A Real Health Care Solution
The health care debate in this country has long been focused on increasing the role of government. The idea has been that the more government gets involved, then more people will have access to care.
The latest outgrowth of this thinking has been the push to expand Medicare to cover prescription drugs. Both the U.S. Senate and House of Representatives have passed Medicare prescription drug legislation, and conferees from both chambers are attempting to reconcile the two bills in a conference committee. The self-imposed deadline to complete the Medicare conference is October 17.
Unfortunately, the foundation upon which this health care debate proceeds is faulty, and ultimately quite dangerous. More government involvement in the health care arena will only worsen the problems we already face due to too much government intervention.
For example, government mandates and regulations increase costs, and push health insurance coverage out of reach for many businesses and individuals. Likewise, a legal system that allows unwarranted, frivolous lawsuits to proceed and outrageous damages to be awarded also hikes costs.
One of the big problems few want to talk about is the third-party payer issue. When a third party – like the taxpayers -- picks up the tab for health care services, then what incentives do consumers or providers have to be concerned about costs? They have no incentives whatsoever.
More government funding for health care – such as for prescription drugs – will only ensure that costs continue to rise dramatically. Eventually, government responds by rationing care and/or imposing price controls. It’s critical to understand that price controls on prescription drugs would mean far less money and fewer incentives for researching and developing new and improved medicines. That means fewer lives saved.
Is there an alternative to the government trap of higher costs and reduced quality of care? Yes.
Medical Savings Accounts (MSAs) directly redress the woes of third-party payments, not to mention allowing consumers — rather than some distant government or HMO bureaucrats — to make their own health care decisions. MSAs combine a traditional high-deductible, catastrophic insurance policy and a tax-exempt savings account. Consumers use the funds deposited tax free in their MSA to pay for routine medical care. If they have a year with high medical expenses, use up all the funds in their account and reach their deductible on the insurance policy, then the insurance policy kicks in to pay remaining medical bills. If they have a year with minimal medical bills, then they keep and can rollover the funds left in the account and the interest earned. All medical expenses are covered, including prescription drugs, and no limits exist on choices of doctors, hospitals, and specialists.
With MSAs, the traditional buyer-seller relationship in the marketplace is re-established. Unlike when a third party pays, consumers and health care providers become concerned about costs. In addition, since the funds deposited in the MSA are the property of the individual, demand for services are not artificially juiced up. When consumers get to keep what they do not spend, they are simply more inclined to check prices and bills, and work to keep costs down.
Unfortunately, the effectiveness of MSAs in the marketplace has been limited due to unwarranted and counterproductive limitations included in the 1996 legislation authorizing these tax-free accounts. For example, MSAs were capped at 750,000 and made available only to the self-employed or to businesses with 50 or fewer employees. Deductibles must be between $1,500 and $2,250 for individuals and $3,000 and $4,500 for families. Tax-free deposits into MSAs were limited to 65 percent of the deductible for individuals, and 75 percent for families. And either the employee or employer could contribute to the MSA, not both. For good measure, the program originally was set to expire on December 31, 2000, but that date has been extended to the end of this year.
Fortunately, the House Medicare prescription drug bill included a measure to lift the restrictions and make MSAs, renamed as Health Savings Accounts (HSAs), permanent. HSAs would be available to all, with no caps on the number of accounts. Tax-free deposits into the account could be made by employees or employers up to 100% of the deductible for the high-deductible policy, and the deductible would range from $1,000 to $2,250 for individuals, and $2,000 to $4,500 for families.
If Congress and the White House truly are concerned about providing consumers with control over their own health care decisions, and expanding access to affordable health care, then the Medicare prescription drug legislation should be thrown away. In its place, the HSA plan should be made law, including making the accounts a real option for Medicare recipients. That would be an economically sound step for redressing the ills that plague our health care system.
Health care policy in this nation must shift in a positive direction by allowing the market greater ability to respond to the actual needs of consumers. In the end, the people must ask: Who do you trust to make health care decisions – yourself and your doctor, or politicians and government bureaucrats?
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Raymond J. Keating serves as chief economist for the Small Business Survival Committee.
