HSA Man Vs. Healthzilla
"More uninsured Americans." "Double-digit rises in health spending." "Middle-class angst about health insurance." These problems dominate headlines, with both parties pushing their reform packages. The year, though, is 1994, not 2004. Ten years ago this fall, the most ambitious plan to remake American health care since the Wagner-Murray-Dingell bill of 1943 collapsed, not with a bang but with a whimper: Senate Majority Leader George Mitchell delayed the vote on "Hillarycare."
Basic problems remain the same, however. And so do many of the proposed solutions. In Washington, Democrats continue to push statist prescriptions to America's health care ills; at the state level, legislatures experiment with them. It would be easy, thus, to assume that while Hillary Clinton lost the battle, she is winning the war.
Perhaps that is what makes tomorrow's debate so interesting. With the presidential candidates focused on domestic issues, America will have the opportunity to witness a debate between two fundamentally different visions of health care. John Kerry has offered up more of the same for health reform. In sharp contrast, President Bush proposes a package that could rout Hillary Clinton's statism and create a health-care revolution.
Let's start with the lost decade. There have been two major reform ideas that dominated the years since the Health Care Security Act of 1994: government meddling and managed care.
While the White House failed in its grand design, many states forged ahead -- expanding Medicaid, and regulating the price and scope of insurance. Today, across America, there are many more regulations on the books and the number of Medicaid enrollees has swelled (from 30 million in 1994 to 44 million today), but the political enthusiasm for statist interventions has waned. No wonder. Consider Medicaid. Between 1999 and 2002, the program's bottom line grew 36%, from $189 billion to $258 billion.
Support for managed care proved just as transient. The original impulse for Hillarycare was cost-control. The White House in 1993 predicted that, without major reforms, health spending would suck up 19% of the GDP by decade's end. Managed care was the private sector answer to the problem of health inflation. And it worked: health spending was reined in. Hospital spending actually dropped through much of the mid-1990s (in 1997, by an astonishing 5.3%). But the thuggish methods employed by HMOs led to a consumer and political backlash.
Why did both fail? Government meddling and managed care awkwardly attempt to compensate for the central problem: Americans don't directly pay for the health care they receive. Out-of-pocket expenses -- that is, the amount not covered by public and private insurance -- account for just 14 cents on every health dollar spent in the U.S. American health care is dominated by third-party payment. Nelson Sabatini, Maryland's secretary of health, observes: "Using health care in this country is like shopping with someone else's credit card." If the last decade seems to have done so little to address the woes of the system, no wonder: Consumers were never brought into the equation.
Sen. Kerry looks at today's woes and promises something statist for everyone. For employers struggling with rising premiums, he promises that Washington will pay 75% of extraordinary health bills and then subsidize the remaining insurance cost. He promises to create huge purchasing pools, heavy in regulations and mandates, so that employers and individuals can join together to buy insurance. He offers a massive expansion of public programs, like Medicaid, to cover most of America's kids. And for anyone taking prescription drugs -- which is to say most of the country -- he promises lower prices by allowing importation of Canadian drugs (and thus Canadian price controls).
Suit by Paul Stuart, health care by Hillary.
His plan would enlarge Washington's role, involving it in the purchase and pricing of much of American health care. Such ambition carries a high price tag: $1.5 trillion over 10 years, by at least one estimate. In contrast, President Bush promotes a completely different approach: health savings accounts. Rather than ignore consumers, HSAs place people in charge of their own health care, "a plan that you own," as Mr. Bush observed in Ohio last week. And that ownership has the potential to tame health spending in its wake.
Created by the Medicare Modernization Act of 2003, HSAs are personal medical savings accounts used in conjunction with a high-deductible health insurance plan. For smaller expenses, then, individuals pay out of their HSA -- money that can follow them from employer to employer and can accrue from year to year. Catastrophic insurance covers larger expenses.
How much could this help? Writing on this page, economist Martin Feldstein noted that a typical Blue Cross of California family policy costs $8,460 (with a $500 deductible per member). But a similar HSA-style high deductible policy costs just $3,936 (with a $2,500 deductive). The difference ($4,524), then, far exceeds the maximum additional out-of-pocket expense that the family would face if they reached the maximum deductible ($2,500). In other words, the HSA approach results in great savings. Data from eHealthInsurance, a leading online insurance brokerage, suggests that a majority (55%) of customers purchasing health insurance through the HSA approach pay less than $100 per month. Not surprisingly, about a third of these HSA-plan enrollees were previously uninsured.
HSAs have the potential, though, to do more than just save some money on premiums. Individuals empowered with health dollars will begin to act like consumers of health care. Third-party payment, in fact, will be pushed to catastrophic events. Thus, the market forces that reshaped the rest of the economy may soon transform the health industry.
Tomorrow, President Bush shouldn't just emphasize HSAs (which Sen. Kerry, incidentally, opposes). He can map out further reforms that will make health insurance more affordable:
Tax fairness. While employer contributions to health insurance are non-taxable, individuals must pay in after-tax dollars. Leveling the tax field not only makes health care more affordable, it also corrects the employer-based preference, a carry-over from World War II wage-and-price controls.
Out-of-state insurance. State regulations have decimated insurance choices and driven up the cost of coverage in many jurisdictions. Because of this, premiums for similar policies differ widely among the states. In New Jersey, according to the Coalition Against Guaranteed Issue, it now costs more to purchase a family health policy than to lease a Ferrari; while in Connecticut, similar coverage is 80% less expensive. The federal government must allow out-of-state purchases of health insurance.
Deregulation. Health care is choked by an endless list of regulations and restrictive laws that stifle innovation and result in high-cost, low-satisfaction medicine. Clinics and hospitals must comply with more than 100,000 pages of Medicare regulations. Ownership, FDA, Emtala and antitrust laws have stifled innovation further. Is there a sector of the economy that Washington regulated into efficiency?
President Bush should speak simply and clearly: A decade after Hillarycare, there is an alternative that places Americans, not government bureaucrats, in charge of their own health care. He should emphasize this tomorrow night -- and every other night of the campaign.