As with most things, the new health care reform bill boils down to money. I was pleased at the beginning to hear President Obama start by saying we spend twice or thrice for the same level of health care enjoyed in Western Europe. We needed to stop the runaway inflation in the cost of health care.

Unfortunately, the Obama team decided to do this by pressing heavily on the insurance companies. The theory here is that if the insurance companies are held in check, in turn they will hold down the costs charged by the service providers, i.e. doctors, hospitals, drug companies, medical testing services, and so on. They forgot that the insurance companies have a conventient way to sidestep this challenge by simply reducing the costs they cover and/or passing on more of the cost to the insured. In short, the wrong way to get control of costs.

This strategy has now led to a confrontation between the Obama administration and one of its key political supporters, the labor unions. Obama is keen on imposing a special tax on health care plans that cost more than $8000 for a single person and $23,000 for a family plan. Again, the theory is that giving the health insurers less money will force them to hold the line on the fees charged by the providers. The problem is that most of these so-called “Cadillac” health care plans are held by labor unions. The unions reject this tax. However, Obama seems to be intent on this tax.
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I still say that we should work on the service providers directly. We need to put clamps on doctors and other medical service fees, drug costs, and the rest of the health care industry. One suggestion I have is to allow advertising and price competition between service providers and drug companies. As I have stated, opening the legal profession to price competition in the mid-1970s led to sharp reduction in the cost of legal services.

Addressing health care costs directly would have avoided this confrontation between the Obama team and its loyal political ally, the unions.