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Imprimis, On Line
November, 1993
IMPRIMIS (im-pri-mis), taking its name from the Latin
term, "in the first place," is the publication of
Hillsdale College. Executive Editor, Ronald L.
Trowbridge; Managing Editor, Lissa Roche; Assistant,
Patricia A. DuBois. Illustrations by Tom Curtis. The
opinions expressed in IMPRIMIS may be, but are not
necessarily, the views of Hillsdale College and its
External Programs division. Copyright 1993. Permission
to reprint in whole or part is hereby granted, provided
a version of the following credit line is used:
"Reprinted by permission from IMPRIMIS, the monthly
journal of Hillsdale College." Subscription free upon
request. ISSN 0277-8432. Circulation 480,000 worldwide,
established 1972. IMPRIMIS trademark registered in U.S.
Patent and Trade Office #1563325.
---------------------------------------------
"Health Care and a Free Society"
by Matthew J. Glavin
President, Georgia Public Policy Foundation
---------------------------------------------
Volume 22, Number 11
Hillsdale College, Hillsdale, Michigan 49242
November 1993
---------------------------------------------
Preview: In this month's Imprimis, public policy expert
Matthew J. Glavin examines some of the issues involving
the alleged "health care crisis." Most important, he
warns that if we choose "managed competition" over
genuine free market solutions, we will never be able to
turn back--socialized health care will be here to stay.
Mr. Glavin's remarks were delivered before a
Shavano Institute for National Leadership audience in
Atlanta last May.
---------------------------------------------
Health care reform is one of the most complex public
policy issues to face this nation since the creation of
the social welfare programs of the 1960s. And, like the
welfare programs of the sixties, the decisions
currently being discussed in Washington will affect not
only health care for millions of individual Americans,
but the very foundations upon which our free society
was built.
Our current health care system has been
characterized as "in crisis." What we ought to remember
is that it is the best in the world. However, there is
no denying that there is room for improvement and that
there are serious problems that must be addressed.
After all, nationwide, health care costs Americans more
than $2 billion per day. Health policy experts have
considered a variety of reform proposals including the
Canadian-style universal, single-payer program. We have
studied the "play or pay" system which would have
instituted employer mandates. We have tried tinkering
with insurance laws to control costs or expand access.
And we have even heard about, albeit fleetingly,
market-based reforms based on competition and consumer
choice. However, many of the proposed cures currently
being debated are worse than the disease.
The centerpiece of the Clinton health care
proposal is "managed competition." Managed competition
is being presented as a compromise that would
supposedly preserve many free market aspects of health
care, while making the market more accountable to
government control. As envisioned under the Clinton
proposal, managed competition would establish a system
of collective purchasing agents on behalf of employers
and individuals. All residents of a state would be
enrolled in one of these purchasing cooperatives,
either through their employer or individually. The
purchasing cooperative would negotiate on behalf of its
members with "Accountable Health Partnerships" (now
known as insurance companies) for a benefits package.
This "Uniform Effective Health Benefits" package would
be established by the government as a minimum standard
benefits requirement.
Accountable Health Partnerships would be required
to charge all citizens the same rate, regardless of age
or lifestyle factors. You would be charged the same
whether you were 65 years old, smoked three packs of
cigarettes and drank a quart of whiskey a day, and
weighed 275 pounds or whether you were 25 years old,
exercised an hour a day, never smoked or drank, and
were in perfect health. You would be charged the same
whether you were monogamous and disease-free or whether
you had AIDS as a result of drug use or promiscuity.
You would not realize any financial benefit because of
the lower or higher risk you represent, resulting from
your personal decision as to your lifestyle.
Managed competition also will severely limit
consumer choice_choice of insurer, choice of benefits,
and choice of physician. Because the Clinton proposal
prevents insurers from competing on the basis of their
ability to price and manage risk, most traditional
insurers would be driven out of the market. The
criteria established for Accountable Health
Partnerships essentially limit the market to "the
Blues"--Blue Cross and Blue Shield--and a handful of
large HMOs. The insurance business, now among the top
10 "industries" in the United States, will no longer
exist as we know it. The economic impact of this alone
will have a devastating effect on the American economy.
As one noted economist has said, managed
competition is not so much a coherent government plan
as an oxymoron. It is possible to have either managed
health care or to have open competition in health care
services. It is not possible to have both
simultaneously. As proposed, managed competition
appears to offer a great deal of management and very
little competition.
