BALTIMORE - The Maryland legislature’s decision to require that its big businesses spend 8 percent of payroll on health insurance has turbo-charged the AFL-CIO’s “Fair Share” campaign to enact similar legislation in 30 states. As always, the word “fair” implies that someone’s pocket is about to be picked. In this case, it is that of the American business community.

The problem the legislation addresses is serious. About 46 million Americans lack health insurance today. Uninsured adults are sicker than those with insurance; for example, those who are eligible for Medicaid but not enrolled have more unmet health care needs than those on Medicaid. Because health care providers pass on many of the costs of treating the uninsured to payers, Maryland employers’ 2005 premiums were raised by $948 per family to pay for $713 million of free care. Furthermore, many of the employed uninsured are enrolled in the publicly funded Medicaid program, thus raising taxes. Some of them cannot afford health insurance. In Maryland, 75 percent of the uninsured come from families with one or more workers; but most of the increased uninsurance among the employed was caused by their refusal to accept offered insurance, likely because they could not afford it. In 2002, 30 percent of the uninsured were below the poverty limits.

But the “Fair Share” solution to the problem is awful. First, it will hurt the intended beneficiaries. Business payments for health insurance reduce wages. Second, it causes businesses to alter their hiring practices to avoid the mandate. Third, some businesses in states with the employer mandate will choose to relocate or curtail expansions. Wal-Mart has already slowed its plans to put a large distribution center in one of Maryland’s poorest counties. Although the Maryland mandate is known as the “Wal-Mart Bill” because it is the only large employer that fails to meet the statutory requirement, how long will it take for the mandate to be imposed on all but the smallest businesses? All business owners in the state are no doubt asking themselves that question and perhaps already putting off making new hires.

Massachusetts points the way to a better solution. Its governor, Mitt Romney, wants to require individuals, rather than businesses, to buy health insurance. He would finance the poor uninsured with the $1 billion now used to subsidize health care providers that today deliver “free” care.

Switzerland, too, has long relied on a legal requirement for individuals to buy coverage. The Swiss government subsidizes those who cannot afford to buy it and enables the sick to pay the same price as everyone else for health insurance by risk-adjusting insurers. Consumers, rather than businesses or governments, are thus the primary financiers of the Swiss health care system. The results speak for themselves: Health care costs that are about a third less than in the U.S., the coverage is universal, and there are world-class medical outcomes.

In a recent study for the Journal of the American Medical Association, a co-author and I compared Switzerland’s results to those in the U.S. states with similar affluence, educational levels, employment and racial composition, such as Connecticut. We found lower death rates and spending of only $2,952 per capita vs. Connecticut’s $4,623. Swiss physicians earn nearly as much as American physicians, and the country has proportionately more expensive resources like MRI machines. No wonder the Swiss health care system attracts users from around the world. The key to the success of the Swiss system lies in consumer control. The resulting competition creates value for the money from the consumer’s perspective, unlike the U.S. system where health insurance is purchased by a third party—usually an employer or a government. The power of consumer control is reflected in plans, newly offered in the U.S., whose combination of high deductibles, complete coverage of preventive care, and tax-supported health savings accounts have improved the health status of the chronically ill while controlling costs.

Neither the Swiss consumer-driven health care system nor the new system created by Massachusetts is perfect: Both retain excessive governmental meddling in the design of insurance plans and compensation for providers. The outcome could differ in states that don’t share the Swiss or Massachusetts’ legislatures impulse to regulate. Still, both systems are substantially better than the present one in America, in which millions are uninsured while the economy reels from the massive costs of third-party control. While the Maryland “Fair Share” system that the AFL-CIO envisions for the rest of the country only entrenches the present system, the new Massachusetts plan points the way to universal coverage, controlled costs and greater consumer choice and satisfaction.

Regina E. Herzlinger is the author of “Who Killed Health Care?”, the McPherson professor at Harvard Business School and a fellow at the Manhattan Institute

©2007 Washington Examiner