When is government-run healthcare not goverment-run health care?

When it’s supported by Republicans of course. . .

One of the main features of the “compromise” reached between conservative and moderate House Republicans on legislation “repealing-and-replacing” ObamaCare is to provide $15 billion of new funding for high-risk pools. These are special programs run by states that provide insurance for those who, because of pre-existing conditions or some other health problem, are unable to obtain healthcare from private markets.

High-risk pools are the Republican alternative to ObamaCare’s “guaranteed issue and community ratings” mandate. This mandate is intended to ensure every American has access to “quality” care. Of course, these mandates have caused many Americans to lose access to quality care. Therefore, these mandates need to be repealed and replaced, but that does not mean high-risk pools are the answer.

Supporters of high-risk pools argue by removing those with expensive medical conditions from the market — instead of requiring private insurance companies to cover their conditions — distortions caused by ObamaCare’s mandates are fixed. But the act of removing individuals from a market and placing them into a government program itself distorts the market. Not only do high-risk pools distort the marketplace, they do so at the expense of the very people who stand to benefit the most from a free-market health care system!

Supporters of high-risk pools also ignore that government spending also distorts the marketplace.

Increased government spending requires taking resources out of the private sector, either directly via income or other taxes, or indirectly via the “inflation tax” imposed by the Federal Reserve in order to help the government monetize its debt.

The spending on high-risk pools is likely to be “offset” with spending cuts in other areas. However, there is no guarantee that a future Congress will be so fiscally “responsible.” In fact, history suggests that federal spending on high-risk pools will exceed Congress’ projections. Consider that when Medicare passed, Congress projected its cost would be $9 billion in 1990, but it was actually $67 billion. And Medicaid was projected to cost $12 billion in 1990, but in fact it cost $98 billion!

Medicaid is also notorious for providing sub-standard care, despite costing billions — the opposite of what occurs in the marketplace. Medicare also provides sub standard care to many “beneficiaries.” Low reimbursement, as well as rules and regulations these programs impose on physicians, are causing many health care providers to withdraw from both programs. Therefore, it shouldn’t be surprising that the states’ experience with high-risk pools in the years before ObamaCare was not positive. Premiums for those in the pools rose to as much as three times those in private plans, while access to care was limited by regulations. Of course, under a free-market, those with pre-existing conditions would pay more for insurance, but in a truly competitive market, they would find care that meets their needs at an affordable price. In fact, as John C. Goodman points out here, in a free-market, health care providers would compete for the business of those with serious health problems.

And that gets to the real problem with high-risk pools … they cut off private innovation that would find solutions to meeting the needs of those with pre-existing conditions and make it possible for them to obtain heath insurance at the same (or similar) rates as others.

Campaign for Liberty Chairman Ron Paul has advocated for “long-term” contracts as a solution. As Dr. Paul described it in a 2013 column:

Long-term group insurance contracts could ensure that those with pre-existing conditions could obtain coverage. Under such a contract, individuals could pool resources to purchase a group policy that would cover any and all problems any member might develop over time. Businesses, churches, community organizations, and even fraternities and sororities could offer these types of contracts.

Senator Rand Paul’s health care plan has a version of long-term insurance. Senator Paul would allow high-risk individual to join together in an association. Senator Paul has also been one of the few willing to criticize the Constructive Republican Alternative Proposal of high-risk pools.