It’s already clear that Obama’s tax plan is redistributive.  How about his healthcare plan? 

What is the Obama platform on this issue?  You can read what his campaign website describes as the full plan here.

The platform promises to do a lot of different things.  I have no particular expertise in healthcare policy, so I won’t attempt to comment on all of them.  I just want to point out two general ways in which Obama’s plan makes America’s healthcare significantly more redistributive, or, as we are saying nowadays, “socialist“.

First, Obama openly promises to expand government-subsidized and government-provided healthcare.  In point 6 of the second section of his plan, he promises to expand SCHIP and Medicaid.  These are unambiguously redistributive welfare programs that provide healthcare funds to low income individuals (Medicaid) or low and middle-income children (SCHIP).  In point 4 of the first section of his plan, he promises to subsidize the costs of catastrophic illness.  Because the costs of catastrophic illness are evenly distributed (let’s imagine) among the various income brackets, but the funds come disproportionately from the higher income brackets (because of income taxation), government catastrophic coverage will certainly redistribute and might fairly be called socialism.

Second, Obama’s creation of government insurance that covers pre-existing conditions creates a massive loophole and accomplishes an underhanded establishment of universal (socialist) healthcare.  How does it do this?  In three steps:

  • The plan assumes the creation of a new public healthcare policy.  I can’t find an actual explanation of the new public insurance policy that will be offered anywhere in the Obama healthcare platform (perhaps the document is intentionally vague?), but numerous sections assume it, perhaps most importantly, point 2 of the second section:

    Through the Exchange, any American will have the opportunity to
    enroll in the new public plan or an approved private plan…

  • The Obama platform requires private insurers to provide coverage to pre-existing conditions in point 1 of the second section. Because the platform does not explain the new public plan, it is unclear whether it will also cover pre-existing conditions.  It seems a fair assumption that it would; it is unlikely that Obama would offer a public plan that was less comprehensive than private plans could legally be.
  • The plan would almost certainly be government-subsidized.  Subscribers to the public plan would not be paying as much in premiums, altogether, as they would be receiving from it in insurance payments. Again, Obama does not describe the plan explicitly, so it is impossible to be sure, but on at least two occasions he describes the plan in such a way as to suggest it will be subsidized (though the words subsidy and subsidize never appear in the platform).  The new public policy would be funded by fines of certain businesses:

    The Obama-Biden plan provides new affordable health insurance options by… requiring all large employers to contribute towards health coverage for their employees or towards the cost of the public plan…

    And the new plan is referred to as a “federally supported” one and grouped together with Medicare and Medicaid:

    …federally supported health plans, including Medicare, Medicaid,
    SCHIP and the new public plan…

    In any event, the mere supposition that the public plan would be “affordable” would demand that there be some sort of subsidy, as I discuss below.

So how do these three steps create de facto universalized healthcare?  By creating a free rider problem and patching it over with subsidies.

By covering pre-existing conditions, the public plan removes most of the incentive Americans have to actually buy health insurance.  If you can sign up for public insurance once you get sick, you have little reason to sign up while still healthy.  Rather, you have a strong disincentive, because you would have to pay a monthly insurance premium, a premium that buys you nothing that you couldn’t sign up for later.

If people approached the system (economically) rationally, they would not sign up unless they were sick.  If all the policy holders were sick, the average cost to the insurer (the United States) would become very high because there would be no healthy policy holders to help pay the bills of the unhealthy.  The insurer (the United States) could get money to pay these costs in two different ways.  It could get it from the policy holders (a premium), or it could get it from the citizens of the United States (a tax).

Barack Obama’s goal in setting up the public plan seems to be to offer an “affordable alternative” to private healthcare plans – or at least, sentiments about the unaffordability of the private system litter his proposal, and it is a fair inference that he means his own plan to be cheaper.

Thus, Obama is precluded from raising the funds for healthcare through premiums.  Premiums for a policy held only by sick people must be higher than premiums for a policy held by a mix of healthy and sick people.  His public plan will have to be supported by a massive subsidy – and a subsidy implies a tax.

A plan with these characteristics becomes de facto univeral healthcare.  You don’t have to pay for it (or you pay very little, i.e. only when sick – but one could think of this as almost a high deductible), it is funded by taxpayer money, and it is available to all citizens.  Because the taxpayer money will likely come from the payroll tax, there will necessarily be a redistribution of wealth from rich to poor.  True, it’s a messy system, and leaves open plenty of ways for irrational actors to punish themselves if they don’t understand how to game the system (i.e. if they are responsible and buy healthcare while healthy), but it is nonetheless universal.

I’m unsure whether or not Obama realizes the significance of the free rider problem in this plan.  My guess is that he is aware.  He probably views it as a politically feasible way of tacitly enacting a universal system.  I oppose universalized healthcare in any case, but it is particularly to Obama’s discredit that he would surreptitiously advance it through a misunderstood free rider problem.

UPDATE: As a final note, consider that Obama’s healthcare plan would do much to socialize insurance in the academic sense of the word.  It is unclear whether private insurance carriers will be able to compete with the public plan.  We can take as given that the public plan will be as cheap or cheaper than current insurance plans (given Obama’s stated intention of providing an “affordable” alternative).  Surely private insurers won’t have access to the same subsidies as the government, so they won’t be able to compete in pricing.  At the same time, their costs will be driven up by the loss of healthy customers – their break-even premium will be higher than in today’s market, while Obama promises insurance with a cheaper premium.  It is more than feasible that ObamaCare would drive a large part of the insurance industry out of the market, leaving it firmly in the government’s hands.

UPDATE II:  Oops.  I originally misidentified the economic problem as moral hazard, when it is actually a free rider problem.  This doesn’t change the analysis, just the terminology.  Moral hazard is a different, more traditional problem caused by insurance.

Also, I have more about Obama’s healthcare plan here.