The Public Policy

Free Market Universal Care

Yes, universal health care through the free market is possible. But first, Republicans will have to stop co-sponsoring killer bills like Sen. Ron Wyden's Healthy Americans Act.

By 6.11.08

Send to Kindle

Universal health care can be guaranteed to all while making government smaller rather than bigger. This arose out of the best thinking from conservative health care policy analysts as far back as the enormous debate and victory over the Hillary health care plan in 1993-1994. The public does demand a social safety net that does not let anyone suffer without essential health care. But we can provide such a safety net, indeed, a better one than exists today, while expanding and maximizing the role of the free market in health care.

But the liberal left, more socialist in America today than ever, wants to exploit the public desire for a health care safety net to adopt a massive, unnecessary expansion of big government. That is because what these New Socialists are really all about is expanding their political power through any and all means, including maximizing dependency on government.

Now a bill has been introduced in the Senate that does precisely this. It is S. 334, the Healthy Americans Act, spearheaded by Sen. Ron Wyden (D-OR). But he is not alone. The bill is truly bipartisan, with eight Republican Senators joining the Democrats as co-sponsors.

National Health Insurance

THE BILL INVOLVES a complete government takeover of health insurance, with all putatively private health plans effectively run by the Feds. It is even more radical than the new health plan Hillary proposed in her campaign this year, which left a greater scope for privately run health insurance.

The Congressional Budget Office and the Joint Tax Committee scored the proposed bill as increasing government revenues and spending by close to $1 trillion per year! A Price Waterhouse study similarly found that the bill would raise Federal taxes and spending by a bone crunching $10 trillion over the first ten years. The entire Federal budget is currently about $3 trillion per year, so you can see what a truly massive, astounding increase in Big Government this is. Indeed, this is the biggest increase ever proposed in any single bill in U.S. history, indeed, probably in world history.

The bill includes a new tax on individuals to fund health insurance premiums totaling $650 billion to $800 billion per year. For comparison, the Social Security payroll tax currently raises about $660 billion per year, with the entire Federal income tax raising about $1.2 trillion annually. On top of this is a new employer tax raising close to $400 billion per year. In the current fiscal year, the entire corporate income tax is projected to raise $345 billion.

The bill would mandate that all individuals buy health insurance through a new Federal Healthy Americans Private Health Insurance system (HAPI, though actually we won't be truly happy until the co-sponsors of this bill are all retired). The premiums for that insurance will be collected through your Federal income tax return. Those who manage to let their insurance lapse for any period will suffer a penalty equal to the monthly premiums due plus 15%.

The Federal government will also tell you what health insurance coverage you must have. In fact, you can only choose among the health plans in the new Orwellian named HAPI system. Those health plans are all required to cover abortion, among other mandated health benefits. This new system would also replace employer provided plans, so if you are HAPI with your current employer coverage, you can just forget about it.

IN MY OWN CASE, I have enjoyed coverage through a Golden Rule health savings account plan covering a male in dubious health over the age of 50 and a typical teenage male with costly sports injuries for less than $300 per month. But, of course, with the friendly Federal government here to help me, I can forget about this plan as well, and will be forced to pay far more for the wonderful new HAPI coverage. You can be sure I won't be HAPI about that. In fact, under the bill, all HSAs or MSAs would be sharply restricted or eliminated.

All health plans under the bill will be subject to guaranteed issue, which means that they must cover all applicants regardless of how sick they are when they finally decide to enroll for coverage. This allows healthy individuals to choose the least cost plans until they get sick, when they can then enroll in the highest cost plans with the broadest coverage. This is like fire insurance that you can buy after your house catches on fire.

All health plans would also be subject to community rating, which means they must charge the same premiums to everyone, from 64-year-old seniors to 23-year-old triathletes. This further encourages the gaming of the system through switching to plans with broader coverage after becoming sick.

In addition, there would no longer be any role for health insurance agents in this new HAPI system. As Hillary suggested years ago, they can all go now find other careers. But there would be a new Help Health Agency bureaucracy established in each state.

The bill would also federalize the Medicaid and SCHIP programs, as their functions would be performed by the new HAPI system as well, with additional Federal benefit supplements. The current state roles in those programs would be eliminated, except that the states would have to make continued maintenance of effort payments to the Federal government equal to what they were spending on those programs. This is the opposite of the direction those programs should go, as discussed below.

The Black Hole of Socialized Medicine

THIS PROPOSED LEGISLATION reflects no learning from the various socialized medicine failures around the world, as the new system it creates would be subject to all of the same problems.

The new HAPI coverage would create extensive new demand for health care, as consumers are given every incentive to take maximum advantage of this new Federal boondoggle. Pressure then builds on the government to do something to curb the unexpected runaway costs. Without a market in health care, the only alternative is to turn to health care rationing.

The government would increasingly squeeze down on health provider reimbursements to save costs, just as it has done for Medicaid and Medicare. This reduces the supply of health care, which causes prices to rise further. The government then starts restricting when consumers can obtain what health care to try to control costs. The government slows approval of new medical treatments and breakthroughs to further reduce exploding costs. This slows the development of new, advanced medical care.

