October 12, 2006
By Robert E. Moffit, Ph.D.
Choice and competition work in health care.
Unfortunately, most of us aren't lucky enough to have access to a
market driven and shaped by them.
This year employer health-care costs have
risen 7.7 percent, according to a Kaiser Family Foundation survey,
more than twice the rate of inflation or workers' wage growth. This
is lower than it's been in recent years (costs rose almost 14
percent in 2003). But health costs are still high -- and likely
will go even higher next year.
Some of your fellow citizens are luckier. This
month, millions of federal workers and retirees, including members
of Congress, get to pick and choose their health plans for 2007.
According to the Office of Personnel Management, which runs the
civil service, their insurance premiums will rise, on average, just
1.8 percent. About 63 percent of them will see no premium hike at
These Americans are enrolled in the Federal
Employee Health Benefits Program (FEHBP), a consumer-driven
system in which many different carriers offer a choice of 284
private plans nationwide. FEHBP plans include a variety of benefit
packages, including health-savings accounts. The bottom line: Feds
get high quality care at competitive prices. No wonder they're
The FEHBP isn't the only example where intense
competition works. Another, paradoxically, is Medicare. The overall
cost of the new Medicare drug benefit is a serious problem, but at
least drugs are being delivered to seniors through competitive
private health plans. The result: lower drug prices. When the drug
benefit was enacted, the projected average monthly premium was $37.
Now, intense competition among competing plans has brought this
under $24 per month, nearly a 40 percent reduction, accompanied by
growing patient satisfaction. That's what choice and competition
Most of us have never been near a competitive
health-care system. You get insurance through employers or through
highly regulated health-insurance markets overseen by state
officials. You get what they give you.
Sure, if you work for a big company with a
large, tax-free benefits package, you typically get a choice of
health plans, usually three or four options designed by the same
insurance company, often having the same network of doctors and
other health professionals. So competition is very limited. Alain
Enthoven, a nationally recognized health policy expert at Stanford
University, estimates that only 23 percent of Americans has a
choice of insurance carriers, with different networks or delivery
If you work for a small company, you often get
a choice of one health plan -- or none. In fact, about 80 percent
of all firms offer only one choice of health plan. True, you could
buy a different plan on your own. But there's the rub. Unlike the
plan you get through your employer, you must pay for it with
after-tax dollars. The loss of this tax break alone could add up to
50 percent to the cost of an equivalent benefit package that you
would have gotten from your employer. Few can afford that.
Some members have come up with innovative
ideas to introduce competition into the health-care system.
The first idea is fairness in the tax code.
Sens. Mel Martinez, R-Fla., and Tom Coburn, R-Okla., are sponsoring
the Tax Equity and Affordability Act, a bill to provide an
income-tested, individual health-care tax credit for individuals
and families who do not or cannot get health insurance through
their jobs. Providing tax relief to families (worth up to $4,000
annually) would enable them to buy the health plans of their choice
-- plans that would have to compete directly for their dollars.
That's what private plans must do in the FEHBP.
The second idea is breaking down barriers to
competition across state lines. Sen. Jim DeMint, R-S.C., and Rep.
John Shadegg, R-Ariz., have introduced the Health Care Choice Act.
Their idea: If you don't like the health plans in your state, you
should be free to buy a better and more affordable health insurance
policy from another state. That way, Americans could enjoy a
national market in health insurance, just as they enjoy a national
market for other goods and services. Again, today, only federal
workers and retirees have anything like a national market for
It's an open secret on Capitol Hill, of
course, that big insurance companies and their congressional
friends strongly oppose that kind of competition. After the
November elections, perhaps Congress will get serious and put the
common good of millions of Americans over the special interest of a
few who fear a genuine free market in health care.
Robert E. Moffit,
Ph.D., is director of the Center for Health Policy Studies
at The Heritage Foundation (heritage.org).
First appeared in the McClatchy Tribune wire
Choice and competition work in health care. Unfortunately, most of us aren’t lucky enough to have access to a market driven and shaped by them.
Robert E. Moffit, Ph.D.
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