Delivered on March 26, 2007
Our health care
sector must change to meet the challenges of a 21st century
economy. Consumers, not just in the United States but in all
developed countries, are demanding a much greater role in
decisions involving their health care.
People can find
on the Internet a wealth of information about diseases,
diagnoses, and treatment options, but all too often, they must
fight bureaucracies and paperwork all along the way. Women
especially believe that they, rather than a corporate human
resources director, could make better decisions involving health
coverage for their families if only they were given the chance.
In addition, many
who have health insurance are worried that if they lose their jobs,
they will lose their health insurance. And with the cost of health
insurance and health care rising every year, they fear they
would not be able to afford coverage on their own. The middle class
is increasingly afraid that they are one premium payment away from
joining the ranks of the uninsured.
system of tying health insurance to the workplace is becoming
antiquated with a workforce that is increasingly independent
and mobile. The Labor Department reports that four in ten Americans
change jobs every year. With this kind of job mobility, it is
extremely difficult to tie health insurance to the workplace and
expect people to have continuity of coverage. People lose their
jobs, and they lose their health insurance. We need a system that
allows people to have health insurance that is portable; insurance
that they can own and control; insurance that they, and not a
politician or a human resources department, decide is right
for them and their families.
This move toward
more individual control over health care decisions and health care
spending is part of the global movement toward health care
consumerism. Giving people more power and control over their
health care and health insurance creates new incentives for
people to be more engaged in managing their health.
realize this and are instituting new programs to give employees
incentives to better manage their health spending. And they
are creating new programs for those with chronic illnesses,
like diabetes and asthma, to be partners in managing their
care. A number of studies have shown that if people are given the
tools, the information, and the incentive to manage their care,
outcomes can be dramatically improved.
Leading the Way
America can lead
the way in creating a health care system that fits with our 21st
century economy by putting in place new policies that allow
innovation to continue and that is better able to respond to
consumer demands and preferences. But public policy changes
are needed to lead us in a new direction.
Our health sector
is like a giant ship: It takes a great deal of effort to change
direction, but even a small change can lead to a very different
destination over time. For the past six years, the health sector
has been moving toward more free-market solutions, introducing
patient choice and competition into a system that had been largely
dominated by top-down, centralized management. A few very familiar
new incentives to become partners in managing their health
costs through financing options like Health Savings Accounts and
company-based Health Reimbursement Arrangements. Both individuals
and companies are saving money on health costs as a result.
competition also have been introduced in public programs like
Medicare and Medicaid, showing that people can choose among
competing health plans that have new incentives to offer better
benefits at lower costs.
Threats to the Free
Market in Health Care
working, but there are threats on the horizon. The new leadership
in Congress is setting a clear agenda that involves expanding
government health care programs and cutting back the
initiatives begun over the past several years to bring more
competition and patient choice into private and public
chairmen want to expand government coverage of children,
putting children in families earning up to $83,000 a year and
"children" as old as age 25 into government-run plans. In
addition, Senator Ted Kennedy (D-MA) has put as his top
priority enacting legislation that would put all Americans on
government-run health care through Medicare-for-All. Others are
working to expand Medicaid to more middle-income Americans,
shifting tens of tens of millions of Americans into
government health care.
So what can we
The health care
initiative that President Bush offered during his State of the
Union address in 2007 could usher in the changes that would
continue to make the U.S. the leader in quality health care while
addressing the growing problem of the uninsured and middle-class
anxiety about high health costs.
would give families the opportunity to own health insurance
that is portable from job to job, and he would free up some of
their tax money to help them buy the coverage. The White House
estimates his plan also would give a tax cut to 100 million working
Americans and provide health insurance to up to 9 million more
Americans without any new long-term costs to the federal
treasury. The dynamic changes in the marketplace for health
insurance would transform the system to offer health insurance that
is more affordable, flexible, and portable.
of Mr. Bush's plan is a new standard deduction for health
insurance. It would be available to any taxpayer who buys
qualifying health insurance. Families would get a new $15,000
standard tax deduction, and individuals would get $7,500. You need
not itemize and will get the full deduction even if the policy you
buy costs less as long as it meets certain minimum requirements for
catastrophic coverage. Families earning $50,000 a year could save
more than $4,300 in income and payroll taxes and use the tax
savings to buy health insurance.
