by Michael D. Tanner at http://www.cato.org/publications/commentary/5-ways-solve-health-care
Sometime this month, the Supreme Court will issue its
ruling on the constitutionality of the Patient Protection and Affordable
Care Act (aka ObamaCare). The justices, of course, have many options.
They could strike down the law in its entirety or uphold all of it. They
could strike down just parts of it, most likely the individual
insurance mandate and/or the requirement that states expand their
Medicaid programs, while upholding the rest. They could even decide not
to decide, ruling that the law is not "ripe" for a challenge until the
mandate goes into effect in 2014.
But one thing is certain, no matter how the Court decides: The battle over health care reform is far from over.
If the Court upholds the law or at least major parts of it,
Republicans will still seek its repeal legislatively. And, if the Court
strikes down large parts of President Obama's signature legislative
accomplishment, the administration is unlikely to shrug its shoulders
and forget about it.
Most importantly, regardless of the Court's decision, the problems with our health-care system are not going away.
The US health-care system has much to recommend it. We produce most
of the research, innovation and technology that improves health care
throughout the world. Americans have more choice of physicians and
treatments than patients in other countries. And if you are sick, your
chances of survival are far better in this country than elsewhere.
But one only has to open their latest insurance bill to see that the
cost of health care is still going up. On average, health insurance in
New York now costs nearly $6,000 for an individual and $16,000 for a
family, more in New York City. Premiums are expected to rise by 8.2%
this year, increasing faster than wages.
At the same time, too many Americans remain uninsured. Although the
number of uninsured is often exaggerated by critics of the system,
approximately 50 million Americans could be without health insurance at
any given time, 2.7 million of them in New York.
Even if ObamaCare is fully implemented, as many as 23 million Americans would still lack health insurance by 2020.
What then should we do to reform health care? Here are five ideas:
1. Make health insurance personal and portable
Nothing would do more to fix our health-care system than moving away
from a system dominated by employer-provided health insurance and
instead making health insurance personal and portable, controlled by the
individual rather than government or an employer. There is, after all,
no logical reason for an individual to receive health insurance through
their job. We don't receive most other types of insurance — auto,
homeowners, life — in that way.
Employer-based health insurance is an anomaly that grew out of unique
historical circumstances during World War II. Despite the widespread
entry of women into the labor force during the war, the shift of men
from private employment to the military created a labor shortage. At the
same time, wage controls prevented employers from competing for
available workers by raising salaries. In an effort to circumvent the
regulations and compete for available workers, employers began to offer
non-wage benefits, including health insurance.
In 1953, the IRS ruled that employer-provided health insurance was
not part of wage compensation for tax purposes. This means that if a
worker is paid $40,000, but their employer also provides an insurance
policy worth $16,000, the worker pays taxes on just the $40,000 in
wages. If, however, instead of providing insurance, the employer gave
the worker a $16,000 raise — allowing the worker to purchase his or her
own insurance — the worker would have to pay taxes on $66,000, a tax
hike of as much as $2,400. This puts workers who buy their own insurance
at a significant disadvantage compared to those who receive insurance
through work.
Employment-based insurance distorts our health-care system in several
ways. Most significantly, it hides much of the true cost of health care
to consumers, thereby encouraging over consumption. If workers believe
someone else is paying for their health care, they have less incentive
to be frugal consumers. People naturally eat more at the all-you-can-eat
buffet, than if they have to pay a la carte.
Basing insurance on employment also means that if you lose your job,
you are likely to end up uninsured. Worse, once you've lost insurance,
it can be hard to get new coverage, especially if you have a
pre-existing condition.
Changing from employer to individual insurance requires changing the
tax treatment of health insurance. Employer-provided insurance should be
treated the same as other compensation for tax purposes: that is, as
taxable income. To offset the increased tax, workers should receive a
standard deduction, a tax credit, or expanded Health Savings Accounts
(HSAs), regardless of whether they receive insurance through their job
or purchase it on their own.
As a result of this shift in tax policy, employers would gradually
substitute higher wages for insurance, allowing the worker to shop for
the insurance policy that most closely matched his or her needs. That
insurance would be more likely to be true insurance, protecting the
worker against catastrophic risk, while requiring out-of-pocket payment
for routine, low-dollar costs, and it would belong to the worker, not
the employer, meaning that workers would be able to take it from job to
job and would not lose it if they became unemployed.
And, since workers could maintain continuous coverage, the issue of preexisting conditions becomes far less of a problem.
Putting workers in charge of their own insurance would significantly
reduce the cost of insurance. A study by Stephen Parente of the
University of Minnesota suggests that making this change would increase
the number of people with health insurance by 21-27 million, nearly as
many as projected under ObamaCare.
