less healthy people, from people with no preexisting conditions to those afflicted with such misfortunes. In short, from those groups from which the government believes it is only “fair” to extract money to a worthier group, needy by whatever definition appeals to the government of the day (those earning four times the poverty level until revised). That this division between subsidizers and subsidized will change with changing political winds there can be little doubt, there being a long history in other programs of increasing the generosity of eligibility requirements. 

Nor can there be any doubt that the new government-run system of subsidization will be more costly than the informal system that has extended longevity without generating animosity between those who are, knowingly or unknowingly, helping out their less fortunate brethren; either overtly as has been the case with doctors, or covertly as has probably been the case with many paying patients. The act’s enforcers, the beloved agents of the Internal Revenue Service, are, according to the Government Accountability Office, requesting more than $300 million to “continue the development of new systems and modifications of existing systems required to support” Obamacare. Masses of new personal information will be gathered by the estimated 4,000 to-be-hired agents charged with enforcing the new system of subsidization.

Only someone who loves big government for its own sake, and despises arrangements worked out by free citizens with no help from government, could prefer the new system of subsidization to the one it replaces, worked out informally—not perfectly, but then it is the hunt for utopian perfection that got us Obamacare—by patients, doctors, and hospitals in what will soon be known as the good old days.

Irwin M. Stelzer is a contributing editor to The Weekly Standard, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).

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