How to Expand Health Care Choice and Improve Access for Working Families

Report Health Care Reform

How to Expand Health Care Choice and Improve Access for Working Families

June 16, 1999 11 min read
Radiologist and Former Visiting Fellow in Health Policy
Daniel is a practicing radiologist in Metairie, Louisiana and former president of the American Medical Association.

I am a practicing physician, a diagnostic radiologist. I own and operate Clearview Medical Imaging, a small outpatient diagnostic imaging facility in Metairie, Louisiana, a suburb of New Orleans. My practice and my experience as a small business person with 12 full-time employees have given me an ongoing opportunity to study what's wrong with American medicine as well as what's right.

Let's be clear about our objectives in this national debate: Every American should have access to affordable health insurance coverage. Yet the number of uninsured is growing. If we are going to expand coverage and provide universal access in a cost-effective manner, federal and state policymakers alike will have to carefully craft new policies to create a new and more effective medical marketplace. But in so doing, they should be guided by four basic principles:

Principle No. 1: End discrimination against personal choice. Beneficiaries should be given an expanded array of choices of plan without discrimination for or against any one type of plan, as now occurs.

Principle No. 2: Expand personal choice and allow patients to change their minds. The individual should be given the opportunity and responsibility to choose and own his or her own insurance along with the right periodically to change if dissatisfied with the previous choice.

Principle No. 3: Establish a defined contribution as a principle in both public and private health care financing. The employer in the private sector or the government in the public sector puts up the same defined contribution, no matter which choice the beneficiary makes.

Principle No. 4: End IRS discrimination against personal purchase of insurance and allow patients to purchase plans through cooperatives if they wish to do so. Lawmakers should eliminate tax discrimination against individuals owning their health insurance and enable the establishment of voluntary choice cooperatives where employees can take their defined contributions and shop for the insurance plan which best suits their needs.


I notice that nearly everyone in our health care system today is miserable. Employers are faced with a return to double-digit escalation of premium costs for insurance for their employees. Employees are suffering through a progressive reduction of choice of both physicians and health plans. One of my colleagues in the medical profession put it beautifully: "Employees in this country have become commodities to be auctioned off to the lowest bidder."

Physicians, of course, are frustrated because of the ever-increasing intrusions into the patient-physician relationship--intrusions grounded in an understandable desire on the part of employers to control the cost of health care. Widespread dissatisfaction with the system has led to a clamor for even greater regulation of the system.

Think about it. The idea that employers choose to get a handle on increasing cost is such a wonderful idea that we now feel the need to pass laws to protect the patients from the idea! Yet, in an era of unprecedented prosperity, the number of uninsured is escalating significantly.

Multiple Maladies. Of the three issues of cost, access, and quality, the issue that I believe is driving the change in the country, and that has provoked so much anxiety among our people, is cost. Patients are interested in quality of care, and physicians want to provide quality care. However, the inability of the current system to control cost has threatened the quality of care.

The most important single facet of the access problem is cost. Therefore, when attempting to solve the problem of the increasing number of uninsured, doesn't it make sense to examine the cost problem more thoroughly?

It is true that the aging population, rapidly emerging new technologies, and the ongoing professional liability insurance crisis contribute significantly to escalating costs. But the single most important--and most easily corrected--factor is that the person consuming the services--that is, the patient--is insulated from the cost of those services because someone else is paying for them.

Ponder several basic questions. Is it better to link the individual to the cost or to insulate the person from the cost? If one wishes to link the person to the cost, is it better to reward the individual for using our health care system in a cost-effective way or to punish the individual for not doing so? Is it better to motivate or to regulate? Is it better to entice or to coerce? Can market solutions work if you limit choice?


A substantial, broad-spectrum consensus seems to be developing around the following three policy objectives: expanding the choices, establishing individual selection and ownership of health insurance, and establishing a defined contribution. But assuming consensus on these three points is not enough for policymaking. Some practical way must be found to accomplish these three objectives. Let us examine them in greater detail.

