In the health care arena, Americans are losing their freedoms at an alarming rate. Some of the few that remain are in danger of being taken away under legislation being considered in Washington and in state capitals around the country. How did this happen? How can we win our freedoms back?
Blame Managed Care
The spread of managed care programs during the late 1980s and early 1990s is largely responsible for the latest assaults on freedom of choice in health care, but the roots of the problem extend back some fifty years. Managed care stopped a long-term trend in rising real health care spending, but it doesn’t address the underlying reasons for that trend. Managed care accomplishes its superficial magic by using “gatekeepers” to restrict and delay access to treatment, delegating treatment decisions to people with little medical training, and reducing the amount of time physicians spend with patients.
We are now witnessing a backlash against managed care. Patients resent the barriers erected between them and their doctors and the “cattle-call” treatment they are likely to receive. Doctors complain of second-guessing by insurance company agents and being pressured to withhold care or expensive treatments. Hospital administrators and advocates for the uninsured say managed care plans reduce access for those who are unemployed or who have a history of health problems.
The backlash against managed care has resulted in a plethera of proposed legislation, most of it bad, aimed at appeasing angry patients. The federal legislation receiving the most attention is the Patient Access to Responsible Care Act (PARCA), sponsored by Rep. Charlie Norwood and Sen. Alfonse D’Amato.
According to Duke University law professor Clark Havinghurst, “no other piece of health care legislation would be as destructive of consumer choice, as protective of provider economic interests, as antithetical to the antitrust effort to break down the old medical cartel, or as beneficial to plaintiff’s lawyers as this bill would be.”
The Road to Freedom
Finding our way back to health care freedom will require more than simply retracing our steps, repealing each generation of counterproductive policies as we come across them, because these policies are often justified by the faulty policies that preceded them. What is required, I believe, is to campaign to change public policies in the order in which they were first adopted.
We cannot “peel off” layers of regulation from the outside, but must work instead to change those early regulations at the center of the problem. The elements of such a “clean slate” reform agenda become readily apparent when we survey the history of health care regulation in the U.S.
First: End the Medical Cartel
The first assault on freedom in health care occurred in the 1930s, when the American Medical Association (AMA) was given the power to certify medical schools, enabling it to reduce the supply of doctors and limit the public’s access to the professional records of doctors and hospitals. As a result, consumers today have fewer choices, higher prices, and less information.
Step one, then, is to revise laws regarding certification, licensing, and standard-setting to encourage the creation of competing private entities that can perform many of the functions now performed exclusively by government agencies or the AMA.
Second: End Over-reliance on Insurance
During World War II, government wage and price controls led some creative employers to offer health insurance as a way to attract talented workers. After the war, for tax purposes employer-provided insurance benefits were treated as business expenses rather than as earned income, making them tax exempt. The effects were profound.
Over the next three decades, health care financing changed dramatically. Individuals no longer paid expenses out of their own pockets, and insurers no longer paid only specified dollar amounts for insured conditions. The system came to be overwhelmingly financed by insurers retained by third parties (usually employers). Demand for health care soared, as patients no longer were required to balance the benefits of care against their costs. Since the supply of health care services was constrained by the AMA, prices went up.
The second step back to health care freedom, then, is to change the tax code so it treats insurance purchased by individuals the same as insurance purchased by employers, and money spent on insurance premiums the same as money spent out-of-pocket on health care expenses. The first goal is obtained by making insurance premiums paid by individuals and the self-employed 100 percent deductible. The second goal is obtained by allowing everyone to open Medical Savings Accounts (MSAs)–tax-sheltered savings accounts from which medical expenses can be paid directly.
Third: Reform Medicaid and Medicare
Medicaid (for the poor) and Medicare (for the elderly) were launched in the mid-1960s. Today, they inject hundreds of billions of dollars annually into the health care market. That cash infusion dramatically increases demand for health care, and because payments are made to providers rather than to patients, millions of consumers are immune to price considerations.
Medicaid and Medicare can be reformed by giving the poor and the elderly vouchers with which to purchase insurance in the private marketplace. They should be permitted to add their own money to their vouchers to purchase more extensive insurance coverage, or settle for less coverage and deposit the unspent voucher dollars into MSAs.
Fourth: Repeal Insurance Regulations
Because the unemployed and their dependents are left out of a system that rewards employer-provided insurance, legislation was adopted in 1996 forcing insurers to write policies for the first group and subsidizing insurance for the latter. As a result, we’ve seen a wholesale abandonment of the individual health insurance market by many insurers and huge premium increases. Cost-cutting efforts by managed care plans have produced a backlash by angry doctors and patients, resulting in a raft of pending laws to impose still more regulations on insurers and providers.
Here is where my “clean slate” agenda pays its greatest dividend. Managed care wouldn’t be necessary if the reforms described above were adopted. Individuals, not employers or the government, would purchase and own most health insurance policies. More health care spending would be paid directly by individuals, from their MSAs, rather than by insurance companies or the government. Competition, not regulation, would keep health care costs and insurance premiums low.
Starting from a clean slate would eliminate the need for “gatekeepers” and “utilization reviews,” eliminating calls from outraged doctors and patients for protection against them. Demands for “patients’ rights” laws and insurance mandates would cease to be politically potent when employers abandon their managed care programs. Existing mandates would be repealed, and proposals for new regulations would be shelved.
Daydream, or Practical Agenda?
How realistic is it to call for the repeal of such long-lived policies as the AMA’s control over the certification of medical schools, when the battle at hand is fighting insurance mandates and the like? It is a fair question, though the limited space here does not allow a detailed reply.
Let me say only that the desire for a quick and easy solution to rising health care spending led the business community to embrace managed care a decade ago. That choice was a foolish one, and we are paying for it today with our health care freedoms.
If the same time, money, and talent that were invested in managed care had been invested instead in the reforms described here, we would be celebrating our expanding health care freedoms today, rather than lamenting their demise.