Doctor-Patient Relationship
While our economy may be able to survive the
destruction of the insurance industry, an even more
insidious problem lies ahead with managed competition.
Managed competition holds the potential of severely
disrupting the traditional doctor-patient relationship.
Because everyone pays the same, regardless of current
health status or lifestyle, managed competition changes
the historical role of insurers from "financial
intermediaries with expertise in underwriting risks" to
"health care delivery systems" organizing, managing,
and purchasing medical care.
In short, the Clinton administration apparently
believes that physicians should be responsible to
insurers, rather than their patients. This means the
patient's choice of a physician will be limited to give
the insurer increased bargaining power with the doctor.
It also means increasing insurer control over the
physician's choice of treatment, so that insurers can
"apply quality assurance or review appropriateness." As
Swiss medical philosopher Ernest Truffer has noted, the
increasing interjection of third parties between doctor
and patient "amounts to a rejection of the medical
ethic, which is to care for a patient according to the
patient's specific medical requirements, in favor of a
veterinary ethic, which consists of caring for the sick
animal not in accordance with its specific medical
needs, but according to the requirements of its master
and owner, the person responsible for meeting any costs
incurred." Are Americans willing to reject the medical
ethic in our health care system in favor of a
veterinary ethic?
The Cost of National Health Care
The cost of socializing American health care has been
estimated to run from $100 to $300 billion. Even these
estimates may be too low, but regardless of the final
price tag, we would be buying surprisingly little
health care. The one common characteristic of all
socialized health care systems is a shortage of health
care services. For example, in Great Britain, a country
with a population of only 55 million, the waiting list
for surgery is more than 800,000. In New Zealand, a
country with a population of just 3 million, the
surgery waiting list now exceeds 50,000. In Canada,
citizens must wait nearly 10 months for hip replacement
surgery, 2.5 months for a mammogram, and 5 months for a
pap smear.
What do these statistics mean in our everyday
lives? In January 1990, two-year-old Joel Bondy needed
urgent heart surgery. It was a serious operation, but
one that was performed many times each day in hospitals
across America. Unfortunately, Joel did not live in
this country. He lived in Canada, where the country's
socialized health care system has resulted in a severe
shortage of cardiac care facilities. Canada has only 11
open heart surgery facilities to serve the entire
country. The United States, by contrast, has 793.
As a result, Joel's surgery was repeatedly
postponed as more critical cases preempted the
available facilities. Alarmed at their son's
deteriorating condition, Joel's parents arranged for
him to obtain surgery in Detroit. Embarrassed by the
media coverage of Joel's situation, Canadian
authorities told the Bondys that if they would stay in
Canada, Joel would be moved to the top of the list and
surgery would be performed immediately. Joel was taken
on a four-hour ambulance ride to a hospital equipped
for the procedure, but there was no bed available. The
family had to spend the night in a hotel. Joel Bondy
died the next day.
Sadly, while this is a true story, it is not the
exception; it is the rule. Physicians in Canada report
that, for heart surgery, you have a better chance of
dying on the waiting list than you do of dying on the
operating table.
One basic question that has received very little
attention throughout the recent debate is whether our
government is even capable of providing quality health
care at a reasonable price. For a preview of
government-run health care programs, we need only look
in our own backyard. Medicare and Medicaid are prime
examples of health care delivered via bureaucracy. They
are rife with mismanagement, fraud, and abuse. Will the
federal government be able to control costs? History
would suggest otherwise. Between 1987 and 1992, for
example, total Medicaid expenditures rose at three
times the rate of total national health expenditures.
If government is not the solution to our health
care "crisis," how do we solve its problems? How do we
maintain quality in health care while assuring
accessibility and affordability? The only reforms
likely to have a significant impact are those that draw
on the strength of the free market.
Deregulate Health Care
There should be a thorough examination of the extent to
which well intended but mistaken federal and state
government policies already are responsible for rising
health costs and the unavailability of health care
services. I believe that such an examination will prove
that government can lower health care costs and expand
health care access by taking immediate steps to
deregulate the health care industry, including
elimination of state mandated benefits, the repeal of
state Certificate-of-Need programs, and the expansion
of the scope of practice for non-physician health
professionals.
Restructure tax policy
Current tax policy allows employers to purchase health
insurance with pre-tax dollars while individuals pay
with after-tax dollars. This difference in tax
treatment creates a disparity that effectively doubles
the cost of health insurance for people who must
purchase their own.