What about the
uninsured, especially those with lower incomes? The White House
says the proposal would lower the average tax bill of a family
without coverage by $3,350. This would mean $3,350 of their pay
would be available to buy insurance instead of going to taxes.
But for many of
the insured, this still would not be enough, so there is a second
part to the President's plan involving the states: Health and
Human Services Secretary Mike Leavitt (former governor of Utah) is
meeting with every governor to find out what his or her state needs
to create "Affordable Choices" in health insurance. Secretary
Leavitt wants to help states make basic, affordable private health
insurance policies available to their citizens. This could include,
for example, grants in the form of vouchers or refundable tax
credits to help low-income people purchase private health
proposal was very innovative and took the policy community by
surprise with its boldness. The President described his basic
philosophy to enthusiastic applause on both sides of the aisle
during his State of the Union Address when he said, "in all we do,
we must remember that the best healthcare decisions are made not by
government and insurance companies, but by patients and their
This changes the
whole conversation in the health policy debate. No longer are we
simply talking about how much or how little to expand
government programs. We now can have a new national debate
over how to engage the power of consumers in transforming our
health sector to become more efficient, more responsive to their
needs, and more affordable. In addressing the core problem of our
current dysfunctional tax treatment of health insurance, the
President has won support from The Washington Post,
The Wall Street Journal, and experts from think tanks as
traditionally divergent as the Urban Institute and The Heritage
like this? No, of course not. Congressional leaders have said
the proposal is dead on arrival. It is such a new and creative idea
that it will take time for people to analyze and digest the plan
and its implications.
fearful that it will accelerate the decline of employment-based
health insurance by giving a tax break to individuals who buy
coverage on their own. But job-based coverage already is declining.
This will give employers and employees a new negotiating tool to
bargain for insurance that offers the best value.
Others say it
doesn't do enough for the uninsured and that tax credits
rather than a tax deduction would be better. Using some of the
"Affordable Choices" money, states can put new resources on the
table to provide state-based tax credits, vouchers, or other new
subsidies to the uninsured to supplement the federal tax
There are many
more details than we can get into here and which will be addressed
over time, but what's the bottom line? The President's plan is a
It is a win for
the uninsured because it offers millions more Americans the chance
to buy health insurance with the tax savings they will receive from
the new standard deduction and likely new state subsidies.
It is a win for
states because they will have more flexibility with the new
"Affordable Choices" state initiative to direct federal resources
to meet the needs of citizens to get affordable health
It is a win for
employees because they now have the opportunity to buy health
insurance that they can own and take with them from job to job, and
it gives them more control over decisions involving their
health insurance and health care.
sector wins because this eliminates one of the major hidden forces
driving up the cost of health insurance and gives the market new
incentives to make insurance more affordable.
because 80 percent of them will receive a tax cut when they take
the new $15,000 family deduction.
sharpens the debate between those who believe that the answer to
the problems in the health sector lies in much more government
involvement through expansion of public programs and those who
believe that the free market can and does have much more potential
to get health insurance costs down and provide people with
greater access to coverage and more choices.
and competition works. What we need to do is engage the power of
consumers to transform our health sector to become more
efficient, more responsive to consumer needs, and more
is founder and President of the Galen Institute, an Alexandria,
Virginia-based nonprofit research organization that advances
ideas for market-based health reform. These remarks were
delivered at a meeting of the Conservative Women's Network
held at The Heritage Foundation and co-sponsored by the Clare
Boothe Luce Policy Institute and The Heritage Foundation.