May 19, 2004

May 19, 2004 | Commentary on Health Care

Curing Health Care with Choice

Last week's "Covering the Uninsured Week" brought a slew of ideas from across the health care policy spectrum. Politicians and activists offered a variety of solutions to help reduce the troubling number of Americans without health insurance (about 43 million people, roughly one out of every seven). Unfortunately, their proposals are just more of the same.

They either offer a piecemeal approach that would make only minor adjustments to current policy, or they rely on the existing, fractured health care system to promise change. Either way, they leave untouched the root of the problem: the continued absence of personal choice and control of health care options.

Two forms of health care - employer-sponsored insurance and public health insurance - dominate today's health-care system. In both cases, individuals have little to no choice in deciding and controlling the care and services they receive. Facing skyrocketing health care costs, today's employers offer fewer choices of health-care plans to their employees, while requiring employees to manage a larger share of the costs. In the small-business community, employers are reconsidering whether they should even offer health care to their workers at all.

In the public programs, government-controlled health insurance faces similar problems. States continue to struggle with hemorrhaging Medicaid costs. Besides putting stress on other state functions, such as education and transportation, it erodes access and quality of care for the dependent populations.

The House of Representatives recently took the aforementioned piecemeal route. The most promising of the initiatives it approved would change Flexible Spending Accounts (FSAs). It would allow individuals to carry over up to $500 in their FSAs each year. These accounts, offered through an employer, let employees put pre-tax dollars into accounts that can be tapped for medical expenses not covered by insurance.

Currently, though, any funds left over at the end of the year are forfeited to the employer. This requirement wrongly implies that these funds are not the employee's and gives individuals no incentive to save for future health-care expenses. Ideally, employees should be able to carry over all unused funds and/or be allowed to withdraw and pay taxes on them. But the FSA policy changes that passed in the House are a start, and they would offer greater personal control over health-care spending.

While some consumer-directed efforts are emerging within the employer-sponsored health-care system, what is really needed is a more aggressive and comprehensive approach to reform. One that offers a fresh perspective that would revolutionize the health-care system. A system based on personal choice and freedom.

There are two fundamental changes that are needed to take place in order to jump-start a health care revolution:

1. Fix the tax treatment of health care. The tax code provides unlimited tax relief for the purchase of health insurance, but only through the workplace. As it turns out, lower-wage workers, particularly those in small firms, get less tax relief than high-wage workers. And if an individual goes outside the place of work to buy a health plan, he or she must do so with after-tax dollars, which often makes the cost of a plan prohibitive.

Ideally, current tax exclusion for employer-based health care should be replaced with a national system of refundable health care tax credits, with more help going to those with need it the most. In the short term, offering low-income individuals and families a health care tax credit would enable them to obtain their own health care coverage, regardless of their place of work or work status. President Bush has advocated such an approach.

2. Design a consumer-friendly marketplace. In order for individuals to become more involved consumers of health care, there needs to be a marketplace where individuals are able to select from a wide variety of plans that best meet their individual needs. By allowing individuals to pick and choose the plans of their choice, the plans will become responsible to the individual for quality, value and satisfaction.

Unfortunately, some states have over-regulated their markets, making coverage less accessible and less affordable. So the first step for policy-makers should be to encourage states to fix their markets to better serve consumers.

"Covering the Uninsured Week" is over, but the problem remains. And while politicians deserve some applause for trying to deal with it, the solutions they've offered so far don't go far enough. Half-measures relieve some symptoms for a while - but they can never really cure. 

Nina Owcharenko is a senior policy analyst in the Center for Health Policy Studies at The Heritage Foundation.

About the Author

Nina Owcharenko Director, Center for Health Policy Studies and Preston A. Wells, Jr. Fellow
Center for Health Policy Studies

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