Personal and portable
As the Obama Administration has highlighted in recent weeks, the American health care system is badly in need of reform. Unfortunately, the President's plan for health care would create more problems than it would resolve. Health care reform should take a different approach that emphasizes one of America's great traditional strengths — the power of market choice.
The President is pushing the idea of a "public option" for health insurance, under which government-subsidized entities would "compete" with private insurance providers. But this scheme raises an obvious question: If the administration truly desires the benefits of competition, why isn't it seeking to end existing restrictions blocking private insurance providers from competing with each other?
Currently, each state makes it illegal for residents to purchase insurance plans from out-of-state companies. States thus compel their citizens to patronize only members of the states' own government-protected and politically active insurance-company oligopolies.
Lifting these barriers would expose state-protected monopolies to greater competition, forcing insurance providers to offer better options at higher quality and lower cost. Indeed, the simple fact that insurance providers operating across state lines would be able to pool risk across a larger client base would allow them to reduce premiums.
The reason state governments have prohibited individuals from purchasing out-of-state insurance is that each state imposes a unique set of politicized mandates on the types of coverage state residents must purchase if they are to buy health insurance at all. In many cases, individuals are required to purchase coverage they would never need — imposing higher costs on individuals and making health care less accessible. New Jersey, for example, requires that all health-insurance consumers purchase coverage for in-vitro fertilization, contraceptives, chiropodists and coverage for all children until they reach age 25. As a result of these costly mandates that many individuals will never need, the cost of a standard insurance plan for a 25-year-old male is about $5,580 per year, according to the National Center for Policy Analysis. In Kentucky, with less onerous mandates, the standard plan would be about $980.
If a true market existed, an individual would be able to shop for a plan that would offer coverage for specific conditions that run in his or her family, or that would otherwise cater to individual needs. A single male has little need for coverage of gynecological conditions, for instance, while most Caucasians are not at significant risk for sickle cell anemia. In this way, most states require individuals to purchase coverage they will never need from the state's monopoly providers, needlessly ramping up the cost of health care.
Another important reform would change the tax structure surrounding health care benefits. So long as health insurance is tied to the job and not to the individual, there will always be a sizable uninsured population as individuals move from one job to another. That tax structure should change to give the individual power over his own health care decisions. Rather than allow only the employer to purchase health insurance with pre-tax dollars, the individual should be able to claim a tax exemption on the cost of any private insurance plan that he purchases on his own. If such a change in the tax code were implemented, private health coverage tailored to the unique needs of the individual would become much more accessible, as businesses transformed job-related health care benefits into higher wages instead.
A package of reforms along these lines would be far superior to the "public option" plan proffered by President Obama. The primary problem with the "public option" is that it would eventually restrict, and not expand, choices available to consumers. There is significant fear that it would drive private insurance providers out of the market and eventually devolve into a government-health-insurance monopoly similar to what exists in the United Kingdom.
As with Medicaid and Medicare, a government bureaucracy would determine what the reimbursement rates would be to health care providers for specific procedures and would have the power to force health care providers to accept those rates. Where the government under-reimburses health care providers for medical procedures, those costs must be cross-subsidized by higher charges providers pass on to private-insurance patients. Any massive expansion of the government's role in providing health insurance, therefore, would almost inevitably drive private insurers out of the market — placing all the burden of those subsidies on taxpayers.
Clearly, any bureaucratically controlled, taxpayer-funded national monopoly on health insurance would be unlikely to provide health care options that would affordably cater to the unique needs of individuals.
Instead, such a plan would impose a top-down, one-size-fits-all solution on all consumers. The government — the very incarnation of systemic corruption — would, even more than today, arbitrarily dictate the level of coverage, spend our money with wild inefficiency and drive the deterioration of American health care quality to even more alarming depths.
True reform should make health care both personal and portable — not arbitrary and monopolistic.
Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute. This article originally appeared in the August 2009 edition of the Nevada Business Journal.