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Executive Summary #1445es on Health Care

June 1, 2001

June 1, 2001 | Executive Summary on Health Care

Executive Summary: Why Adopting the "Common Ground" Health Care Proposal Would Be a Costly Mistake

The Health Insurance Association of America (HIAA), a large trade association, and Families USA, a grassroots organization long associated with campaigns for sharply expanding the government role in health care, have agreed on a proposal to reduce the number of America's uninsured. The HIAA-Families USA "Common Ground proposal" recommends expanding the State Children's Health Insurance Program (S-CHIP) and Medicaid to include lower-income working adults and their families. It also recommends a new set of tax breaks for employers who cover previously uninsured workers who meet strict income eligibility criteria.

The Common Ground proposal has special relevance for Congress, since the fiscal year (FY) 2002 budget resolution sets aside $28 billion over three years to deal with the growing problem of the uninsured. Congress needs to deal with this issue, but it does not need to exacerbate the health care system's many problems by further eroding patient choice and control--which is exactly what the Common Ground proposal would do. This proposal represents flawed health care policy for a number of reasons.

  1. Its requirements would be difficult for businesses to implement. To provide insurance coverage to their uninsured workers and receive a tax credit, employers would have to verify that workers meet the precise eligibility criteria. This is particularly problematic for small businesses that do not employ personnel to administer health insurance; taxpayers could subsidize the "wrong" workers. Employers also would be forced to gather an unreasonable amount of personal information on household income to verify a worker's eligibility. This would greatly increase their regulatory burden.

  2. It relies on the relatively inefficient small employer system. Small-business insurance pools have high administrative costs and limited or nonexistent personal choice of plans and benefits, making small firms poor vehicles for a serious expansion of health insurance.

  3. It reinforces flaws in the current employer-based system that spur patient dissatisfaction. The proposal preserves outdated federal tax policies that frustrate patient choice and genuine competition by distorting markets, driving up costs, and encouraging a steady erosion of patient control.

  4. It would significantly expand Medicaid. The incentives in the proposal, as well as the compliance burden connected with its tax credit component, could encourage firms with a disproportionately large number of lower-income employees to cease offering health insurance. The effect would be further contraction of the private health insurance market as Medicaid expands.

  5. It would lay the groundwork for greater government control of health care. By significantly expanding Medicaid and consolidating, to the extent practical, employer and insurance industry restrictions on health care decisions, the proposal would increase government's role in the delivery of health care. Employer restrictions invite government intervention. The next step would likely be government mandates on employers to provide insurance, with government specifying the treatments or procedures included in the approved benefits package.

Building on a Real Consensus.
In sharp contrast to the Common Ground proposal, President George W. Bush would design a system that "puts a priority on access to health care without telling Americans what doctors they have to see or what coverage they must choose. Many working Americans do not have health care coverage, so we will help them buy their own insurance with refundable tax credits."

Within the broader health care policy community, there is strong bipartisan agreement that tax relief for individuals is a far better approach than expanding government programs. Small businesses also overwhelmingly support a system of tax credits that go directly to individuals and families, rather than a system based on new government reporting requirements that would increase their paperwork and administrative burdens. To build on this growing bipartisan consensus, Congress should work with the President to:

  • Create a system of refundable tax credits to expand health coverage. Providing individual tax relief for insurance would help millions of Americans who need coverage. It would enable individuals to choose the kinds of plans, benefits, and doctors that best suit their family needs. It would promote personal control and ownership of insurance policies, including policies sponsored by associations or fraternal and faith-based organizations.

  • Allow S-CHIP funds to be used for tax credits and vouchers for the purchase of private health insurance. Legislative report language accompanying the S-CHIP provisions of the Balanced Budget Act of 1997 encourages states to explore "innovative means" to expand health coverage. Such means should include the use of tax credits and vouchers to extend private coverage to children. The President and Congress can make technical adjustments in the law to facilitate the use of this option.

  • Reject incremental steps that lead to an increase in government or even employer control over health care decisions. Most Americans, with the assistance of their doctors, want more, not less, personal control over sensitive health care decisions.

Enabling individuals and families to control their own health insurance coverage and giving assistance directly to those who need help the most would greatly improve America's health care system. The Common Ground proposal would increase employment-based coverage of the uninsured only if enough employers think it is worth the effort to obtain the new tax credit. Regardless of what private companies do, however, government-subsidized health care would expand, and an already ailing private health insurance market would contract even further and aggravate the problems that plague today's system, including the steady erosion of control by patients over the most sensitive decisions affecting their lives. Congress and the Bush Administration can do much better.

Robert E. Moffit, Ph.D., is Director of Domestic 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