For example, the family of a self-employed person
who earns $35,000 a year and pays federal, state, and
Social Security taxes must earn more than $7,000 to buy
a $4,000 health insurance policy. A person working for
a small business that offers no health insurance would
have to earn more than $8,000 to pay for a $4,000
policy. Tax equalization would add a measure of
fairness to current tax policies that penalize the
self-employed, part-time workers and employees of small
businesses, while subsidizing health care for the most
affluent in our society.
Establish Individual Medical Accounts
Individual Medical Accounts (IMAs) are another key to
controlling health care costs and strengthening the
role of the individual as a health care consumer. An
Individual Medical Account would work like this:
Individuals would be exempt from taxes on money
deposited in an IMA, in the same way they currently pay
no taxes on deposits to Individual Retirement Accounts
(IRAs). Money to pay medical expenses could be
withdrawn without penalty.
The current corporate insurance policy costs about
$4,500 per year. With Individual Medical Accounts in
place, employers could be expected to change the way
they provide insurance. Once a year, a corporation (or
an individual, if self-employed) would deposit $2,000
into an employee's IMA. This money, and any interest
accrued, would be exempt from taxes. The employer or
individual would also purchase a catastrophic health
insurance policy that would have a $2,000 deductible.
The cost of the catastrophic policy would be about
$1,800. The employer who previously provided a $4,500
insurance policy would save $700 a year. Individuals
could withdraw money from the IMA without penalty to
pay medical expenses. Money left over at the end of the
year would accumulate and belong to the individual.
Only about 10 percent of families in this country
spend more than $2,000 per year on health care. This
means 90 percent of all doctor visits would require no
paperwork for insurance because they would be paid
directly by the consumer out of the IMA. This also
would increase consumer responsibility because there
would be an incentive to control costs; the consumer
keeps what he doesn't spend.
The use of deductibles in traditional insurance
policies right now offers a perverse incentive,
particularly for low-income workers. Low-income workers
have little discretionary income, and as a result are
often forced to forego preventive care or early
intervention because they can't afford the deductible.
Yet, once the deductible is met, they have no incentive
to limit additional expenditures. With an IMA, the
incentive is to spend wisely throughout the year.
Individual Medical Accounts would also be
completely portable. One of the most serious problems
of our current medical system is that insurance is so
closely linked with employment. Individuals who lose
their jobs or change jobs often lose their health
insurance as well. Of the estimated 37 million
Americans uninsured at any given time, half are without
insurance for four months or less, and only 15 percent
are uninsured for more than two years, but it still
leaves them vulnerable, if only for a short time. With
an IMA, individuals would continue to have funds
available to pay for health care during temporary
interruptions in employment.
Privatize Medicaid
The current Medicaid system has been one of the
greatest failures of American government. Costs are
skyrocketing, patients are receiving second-rate care,
and providers are being shortchanged. Actual
expenditures for the Medicaid program in 1992 were
$124.6 billion. This compares with just $52.1 billion
in 1988, meaning expenditures have increased on average
24.4 percent annually over the last four years. The
states' share of this joint federal/state program is
growing twice as fast as overall state spending. In
1970, Medicaid consumed only four percent of all state
spending. Today, the average state spends more than 14
percent of its budget on Medicaid.
As spending increases, states are cutting back on
their payments to health care providers. Nearly all
states reimburse at a rate well below the actual cost
of procedures. The result is that fewer and fewer
providers are willing to treat Medicaid patients. Those
providers that do treat Medicaid patients often offset
losses by passing along the costs to patients with
private health insurance, a practice known as cost
shifting. The federal government should begin to
restructure the system to give Medicaid and Medicare
recipients more flexibility to obtain private health
insurance that meets their individual needs. As much as
possible, responsibility for care of the poor and the
elderly should be moved from the public to the private
sector.
The average cost per person on Medicaid is more
than $3,300 per year. This compares to $1,500 for a
privately insured individual. These figures only
include direct health care benefits; administrative
costs are excluded. For a Medicaid family (a mother and
two children) in the United States, we spend almost
$10,000 per year in direct medical benefits. The
obvious question is: "Why don't we simply privatize
Medicaid?" Privatizing Medicaid would create market
mechanisms that would achieve all the major goals in
health care reform: affordability, accessibility, and
quality.
Privatization could be achieved in a variety of
ways. Individual states could provide vouchers to
Medicaid recipients. The value of each voucher would be
equal to the current average Medicaid expenditure for a
family of the same size as the recipient's family.
