What if health care reform was modeled around ‘Cash for Clunkers’?

Imagine what a health care program would be like if it were run like the “Cash for Clunkers” program.

In Cash for Clunkers, the car dealer gives a new vehicle purchaser $3,500 to $4,500 for a “clunker.” The clunker must be destroyed and cannot be resold or given away. The government then pays back the money fronted by the dealer.

Government programs by necessity involve arbitrary cutoffs: Only about 8,000 vehicle models made between 1984 and 2004 that get 18 mpg or less qualify. The difference in gas mileage between the old and new cars does not matter. Replacing an 18 mpg car with one that offers more than 22 mpg gets a subsidy. Replacing a 19 mpg car with one that gets 42 mpg does not.

Even though it was supposed to last through Nov. 1, the program’s $1 billion is already gone and over 250,000 vehicles have been sold using the program.

President Obama’s opinion is that Cash for Clunkers “has succeeded well beyond our expectations and all expectations.” Transportation Secretary Ray LaHood says it “is the stimulus program that has worked better than any other stimulus program that was conceived.”

The House of Representatives has already voted 316-109 to add $2 billion more to the program, with only 14 Democrats and 95 Republicans opposed.

Adam Lee is a co-owner of Maine’s largest car dealership. Here’s his good news/bad news synopsis: “We have not had one application accepted without it being rejected numerous times. We have nine people at five dealerships working full time on this; it should take one person. We have over 100 waiting to be paid and have not been paid on one yet. They changed the rules part way through.

It is a mess. Having said that, I love the program, but they are so out of their league. They should have had someone else administer the program.”

Citigroup is the private contractor handling the dealer claims.

For a dealer to get reimbursement, they must electronically submit as many as 20 documents. Unfortunately, says Peter Kitzmiller, president of the Maryland Auto Dealers Association, “What’s happening is that you’re a third of the way through and the system kicks you off.”

The spokesman for the Virginia Auto Dealers Association, Michael Allen, said one car dealer “had gotten pretty proficient” at submitting the reimbursement request: “He had gotten the process down to 40 minutes to enter one deal.”

Used car dealers say it is killing them. “It’s going to hurt us big time. There’s no question about it,” said Shohre Amir, a California used car-lot owner. “People were coming to trade those clunkers for another used car and now they’re going to take advantage of the $4,500 kick-back from the government. There’s no way we can compete. It’s really a struggle to stay in business.”

One of the major online automotive Web sites, Edmunds.com, estimates that the clunker program prompted an additional 50,000 sales during this time period, concluding that, “Given that this program is budgeted to cost $1 billion, this increase will come at the cost of $20,000 per extra sale. … Once the program reaches its cap, interest will die down, and sales volume will fall as quickly as it rose. What will motivate shoppers to brave the marketplace in the months following Cash for Clunkers?”

So, imagine how our $1 trillion health care system might look if it were run by the government, which has planned and prepared the $1 billion Cash for Clunkers program.

Sharman’s column appears each Tuesday on the editorial page.