Health plans would compete to see who could provide the best care for the healthiest patients, while restricting their ability to serve sick patients as much as possible. Why provide access to all the latest, best treatments for cancer when that will just attract everyone who gets cancer, after they get it, especially under guaranteed issue and community rating? Ditto for medical care for heart disease, or the aged. Better to be known as a terrible health plan for those suffering with these life-threatening illnesses. This sharply restricts investment in facilities for providing the best and latest treatments for these illnesses.

The rationing just draws the government further and further into controlling every aspect of health care, until the entire health system is basically government run. Doctors become bureaucrats more interested in implementing government policies rather than serving patients. That is because under these systems their real client is the government, not the patients.

DOESN'T THIS SOUND just like all the socialized medicine systems around the world we have come to know and not to love? Milton Friedman called it "the black hole of socialized medicine." By that he meant that these systems draw more and more resources in but produce less and less health care services out. In every one of these systems, what starts as a system to provide health care to everyone morphs over time through rationing and all of its incentives into an official government imposed system to deny health care.

I am so embarrassed for the Republicans on this bill that I am not even going to name them all. The ring leader has been Sen. Bob Bennett of Utah, who also has been consistently bad on Social Security reform. Another one to be named is Sen. Judd Gregg (R-NH), who wails a lot about the runaway costs of current Federal entitlement programs, suggesting the need for sharp tax increases. Then, in this bill, he has co-sponsored a new entitlement program that would be the largest of all.

When I first came to Washington over 25 years ago, I soon learned a little aphorism that has helped me understand what is going on in this town. The saying goes, the Democrats are the evil party and the Republicans are the stupid party. Every once in a while, they get together and do something truly bipartisan, which is both evil and stupid. The Healthy Americans Act is a perfect example of this.

Free Market Safety Nets

IN SHARP CONTRAST, with a few modest policy changes that would actually make the government smaller overall, we could assure that everyone would have essential health care when they need it.

The first element of such a plan would be guaranteed renewability. This means that as long as the premiums are paid, an insurance company cannot cancel a health insurance policy after the beneficiary becomes sick. That would be like a fire insurance policy that the insurer could cancel once the house caught on fire. Such a policy would provide no real protection against the costs of fire, or serious illnesses in the health insurance context, and so would not be real insurance at all. It would be a fraud. That is why this element is already supposed to be in force in every state. To the extent loopholes have developed over time, they should be closed.

The second component would be to provide assistance to low and moderate income workers to assure that they could purchase basic health insurance coverage. This would be best accomplished through reforms to block grant Medicaid and SCHIP back to the states, following the model of the extremely successful block grants of the old AFDC program adopted in 1996.

Under that reform, the Federal government ended the practice of Federal funds matching state expenditures for AFDC, which only encouraged states to spend more and more. Instead each state was given a finite block grant from the Feds, with a mandate to design their own new welfare programs based on a work requirement for the able bodied. If the new state programs cost less than the Federal block grant and what the states were spending on their AFDC programs before, the states could each keep the savings. If the new state programs cost more, the states would have to pay for the entire additional costs themselves.

This reform revolutionized the incentives for state bureaucrats. They responded with new programs fully focused on getting welfare recipients out to work, to save the state money. Within a few years, the welfare rolls declined by a shocking 60% nationwide as compared to the old AFDC program.

This same reform should now be extended to Medicaid and SCHIP. Federal spending on the new block grants for these programs would be limited to grow no faster than the rate of growth of GDP, so that these programs would not contribute in the future to increasing Federal spending relative to GDP. Each state would use the Federal block grant funds, along with the funds they were previously spending on these programs, to finance health insurance vouchers for low and moderate income residents in their respective states. These vouchers would then help pay for health insurance for these lower income residents. Each state would decide what level of assistance was appropriate at which income levels within the state.

THE FINAL COMPONENT would be state uninsurable risk pools. Over half the states already have such pools, and they have worked extremely well. Those who do not have health coverage and then become uninsurable because of contracted illnesses would obtain coverage from the risk pool in their state. The state would charge slightly above market premiums for this coverage, to guard against unnecessary use of the pools, with the vouchers available to help low and moderate income workers foot the bill. But such premiums would still not be enough to finance health care for these sick uninsurable individuals. So the state would subsidize the pool to cover remaining costs. This has proved to be a relatively minor cost in the states that have such pools

Very few people actually become uninsurable. So the risk pool enables them to be covered without exploding costs and exploding big government for everyone else. The block grant funds from the Medicaid and SCHIP programs could be used by the states to pay for these risk pools.

That's it. With these health policy reforms, everyone has somewhere to go to get essential health care when they need it. Those who have health insurance are assured of keeping it with guaranteed renewability. Those who are too poor to buy health insurance would receive assistance to assure they could buy at least a basic, essential plan. Those who nevertheless do not become covered and then become too sick to get coverage would receive essential health care through the state uninsurable risk pool.

Through the block grants for Medicaid and SCHIP government overall would become smaller. Yet a basic safety net demanded by the public would be established to assure that no one ever has to do without essential health care.

Like this Article

Print this Article

Print Article
About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.