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The Government-Insurance Option Is Dead

Friday, 11 Sep 2009 | 8:39 AM ET

The day after President Obama’s impassioned speechfor big-government health care, Wall Street bet heavily that the so-called government-insurance option he supports is dead.

In a strong stock market on Thursday - the market’s fifth-straight daily rise (so much for the September swoon) - health-insurer shares advanced significantly.

Cigna increased 5 percent; Health Net almost 5 percent; Humana 3.5 percent; and UnitedHealth Group 1.5 percent. Hospital shares like Community Health Systems and Tenet Healthcare also rallied smartly, climbing about 5 percent each.

Drug company Pfizer rose more than 1 percent.

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These stocks would not have rallied if the public option looked alive. Corroborating this, the Intrade pay-to-play online betting parlor shows only a 24 percent probability of the government option passing by the end of this year. Also, of 17,308 respondents in a Politico poll, 38 percent registered thumbs-up for the president’s address while 58 percent said thumbs-down.

Presidential speech pedistal
Photo by: Pete Souza
Presidential speech pedistal

Obama’s speech was not a game-changer.

Good delivery, bad product.

And at the top of the list, the new government-insurance option, which surely is a gate-opener for the government takeover of the entire health-care sector, is a clunker.

The public doesn’t like it. Moderate and conservative Democrats don’t like it. Republicans can’t stand it. And Wall Street doesn’t want it.

Hence, the Dow’s 80-point rally the day after the speech.

But the free-market option is still nowhere to be found. Right now Sen. Max Baucus is working to save President Obama’s face, with a kind-of Obama Lite plan coming out of his Senate Finance Committee. But Mr. Baucus’s framework has individual and business mandates, and it surely will give the government an even stronger whip-hand on health care.

There are taxes galore for this $900 billion baby. It includes a 35 percent excise tax on high-end insurance policies, plus billions more in taxes on insurers, drug companies, and medical-device makers. Government boards will determine value, quality, and quantity for doctors, hospitals, and clinical laboratories. Folks who opt out could face a $3,800 tax (based on a family of four).

At the end of the day, thoroughgoing free-market choice and deregulation is just as missing in action under Baucus as it is under Obama. There’s a bipartisan deal to be had, one that would deregulate health insurance across state lines. It could pass the Senate. But Democratic leaders aren’t going there. For some reason they won’t put the market to work.

In other words, there’s no real market and no real choice in Democratic health reform.

Under the Democratic plan, seniors are even going to lose Medicare choice. A $500 billion reimbursement cutback of Medicare to health-care providers would wreck private health-care profitability. And other casualties could include the 11 million people in the Medicare Advantage program (which allows insurance choice) and the 8 million in health savings accounts. These will be scrapped under Obama-Baucus.

So we’ll be left with the same health-care insurance system that is dominated by big government, big business, and big insurance companies. Government and the insurance lobby love their oligopolistic powers. But it’s exactly these third-party payers who create the supposed free lunch that unnecessarily bloats the expenses of the health-care system.

Only the free market will solve our cost problems, doing it in a way that no other government program can.

And speaking of free-market consumer choice and competition, wouldn’t it be nice if the 12 million low-income and chronically uninsured folks in America today got vouchers or refundable tax credits so they could shop around for the best plan available? In fact, to promote real free-market choice, the entire insured population should get a tax break so that everyone can purchase plans on a pre-tax basis, just the way businesses do. And the free-market cost control of government expenses can coexist beautifully with the continued rapid growth of the private health-care sector -- which is fast becoming America’s number-one industry.

In an article for the American Enterprise Institute, Noble Prize winner Robert Fogelargues skillfully for a fast-growing private health sector to accommodate baby-boomer retirements and take advantage of the breathtaking technological gains in health care. He’s right. We don’t need Malthusian growth-limits on health care. It’s an economic-recovery sector. It even created 400,000 new jobs during this deep recession. It now employs 13.7 million people, more than the whole manufacturing sector.

But what we do need is effective consumer choice and market-oriented policies that will control the government’s health-care sector and prevent it from spending, borrowing, regulating, and taxing us to death.

On CNBC.com now:

Questions? Comments, send your emails to: lkudlow@kudlow.com

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  • Lawrence Kudlow is a CNBC senior contributor. Previously, Kudlow was anchor of CNBC's prime-time program "The Kudlow Report"