Where We Stand: Our Principles On Achieving Health Care for Working Families

While there is no constitutional right to health care, as countries become richer, societies typically reach a consensus that certain goods and services once deemed luxuries or dependent on circumstance should be considered as a feature of citizenship. Long ago, America reached that conclusion about elementary and secondary education, and now that view is generally held about health care. To give meaning to that consensus, private and government institutions should assist those in need to obtain adequate health services.

Foreign and U.S. experience shows that when government directly organizes and allocates health care services, through either government or private organizations, the result is inefficiency and politically influenced allocation. Health care is also an intensely personal service. Thus, choice and competition should be the basis of a health care system. To the extent that households need assistance, they should receive it directly so that they can control the decisions, not through other entities that preempt their choices.

Health care is intensely personal and families should have the widest possible choice of services, reflecting their values and desires. If families are to be assured health services and are to make such choices, they need to be in control of their health services and own their own insurance. Choices should not be limited by the government or by their employer without their permission.

The American system of federalism reserves powers to lower levels of government, where decisions reflect local conditions, and encourages experimentation and pluralism. To the extent that government plays a role in organizing a framework for health care and assistance, the creativity of American federalism should be empowered to find innovative solutions and to adapt the framework to local conditions and preferences.

The main current tax treatment of health care (taxfree treatment of employer health benefits) gives the most help to those who need it least and virtually forces workers to hand over control of their health care to their employers. Since health care benefits are excluded from taxable income, those with the higher tax liability benefit the most from the exclusion, while lower-income workers benefit the least. Moreover, the fact that workers must depend on their employer to decide the health care package available to them limits their personal choice and control. Congress should reform the tax treatment through the following steps:

• Set in place a steadily declining cap on the employer exclusion and replace it with refundable tax credits for health insurance. The current tax exclusion encourages very generous employer plans that benefit higher compensated workers. Capping the exclusion and ultimately replacing it with refundable tax credits would target assistance to those in need and allow working Americans to choose the health plan, including new health savings accounts, that best meets their medical and financial needs.
• Improve the function and compatibility of the various tax-preferred health arrangements. Flexible spending accounts (FSAs), health reimbursement arrangements, and health savings accounts all offer individuals the ability to manage their own health care spending. However, in order to maximize their value, the rules and regulations governing these arrangements should be modified to allow for greater flexibility individually and for greater coordination with one another. As a first step, the “use-it-or-lose-it” provisions for FSAs should be eliminated, allowing individuals to carry over or withdraw as taxable income any unspent dollars set aside in these accounts.
• Encourage alternative insurance pools—including plans offered through churches, unions, and other intermediaries, as well as arrangements modeled on the federal employee system—so that individuals and their families can access a wide range of affordable plans.

A key to an effective health insurance system is large insurance pools that can group many people together for insurance, thereby spreading the insurance risk so that sicker individuals do not face prohibitive premiums or are simply denied coverage. Americans who work for very large firms are part of an already large pool (the employees of the firm) and so typically can gain access to reasonable insurance—and choice of plan—whatever their health condition. However, workers in small firms lack access to such large groups, leading to fewer affordable plans offered through small firms and a concentration of the uninsured in small businesses.

Congress can take several steps to help Americans, especially those workers in small firms, gain access to large pools offering affordable coverage. Among the necessary actions, Congress should:

• Enact and broaden association health plans (AHPs) to enable new pooling arrangements to obtain the advantages of larger group plans and preempt multi-state regulation. Some proposals would limit AHP organization to small businesses. A better approach would be to allow various institutions that are based on individual membership to form pools to obtain insurance. These might include unions, large church organizations, and farm bureaus. This approach would not preclude, and could even encourage, a state or several states to create a more appealing regulatory structure for health insurance that expands coverage options for individuals, small businesses, and other group associations.
• Work with states to establish large private reinsurance pools for the insurance market. These pools should contain a reinsurance and risk adjustment system so that plans are not discouraged from accepting higher-cost enrollees. A reinsurance system is an overarching “insurance for insurers” arrangement to limit the financial exposure of plans. Risk adjustment is a tool to adjust payments to plans in order to adjust for unusually high or low total costs for their enrollees. Reinsurance and risk adjustment should not be financed by taxpayers.
• Change the rules for employment-based insurance to make it easier for firms to subsidize plans chosen by their employees. Today, the government normally will allow employees to obtain tax benefits only if their employer selects and sponsors a health plan. If families are to have choice, employees—especially those in small firms where typically there is little or no choice—should be able to pick a plan and obtain available tax benefits even if their employer does not sponsor it. Tax benefits should not be conditional on employer sponsorship of a plan. Even under today’s tax system, if an employer provides a cash subsidy to an employee’s chosen plan, the employee should enjoy the same tax benefits as if the employer sponsored it.

Welfare reform demonstrated that if the federal government establishes broad policy guidelines and rewards states for reaching agreed goals, states can achieve remarkable success. That lesson needs both to be applied more aggressively to reducing uninsurance and to be expanded beyond today’s limited waiver authority for Medicaid and the State Children’s Health Insurance Program. To do this, Congress should set broad objectives and guidance for reducing uninsurance. It should enact a “policy toolkit,” consisting of a wide range of federal policy ideas that would be available to states but not mandated. It should invite the states to submit innovative proposals to reduce uninsurance by using selections from the toolkit and other state-initiated ideas. States surpassing the goals of a federal–state agreement based on a proposal should be rewarded through a new federal fund.