A Serious Problem
About 46 million Americans lack health insurance today. Uninsured adults are sicker than those with insurance; for example, those who are eligible for Medicaid but not enrolled have more unmet health care needs than those on Medicaid. Because health care providers pass on many of the costs of treating the uninsured to payers, Maryland employers' 2005 premiums were raised by $948 per family to pay for $713 million of free care.
Further, many of the employed uninsured are enrolled in the publicly-funded Medicaid program, thus raising taxes. Some of them cannot afford health insurance. In Maryland, 75 percent of the uninsured come from families with one or more workers; but most of the increased uninsurance among the employed was caused by their refusal to accept offered insurance, likely because they could not afford it. In 2002, 30 percent of the uninsured were below the poverty limits.
An Awful Solution
But the "Fair Share" solution to the problem is awful. First, it will hurt the intended beneficiaries. Business payments for health insurance reduce wages.
Second, it causes businesses to alter their hiring practices to avoid the mandate. In Hawaii, for example, the government requirement to insure all employees who work more than 20 hours a week increased the part-time workforce by 44 percent from 1990 to 2000, while full timers grew by only 2.5 percent. Further, Hawaii employers' reluctance to hire weekly part-timers for 30 or 35 hours, the standard elsewhere, forced many part-timers to hold multiple jobs.
Last, some businesses in states with the employer mandate will choose to relocate or curtail expansions. Wal-Mart has already slowed its plans to put a large distribution center in one of Maryland's poorest counties. Although the Maryland mandate is known as the "Wal-Mart Bill" because it is the only large employer that fails to meet the statutory requirement, how long will take for the mandate to be imposed on all but the smallest businesses? All business owners in the state are no doubt asking themselves that question and perhaps already putting off making new hires.
A Better Solution
Ironically, Massachusetts—a state not known for its embrace of business interests—points the way to a better solution. Its governor, Mitt Romney, wants to require individuals, rather than businesses, to buy health insurance. In a neat twist, he would finance the poor uninsured with the $1 billion now used to subsidize health care providers that today deliver "free" care.
Switzerland, too, has long relied on a legal requirement for individuals to buy coverage. The Swiss government subsidizes those who cannot afford to buy it and enables the sick to pay the same price as everyone else for health insurance by risk-adjusting insurers. Consumers, rather than businesses or governments, are thus the primary financiers of the Swiss health care system. The results speak for themselves: Health care costs that are about a third less than in the U.S., universal coverage, and world-class medical outcomes.
In a recent study for the Journal of the American Medical Association, a co-author and I compared Switzerland's results to those in the U.S. states with similar affluence, educational levels, employment and racial composition, such as Connecticut. We found lower death rates and spending of only $2,952 per capitaversus Connecticut's $4,623. Swiss physicians earn nearly as much as American physicians, and the country has proportionately more expensive resources like MRI machines. No wonder the Swiss health care system attracts users from around the world.
The key to the success of the Swiss system lies in consumer control. The resulting competition creates value for the money from the consumer's perspective, unlike the U.S. system where health insurance is purchased by a third party—usually an employer or a government. The power of consumer control is reflected in plans, newly offered in the U.S., whose combination of high deductibles, complete coverage of preventive care, and tax-supported health savings accounts (HSAs) have improved the health status of the chronically ill while controlling costs.
Neither the Swiss consumer-driven health care system nor the new system created by Massachusetts is perfect: both retain excessive governmental meddling in the design of insurance plans and compensation for providers. For the Swiss, this was a deliberate choice. Governor Romney, however, had hoped to remove more of Massachusetts's regulation, but was thwarted by the legislature. The outcome could differ in states that don't share Massachusetts's impulse to regulate.
Still, both systems are substantially better than the present one, in which millions of Americans are uninsured while the economy reels from the massive costs of third-party control. And while Maryland's "Fair Share" system that the AFL-CIO envisions for the rest of the country would only further entrench the present system's flaws, the new Massachusetts plan points the way to greatly expanded coverage, slower cost growth, and greater consumer choice and satisfaction.
Regina E. Herzlinger is the Nancy R. McPherson Professor of Business Administration at the Harvard Business School, Senior Fellow at the Manhattan Institute, and the author of Consumer-Driven Health Care (San Francisco: Jossey Bass, 2004) and, with Ramin Parsa-Parsi, "Consumer-Driven Health Care: Lessons from Switzerland," Journal of the American Medical Association, September 8, 2004.