2. Increase competition and break up insurance cartels
Putting purchasing power in the hands of consumers is only half of
market-based reform. We also need to increase competition in the
insurance market. Today, for example, people can't purchase health
insurance across state lines. This effectively creates near monopolies
in many states with only a handful of insurance companies controlling
the vast majority of a state's market. For example, in New York, just
two insurers, GHI and Empire Blue Cross, represent 47% of the market. In
New Jersey, a single insurer, Horizon Blue Cross and Blue Shield,
controls 43% of the market. And in Connecticut, Wellpoint holds an
astounding 55%.
Nationwide, there are more than 1,300 insurance companies, including
some 500 nonprofit, cooperative and mutual insurers. Consumers should be
able to buy insurance from any of them, forcing insurers to compete on
price and service.
And because different states have very different regulations and
mandates, costs can vary widely depending on where you live. These
regulations are a major reason why New York and New Jersey have some of
the nation's highest insurance premiums. But with consumers able to
escape those costly regulations by purchasing insurance elsewhere,
states would be forced to evaluate whether their regulations offered
true value or simply reflected the influence of special interests.
3. Empower non-physician medical professionals
It's not just the insurance industry that needs more competition.
Consumers should also have more choice of health-care provider. Nurse
practitioners, physician assistants, midwives, naturopaths,
chiropractors, and other non-physician medical professionals should have
far greater ability to treat patients. This means rethinking medical
licensure and "scope of practice" laws, which too often reflect the
power of special-interest lobbies intent on preventing competition,
rather than protecting public health and safety.
New York, for example, has some of the nation's tightest restrictions
on non-physician medical professionals. But there is no evidence that
these rules make New Yorkers safer or healthier. On the other hand, it
does make health care more expensive. It is time to ease those
regulations to permit more competition and choice.
4. Have seniors make their own medicare decisions
While much of the debate over health-care reform focuses on private
health insurance, it is important to remember that half of all
health-care spending is done by the federal government. And the
800-pound gorilla of the American health-care system is Medicare.
Medicare was essentially modeled after a 1965 Blue Cross insurance
plan, and has not been substantially updated since. It pays doctors on
the basis of how much treatment they provide, not on whether that
treatment is effective. In fact, if the treatment makes you sicker, and
you have to receive additional treatment, the doctor gets paid more. At
the same time, physicians are reimbursed at such low rates per procedure
that some costs are shifted onto privately insured workers, while
physicians are beginning to drop out of the system.
Worse, because of changing demographics, and because most seniors
receive far more in Medicare benefits than they pay in Medicare taxes
and premiums, the program is threatening to bankrupt the country. Even
if one accepts the most optimistic estimates for Medicare's finances,
the program faces future shortfalls of more than $56 trillion. Other
estimates suggest that the program's unfunded liabilities could actually
reach as much as $125 trillion.
The Obama administration's answer is to empower an unelected board,
the Independent Payment Advisory Board (IPAB), to further reduce
physician payments. This could lead to more physicians refusing to see
Medicare patients, and possibly even some hospitals closing. The
president would also rely on comparative effectiveness research to weed
out ineffective or overly expensive treatments. We've seen some of this
recently in recommendations for men to skip prostate screenings, or for
women to delay mammograms.
A better answer would be to have the government set a fixed amount
per recipient that it is willing to spend on Medicare. Then instead of
directly paying hospitals and physicians, the government should turn
that money over to the recipients themselves, as a voucher to help them
purchase private health insurance. Lower-income seniors and those with
higher health-care costs because of illness could receive a bigger
subsidy.
Seniors could use these vouchers, combined with whatever they wish to
spend of their own money, to choose an insurance plan that has a cost
and mix of benefits that best meets their needs. Rather than the
government imposing cuts from above or rationing care, seniors could
decide for themselves if they wanted to pay for services over and above a
minimum set of benefits.
5. Let states experiment with Medicaid
The government's other big health care program is Medicaid. Like
Medicare, its costs are exploding, posing serious threats to both the
national and state budgets. Medicaid costs New York taxpayers more than
$15.9 billion annually. At the same time, the program is notorious for
providing poor care. Because reimbursements are so low, nearly a third
of primary-care physicians will not accept Medicaid patients, driving
recipients to hospital emergency rooms for treatment. In fact, Medicaid
patients are more likely to end up in emergency rooms than are those
with no insurance at all.
Congress should follow the lead of the successful Clinton-era welfare
reform and return funding and responsibility for the program to state
governments in the form of a block grant. This would allow states to
treat Medicaid like other welfare programs, imposing work requirements,
time limits, and tougher eligibility requirements. States could
experiment with new delivery and reimbursement models, including
subsidizing private insurance for the poor. Finally, a block grant would
cap Medicaid spending and end the practice of states leveraging federal
funding to expand their programs beyond what they can afford.
The Supreme Court's decision will clearly not be the last word on
ObamaCare or health-care reform. As the debate goes forward, it's
important to remember that there are alternatives — alternatives based
on free-markets and consumer choice.