Expanding the Choices. There is no perfect way to finance the delivery of care, and there is no perfect delivery mechanism. Financing mechanisms include various types of HMOs, PPOs, point of service plans, traditional indemnity insurance, benefit payment schedules, and medical savings accounts (MSAs).

Each of these has advantages and disadvantages. The best way to bring out the strong points and suppress the weak points of each of these options is through an improved marketplace. Instead of government or employers dictating to beneficiaries which one of these financing mechanisms is best, the beneficiary should have access to an expanded array of choices. Each should operate without discrimination from employers or government.

For example, MSAs are one way to directly reward individuals for using the system in a cost-effective way. Every beneficiary should have an equal opportunity, without prejudice, to choose an MSA or an HMO or whatever plan seems to make the most sense to that person. Having these various imperfect mechanisms competing with one another in a better marketplace will have the same result that competition has in other marketplaces for goods and services: increased quality and decreased cost.

Individual Selection and Ownership. The individual should be given both the opportunity and the responsibility to choose and own his or her insurance, but with the periodic right to change if dissatisfied with the previous choice. The ability to change if dissatisfied represents a safety valve for the beneficiary and causes the accountability in the system to flow to the beneficiary.

Defined Contribution. Whether the employer in the private sector or the government in the public sector funds the benefit, the employer or the government should put up the same amount of money no matter which choice the individual makes. If the individual wants more or different coverage, he or she can supplement that defined contribution as desired. This gives the employer or government predictability as to cost next year or even over the next several years. It also offers an opportunity for the individual to be rewarded for selecting wisely.


Two significant problems exist in trying to achieve the three policy objectives: tax inequity and the systemic disadvantage to the individual in purchasing health insurance under current conditions.

Current tax law discriminates against someone who buys health insurance as an individual. That needs to be changed. This matter has been discussed repeatedly by my colleagues at The Heritage Foundation, by prominent economists who span the political spectrum, and by a variety of health care policy analysts, from the Cato Institute to the Progressive Policy Institute.1 Moreover, there is bipartisan interest in rectifying these inequities, with newfound alliances between men like House Majority Leader Richard Armey (R-TX) and Representative Pete Stark (D-CA), and fruitful legislative partnerships between Representatives Jim McDermott, a liberal Democrat from Washington State, and James Rogan, a conservative Republican from California.2

The other issue is very relevant, and not as often discussed in public forums: How can I as an employer offer my 12 employees a choice of multiple different kinds of insurance, and how can each of them purchase insurance at group rates rather than individual rates? Some mechanism needs to be developed to facilitate that process.

Two methods have been proposed: voluntary purchasing cooperatives and voluntary choice cooperatives. The distinction between purchasing cooperatives and choice cooperatives is an important one.

In a purchasing cooperative, employers band together to micromanage the insurance benefits. Typically, the employers determine what the plans should look like and even engage in negotiation over the price. The result is a distorted marketplace that may continue to limit the choice through a cookie-cutter mechanism. The result: The individual chooses between a variety of similar plans rather than a variety of different plans.

Negotiating the price between the cooperative and the insurance plans means that the individual is still insulated from variations in cost from one delivery setting to another. Using an automotive metaphor, the proponents of such a mechanism say, "We'll provide you the car. You can have any color you want as long as it's black. You can have however many doors you want, as long as it's two. You can have whatever transmission you want, as long as it's three-speed manual, and so on."

In concept and in operation, the voluntary choice cooperative is very different. A voluntary choice cooperative would function simply as a clearinghouse. It would qualify the plans to make certain that they are solvent and that they adhere to truth in advertising, covering what they say they will cover and living up to the contract they make with each individual who picks the plan. Rather than becoming immersed in the micromanagement of the process, the employer is entirely out of the health insurance management loop.