Recipients may pool vouchers for the purpose of
purchasing group policies. For example, residents of a
public housing project may choose to pool their
vouchers and purchase a group policy for themselves.
Insurance policies purchased with a voucher would
include coverage for all federally-mandated Medicaid
services. However, all other mandated benefits,
including optional Medicaid services could be exempted.
Another option would allow individual states the
ability to contract with private insurers (after
competitive bidding) for large group policies that
would cover Medicaid patients. The state could offer
Medicaid patients several private options including
traditional insurance, PPOs, or HMOs.
Regardless of which method is selected,
privatizing Medicaid would result in substantial
benefits for Medicaid recipients, health care
providers, and taxpayers. Medicaid recipients would no
longer be treated differently from the privately
insured--because they would become part of the
privately insured. A Medicaid recipient going to a
hospital or physician and presenting his insurance card
would be indistinguishable from any other patient. No
one would know how that insurance was obtained. And,
finally, the patient would have an expanded number of
providers to choose from, no longer excluded from the
35 percent of physicians who refuse Medicaid.
Since reimbursement would be at the same rate as
private insurance, health care providers would no
longer be shortchanged for treating Medicaid patients.
Cost shifting would be eliminated, with a beneficial
effect on all health care consumers. Further, by
eliminating many of the costly optional benefits and by
encouraging insurers to experiment with cost
containment, privatization would stop the spiral of
increasing Medicaid costs.
Insurers would compete for customers on the basis
of the benefits offered, crafting policies to meet the
needs of the purchaser. While many of the costly
optional benefits no longer would be covered,
individuals would be able to purchase a policy that
more closely meets their individual requirements.
Insurers also would compete on the basis of which cost
containment mechanisms they include. Some may offer
managed care. Others may offer co-payments and/or
deductibles. Still others may offer fewer benefits.
Some may even offer "lifestyle incentives" or rebates
for nonuse. Everyone would have the freedom to choose
the plan that is best for them.
Conclusion
It has long been noted that the Chinese character for
"crisis" is the same as the character for
"opportunity." If America's health care system is
indeed in crisis, as the Clinton administration has
alleged, we also have a unique window of opportunity to
reform it in a way that will make health care
affordable and available to all Americans.
What is outlined here is a series of proposals
that tend toward increasing freedom of the market,
proposals that draw on the strengths of competition,
consumer choice, private ownership, and personal
responsibility. The Clinton administration has offered
a plan that tends in an exactly opposite direction. It
is an about face. The Clinton proposal creates more
centralized government control. Government bureaucrats
will decide what services you receive. Government
bureaucrats will decide how much you will pay.
Government bureaucrats will decide what services your
doctor can provide. "Competition" will be managed--not
competitive. There will be a single source of revenue--
the taxpayer.
This is socialism! And, like the social welfare
programs of the 1960s, once socialized health care is
in place, we will never go back to a market-based
system.
All agree that the time for reform is here. But,
what decisions will we, as a nation, make? Will we move
in the right direction or are we going to make an about
face? Will we continue to preserve the heritage of our
founding fathers, the principles of a free society, and
a market economy based on individual freedom and
responsibility, or will we embrace the failed policies
of central planning and socialism? Freedom and free
enterprise are sweeping the globe. While Europe,
Canada, and the former Soviet Union are searching for
ways to restore market mechanisms to their socialized
health care systems, America is in serious danger of
adopting one--a bureaucratic, government-run, taxpayer-
financed health care system that will limit patient
choice and ration the availability of care, while doing
nothing to hold down health care costs.
---------------------------------------------
Matthew J. Glavin is president of the Georgia Public
Policy Foundation, an independent public policy
research group headquartered in Atlanta, Georgia. Prior
to joining the Foundation, he served as the founding
president of the Hannibal Hamlin Institute for Economic
Policy Studies in Augusta, Maine. Mr. Glavin is also a
political commentator for Georgia Public Television;
founder and former president of the State Policy
Network, an association of more than 30 free market
state think tanks; and a founder of the Education
Roundtable, a national association of organizations
working toward education reform.
###
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End of this issue of Imprimis, On Line; Information
about the electronic publisher, Applied Foresight,
Inc., is in the file, IMPR_BY.TXT
For the November 1993 issue, there is a special edition
supplement of Imprimis issued by Hillsdale College.
See the file, SPECIAL.TXT
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