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The Weekly Standard

 

From HillaryCare to KerryCare

May 24, 2004

By David Gratzer

PRINTER FRIENDLY

Senator John Kerry hasn't done much to distinguish himself on health care policy. A look at his voting record shows him to be hesitant on medical savings accounts, although not on tort lawyers' trashing HMOs, concerned about the long-term sustainability of Medicare, yet delighted to expand the entitlement--a pretty typical Democrat, but nothing more than that. In his twenty years in Congress, Senator Kerry has never made health care a priority, passing not a single bill in this area. Candidate Kerry, on the other hand, is just wild about health care and has made it the major domestic issue of his campaign.

Asked what his first act in office would be, Kerry told the Associated Press: "I will send to Congress a health care plan that stops spiraling costs, covers every child in America, and makes it possible for every American to get the same health care as any member of Congress."

Why the sudden interest in health care? For one thing, it's polling very well. A recent Fox News poll shows that the economy and health care are the biggest concerns to the American public. By contrast, only 9 percent of respondents listed terrorism as a major concern. Thus, last June, Kerry released a plan to overhaul American health care.

Since the collapse of HillaryCare, Democrats have avoided sweeping initiatives. Kerry, thus, proposes small ideas, and a whole lot of them. Most notable about his effort, however, is the price tag. So say even its supporters. Kenneth Thorpe, deputy assistant secretary of health and human services under Clinton, pegged the total bill to be $972 billion over ten years. "It's his single biggest program, spending-wise," notes Thorpe, "and his single biggest domestic priority." Thorpe, a professor at Emory University, did recently revise his estimate down to a mere $653 billion. But to reach this politically more convenient number, he had to suddenly discover incredible savings that would be brought about by disease prevention, computerization, and other magic to improve the bottom line of Kerry's plan.

Not only pricey, Kerry's proposal is big on promises. He hopes to cut in half the number of uninsured Americans, reduce the price tag of employee coverage by $1,000 per worker, and provide millions of children with insurance. His biggest idea is to "give every American access to the health care plan that the president and members of Congress already have." All federal employees are covered by the Federal Employees Health Benefits Plan (FEHBP), a program that allows each worker to choose from a menu of insurance choices. Kerry isn't proposing to expand FEHBP. Rather, he wants to set up another program, and then force insurers participating in FEHBP to cover those in the new insurance pool. Premiums would be community-rated (in other words, the same for everyone), a model of equity.

Kerry also wants to expand existing government programs to cover children in families whose incomes are up to 300 percent of the poverty level. He aims to help offset the high cost of health insurance, offering to pay 75 percent of expenses above $50,000 if employers pass the insurance savings on to their employees. Add to the mix requirements (mandates) for wellness and disease management and tax credits for the uninsured. Finally, with an eye on Medicare's costs, he favors drug reimportation from Canada.

The basic problem with KerryCare is its impracticality. Take his commitment to provide federal employee-style health care to every interested individual or business. Since joining would be voluntary, the odds are that the older and less healthy would be overrepresented in the rolls. Further complicating matters is Kerry's plan to make the insurance community- rated. This attempt at equity would further attract older, sicker patients (they would get a relatively good price on the insurance), while those typically without insurance--healthy, young men and women with low incomes--would balk at the cost.

Voluntary purchase pools have been tried extensively at the state level, but the results haven't been encouraging. Researchers at the think tank RAND studied California, Connecticut, and Florida--states with the largest such efforts in the nation--and found the schemes had little impact on health coverage. In fact, in those three states, fewer businesses ended up offering insurance to their employees. State experimentation, observes health economist Tom Miller in Regulation magazine, shows that "low-risk individuals and employer groups are less likely to join, and they are most likely to leave early," making the pools unsustainable.

