What To Avoid in Health
by John Goodman
 It is the season for health insurance reform, and that's
dangerous. The odds of doing something bad are much higher than
the odds of doing something good.
Here are four things to avoid.
1. Do not turn a tax subsidy into an entitlement.
The primary way the government encourages private insurance is through
tax subsidies. Many reform proposals would completely change the
nature of the subsidies; e.g., by creating a refundable tax
credit. The risk is that the new tax subsidy could become an
entitlement.
Medicare and Medicaid entitlements are already on a course to crowd
out every other government program. We cannot survive creating
more health care entitlements.
That means: government's commitment must be defined contribution, not
defined benefit. Tax subsidies are going to grow roughly at the
rate of growth of national income. Health care spending is
growing at twice that rate. The new system of tax subsidies must
also grow with national income, not with health care costs.
2. Avoid mandated coverage and mandated benefits.
Proposals to require everyone to have health insurance increase the
likelihood that the government subsidy will become an entitlement.
It makes no sense to mandate a benefit package if the cost of the
package is going to grow at twice the rate of the subsidy. By
keeping the subsidy restrained, you will force health plans to curtail
costs somehow - with HSAs, restricting payments to evidence-based
medicine, HMOs, etc.
Pay-or-play is much better than a mandate. Since you will never
be able to enforce the mandate anyway (and rigorous attempts at
enforcement would cost far more than they are worth), let people
choose whether to be insured or not. If they choose to be
insured, give them a subsidy; if they choose not to be insured, make
them pay a tax penalty and put the unclaimed subsidy (or the tax
penalty) into the safety net.
Also, with pay-or-play you do not have to define a mandated benefit
package, vulnerable to cost-increasing special interest measures.
3. Don't create perverse incentives for health plans.
Insurance pricing restrictions create perverse incentives. If
people can switch plans annually at premiums that are unrelated to
expected costs, the plans will seek out the healthy and avoid the
sick. Once people are enrolled, the plans will over-provide to
the healthy and under-provide to the sick.
A much better idea is to give plans an incentive to compete for the
sick.
4. Don't encourage people to forgo private coverage by expanding
public coverage.
There should be no expansion of Medicaid and SCHIP in a way that
encourages people to drop their private coverage in order to get free
public coverage. Instead, the incentives should work the other
way. We should use public money to encourage private insurance.
At the NCPA, we are producing a handbook on state health reform.
The final document will soon be ready. However, we don't want to
be like the FDA and deny people life-saving remedies. So here is
the URL for the latest draft. http://www.ncpa.org/email/State_HC_Reform_6-8-07.pdf
John C. Goodman is President of the National Center for Policy Analysis
Link to Journal of Legal Medicine article: "Applying the 'Do No Harm' Principle to Health Policy"
http://cdhc.ncpa.org/files/20070326JCG.pdf
Link to Handbook on State Health Care Reform:
http://www.ncpa.org/email/State_HC_Reform_6-8-07.pdf
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