The term "voluntary choice cooperative" is significant. It means that employers should have a choice, too. They should not be forced to participate in a "health care cooperative" or, to use a term made unpopular by the Clinton Administration, a "regional alliance" or a mandatory health insurance purchasing cooperative (HIPPC). But employers should have the option to do so, if they prefer that idea to the way they are currently providing health benefits to their workers.

What does "choice" mean in this context? It means that the beneficiary or the employee is able to select from among a variety of different private health plans. The term "cooperative" means that employers would be able to participate in a pooling of individual employees in order to take advantage of the rule of large numbers and to spread the risk in a better system of health insurance.

In my view, Members of Congress, particularly on the Commerce Committee, which has direct jurisdiction over these matters, should develop a cooperative that takes on the characteristics of a voluntary choice cooperative rather than those of a voluntary purchasing cooperative. As Members start to develop the concept, they should pay special attention to fairness. If I am going to send my 12 employees down to the local voluntary choice cooperative offering multiple different plans, each plan should have to take whoever signs up with that plan, without respect to considerations such as pre-existing conditions. But, in devising a policy, fairness means just that. To be fair to the private health plans, shouldn't I have to send all 12 of my employees and not just the sick ones?


Let me restate my particular interests in this debate. They are the interests of a physician and a businessman. I am both. As a practicing physician offering high-tech diagnostic services, I want to be able to compete in a marketplace that recognizes my commitment to cost-effectiveness. It is, ideally, a marketplace that allows a physician to send a patient to me to take advantage of some subspecialty expertise I might have in a particular situation without requiring the patient or my staff to jump through all kinds of legislative or bureaucratic hoops.

As an employer, I want to provide a benefit to my valued employees that will give them solid protection. But I want them to stop and think about how to take better care of themselves, and how to use the system in the most cost-effective way possible when they become ill or injured.

I want my employees to be rewarded for using the system well. I want them to be motivated to do the right thing. I want them to be enticed to do the right thing. I don't want any kind of price controls that insulate them from the cost of any services they need. I value my employees and want them to have the benefit.

I want system accountability to flow to them, not to me. Yet, at the same time, like any other businessperson, I am continually concerned about the cost of that benefit. I want to be shielded from significant escalation in cost and want to know how much the benefit I am providing my employees is going to cost me next year. In my judgment, the points I have outlined accomplish all of that--and more--by putting the patient in the driver's seat.

Every person in this country should have health insurance. But we have to do this right. In terms of government policy, we have two models to look at in terms of what works. One is based on consumer choice and market competition; the other is based on central planning and price controls. They are two long-running experiments. One is a defined benefit plan, and one is a defined contribution plan. One has tens of thousands of pages of regulations, the other around 100 pages. One threatens to bankrupt the country, and the other has outperformed employer-based health insurance in the private sector over the last 15 years or so. One is called Medicare, and the other is the Federal Employees Health Benefit Plan, and both are run by the same government. They are just run on two entirely different sets of principles. The experience of both tells us a lot.

We don't have to reinvent the wheel to solve the problem of the uninsured. We are spending more than enough money today to provide the coverage. We just have to spend it more wisely.

Daniel H. Johnson, Jr., M.D., is Visiting Fellow in Health Policy at The Heritage Foundation and a former president of the American Medical Association. This lecture is based on his statement before the Subcommittee on Health and the Environment, Committee on Commerce, U.S. House of Representatives, on June 16, 1999.

1. For an excellent summary of the new intellectual consensus on health policy, see Grace-Marie Arnett, ed., Empowering Health Care Consumers Through Tax Reform (Ann Arbor: University of Michigan Press, forthcoming 1999).

2. See The Honorable Jim McDermott and The Honorable James Rogan, "Can Liberals and Conservatives Agree on Health Care Reform?" Heritage Lecture No. 635, May 6, 1999.


Daniel Johnson Jr., MD, FACR

Radiologist and Former Visiting Fellow in Health Policy