As to enrolling children from families earning up to three times the poverty limit, this is an overreaching commitment. Michael Cannon, a senior fellow at the Cato Institute, observes that Kerry is "taking over a significant part of private health insurance." Likewise, covering all care over $50,000 undermines the basic point of insurance, that is, protecting people from rare and costly events. If anything, Kerry's proposal would nationalize catastrophic coverage. Couple this with his endorsement of drug reimportation, and it becomes clear that a Kerry administration would end up running and setting the price of much of American health care.

Republicans, thus, are presented with a short-term opportunity. Kerry has painted a trillion dollar target on his back. Consider that Kerry wants to include children in families earning about $47,000 a year at a time when states have difficulty paying for their present Medicaid commitments. Note also the emphasis on bureaucracy and government control. If Washington is in the business of covering catastrophic health expenses, how long before it manages all expenses?

As an unintended consequence of wage and price controls during the Second World War, Americans began receiving their health insurance from their employers. Since the IRS ruled that health benefits would be tax-free, it was advantageous for employers and employees to have health benefits provided. A dollar spent on benefits, after all, went to an employee, whereas a dollar spent on salary might result in only 50 cents reaching the worker after taxes. By the late 1980s, more than 70 percent of employers in America offered health insurance, including nearly all large corporations. But the "high-tech, high-success" medical revolution has upped the cost of coverage. Employers have restricted health insurance choices or dropped coverage altogether. Today, 38 percent of insured employees have no choice of plans, and only 62 percent of businesses offer coverage. With health costs rising still and the American workforce becoming more mobile, employer-based health insurance is under siege.

Kerry sees these problems and proposes a trillion dollar bailout. Republicans could offer something better: putting health decisions in the hands of Americans. Last December, Congressional Republicans offered a first step in that direction by adding health savings accounts to the Medicare bill. But it's just a small step.

Compared with the rest of the economy, the health industry looks like the eastern bloc under Communist rule. Medicine has been transformed by high technology, while the health industry remains stuck in an earlier era of high cost and low satisfaction. Numerous problems result: Because of regulatory excess, many Americans can't find low cost health insurance; ownership laws allow hospital monopolies to flourish; Medicare rules and regulations end up creating a bizarre world of hospital and drug pricing for non-Medicare patients.

The idea of health savings accounts is simple. Outside of catastrophic expenses, people are empowered with tax-free dollars to purchase health care as they feel necessary. The hope is to create a market for health services, thereby reducing costs and increasing innovation. But that can never happen as long as health care remains the most regulated part of the economy. After all, does anyone remember consumer-oriented service in the airline industry before the deregulation of the 1970s?

While Kerry wants more bureaucrats and more money to help shore up the status quo, the White House can champion a different vision: empowering people. That means, yes, promoting health savings accounts, but it also means pushing further.

Many states have regulated health insurance so extensively that even basic plans are expensive. In fact, health savings accounts aren't available in Maryland, Hawaii, or New Jersey. Requiring states to deregulate insurance--which Congress could easily do by allowing out-of-state insurance purchases--would mean that all Americans have the opportunity to buy basic plans. Over the years, Medicare's administrators have written, literally, more than 100,000 pages of rules governing clinics, hospitals, and physicians. This mountain of paperwork means that time and energy are going to bureaucratic compliance instead of patient care. Furthermore, Medicare pricing (and insisting that it apply to everyone but managed care) means that competitive pricing doesn't exist for many services. Washington needs to cut the red tape.

Between state and federal ownership laws, hospitals are the only game in town for many surgeries and procedures. As an alternative, Congress can free providers to form specialty clinics, challenging hospital monopolies and allowing innovation in the delivery of care. Another reform to consider is significant tax credits for the uninsured (not employers), so that they can buy coverage, and tax equity for those purchasing health savings accounts. This agenda would collectively refurbish American health care.

Since the collapse of HillaryCare, the GOP has been largely on the defensive when it comes to health issues. Championing individual choice and competition could turn the health debate--and American medicine--in the right direction.

Original Source: http://www.manhattan-institute.org/html/_weekly_standard-from_hillaryc.htm

 

 
 
 

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