August 24, 2009

August 24, 2009 | Commentary on Health Care

Government a Health Hazard?

Washington likes to style itself as the center of the political universe, but this summer, the real action is in the states. At town-hall meetings, voters are giving their elected representatives plenty to think about.

Many lawmakers and the Obama administration have made it clear they want to pass massive health care legislation that includes a contentious option for a government-run health insurance plan.

Americans are smart to be nervous. This attempt for the government to enter the insurance market directly to "keep insurance companies honest" and "increase competition" may sound benign. It's not. It will erode competition and change how anyone with some form of health insurance gets and pays for health care services.

If, for example, Congress passed and the president signed America's Affordable Health Choices Act of 2009 (H.R. 3200), the law would have devastating effects. According to the Lewin Group, a highly respected health care policy and management consulting firm, by the law's third year:

  • Forty-eight percent of privately insured Americans would transition out of private insurance. Out of an estimated 172.5 million people with private health insurance, there would be a decline of 83.4 million people.
  • Fifty-six percent of Americans with employer-based coverage would lose their current insurance. Of the estimated 158.1 million Americans with employer-based coverage, 88.1 million people would be shifted out of their current employer-based plan.
  • An estimated 34 percent of the uninsured in America would still lack coverage. Of about 49.1 million people without health insurance, the legislation would only reduce the uninsured by 32.6 million people, leaving 16.5 million people without coverage.

The bill would also harm doctors and hospitals. Lewin found that:

  • Physicians would see their payment levels decline by $31.7 billion. While physician net income may increase under the bill primarily due to other Medicare changes, a public plan with Medicare-based payments would lower reimbursements. Today, Medicare physician payments are, on average, 81 percent of private payments.
  • Hospitals could see their net annual income fall by $61.9 billion, which roughly eliminates hospital total margins. This significant loss in hospital income is also overwhelmingly attributable to the public plan using Medicare-based payments. Today, Medicare hospital payments are, on average, 68 percent of private payments.

So while President Obama has repeatedly promised that Americans who are happy with their private health plans won't have to change a thing, the incentives built into his approach suggest otherwise.

But there are alternatives that don't involve a bureaucrat-centered, Washington-knows-best approach. Some in Congress are proposing reforms that would give consumers and state officials more decision-making power.

This would include giving a generous tax break to every working American enrolled in a private health-insurance plan, regardless of where they work. This would make health insurance more affordable, and it would allow folks to own their health policy (like auto- or life-insurance policies) and take it from job to job without a tax or regulatory penalty. People shouldn't lose health insurance merely because they change jobs.

Sound legislation would also give state legislatures flexibility in using existing federal subsidies to expand health coverage or undertake far-reaching reforms of the state's health insurance markets. The objective: to ensure that anyone, even those with pre-existing conditions, could get access to affordable health plans. Ideally, reforms could ensure they keep their coverage even if they become unemployed or change jobs.

Every state is different. The structure of the economy, the demographics and the health insurance markets vary from one place to the next. Federal lawmakers should offer state officials waivers from existing law and regulation, and also technical assistance, to enable each state to create a health care solution tailored to its unique needs.

And they should shelve the public option that the public is, rightly, up in arms about.

Robert E. Moffit, Ph.D. is Director of the Center for Health Policy Studies at The Heritage Foundation.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies

Related Issues: Health Care

First appeared in the Washington Times