Obamacare 2.0 Is a Job Killer

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WASHINGTON-Fifteen million Americans are unemployed and actively looking for work, and millions more have given up looking. Countless others are underemployed. Many working Americans worry whether they will have a job next month, and Americans who have health insurance fear they may lose it.

What should the Washington brain trust do to improve our economic situation? Surely two actions should not be on the table: (1) raise taxes which would discourage employment; and (2) deprive Americans of their health insurance policies.

Yet these two steps are at the heart of President Obama's health care "reform," released Monday. Like the House and Senate plans, it would raise about $500 billion in taxes over the next decade, discouraging employment, and it would outlaw most health insurance plans in America. Opposition to precisely this type of plan won Massachusetts Republican Scott Brown his seat in the U.S. Senate.

The unveiling of Mr. Obama's health "reform" plan sets the stage for Thursday's health care summit between Republicans and Democrats. Although some might think that the differences in plans are only political, they have vast ramifications for the future performance of the U.S. economy.

On Saturday, Mr. Obama declared, "It is clear that the status quo, while good for the insurance industry, is bad for the American people. After a year of exhaustive debate, it is time to move forward on reform."

The 11-page proposal the president unveiled yesterday melds elements of the House and Senate health reform bills and essentially turns the insurance industry into a regulated utility. Although Mr. Obama does not propose a public plan, he specifies what services health insurance companies must offer and creates a new Health Insurance Rate Authority to review premiums and oversee insurance market behavior.

The sheer size and cost of the program proposed by the president would inevitably lead to a larger share of the economy under government control and higher government spending. Taxes would rise, diminishing incentives to work, invest, and create jobs. Government controls on insurance premiums and health care expenditures would stifle innovation in pharmaceuticals, medical devices, and the delivery of health care services.

Since the president has not issued any specific legislative language, the Congressional Budget Office cannot even begin to calculate the cost of the bill, so the price tag will be unknown during Thursday's debate. Yet Congress Daily estimates that the president's plan will tally up at $100 billion more than the House and Senate plans, bringing the price over the next decade to a whopping $950 billion at a time when America's annual budget deficit is well above $1 trillion. This means that when taxes and spending are both fully phased in, outlays could reach $1.7 trillion over ten years.

As well as cuts in Medicare, often proposed but rarely realized, the program would be funded through a tax on expensive plans - individual plans that exceed $10,200 and family plans that exceed $27,500 - beginning in 2018; taxes on pharmaceuticals and medical devices; and an expansion of the Medicare Hospital Insurance payroll tax, which now covers wage and salary income, to interest, dividends, annuities, royalties, and rents.

According to the proposal, Americans who like their plans would be able to keep them under a "grandfather" policy. But, in an Orwellian twist, no existing plan could remain the same, because the government would require the "grandfathered" plans to change.

In the future, all health insurance plans would have to cover adult dependents up to age 26; put in place a stronger appeals process for those denied a particular treatment; give up any lifetime or annual limits on care; take everyone, irrespective of pre-existing conditions; give up any co-payments on preventive services, and be subject to an annual review of premiums by the state. With these required changes, plans - and premiums - would be very different.

Employers who don't offer health insurance and whose workers use tax credits to purchase insurance on the private market would be fined $2,000 per worker. For some firms this would create a substantial disincentive for hiring low-wage, unskilled workers such as teens, whose unemployment rate is now 26%, or adults without high school diplomas, who have a 15% unemployment rate. Other firms would be tempted to pay the penalty and get rid of the company health plan.

On Thursday Americans will have the opportunity of considering Republican proposals that would give all Americans refundable tax credits to choose among a wide variety of plans. For those who have chronic conditions that make them uninsurable, Republicans propose setting up risks pools - state nonprofit insurance associations.

Representative Tom Price, a physician from Georgia, proposes that employers allow workers to purchase insurance plans on the open market, just like portable pension plans. Employers would receive tax benefits for providing coverage, and workers would be able to choose from a variety of plans that they could carry with them when they change jobs.

Wisconsin Representative Paul Ryan's Road Map for America's Future, reintroduced last month, proposes refundable tax credits - $2,300 for singles and $5,700 for families - and choices of private insurance. All insurance plans that are licensed in a particular state would be eligible, and each company would be free to set its own premiums. Low-income individuals, and, beginning around 2020, Medicare recipients, would get extra tax credits so they could buy the same kind of health care as other Americans.

The Republican plans don't cost $1 trillion, adding to national debt; they don't raise taxes, slowing the economy; they don't impose mandates on employers, discouraging low-skill employment and reducing wages; and they attempt to give Americans a broader choice of plans, thereby increasing the efficiency in the delivery of health care services. Watch for these winning ideas during Thursday's debate.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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