John McClaughry is president of the Ethan Allen Institute, a nonprofit research and education organization based in Vermont. This Agenda was produced with financial support and input from the members of State Policy Network, a national support organization for free-market think tanks.
Reprinted below are the group’s recommendations for changes to be made at the state level to improve health care in the United States. In the first installment of this two-part series, which appeared in the February 2003 issue, we presented the group’s recommendations for federal-level reforms.
1. States should make sure consumers have ready access to health education and consumer information.
A patient power approach works only when consumers have access to sufficient information to make intelligent choices. State health education programs (including high school curricula) should emphasize personal responsibility for important lifestyle choices.
They should also help consumers learn about various treatment and insurance options, and the qualifications, performance, and cost records of medical care providers. In recent years much useful information has become available through both public and private Web sites and through Internet-based patient groups (an outstanding example is Coloradohealth.com).
2. States should roll back costly health insurance mandates.
Currently the 50 states enforce more than 1,500 mandates on insurance policies, covering such matters as pregnancy, mental healthy parity, substance abuse, and acupuncture. Consumers ought to be allowed to buy low-cost basic policies, and add riders for additional coverage, just as they do with auto insurance.
States should enact the Mandated Benefits Review Act proposed by the American Legislative Exchange Council in 1998. It would create an independent committee charged with reviewing the cost-effectiveness, medical efficacy, and social impact of each benefit mandate. All existing mandates would expire on a date certain unless reauthorized by the legislature. All proposed future mandates would require a financial impact study before legislative enactment.
3. States should allow the sale of low-cost basic coverage insurance policies that do not include cost-inflating mandates.
Whatever the result of mandated benefit rollback, low-cost mandate-free policies should at least be available to lower-income workers and families who lack employer-sponsored insurance, to maximize the likelihood that they will be covered for catastrophic medical events.
4. States that have adopted community rating and guaranteed issue should repeal those laws.
Strict community rating requires insurers to charge the same premium rate to all insureds regardless of their age, gender, medical history, and other factors. (Modified community rating typically allows a rating band of +/- 10-20 percent.)
Community rating is particularly perverse for shifting the costs of insurance from older, more affluent, but less healthy families to younger, healthier families trying to get started in life while bearing the burdens of college loan repayment, home mortgage payments, and entry-level incomes.
Every other form of insurance (auto, property, life) sets premiums that relate to the insured’s risk of incurring a loss. By prohibiting health insurers from varying premiums based on age, gender, medical history, and other factors, community rating makes true insurance impossible. The result is invariably the destruction of the insurance market and a reduction in coverage as young, healthy people abandon policies they can no longer afford.
Guaranteed issue requires insurers to accept every applicant at any time regardless of his or her health history. This encourages adverse selection, as people who expect to remain healthy (usually young people) choose to stay out of the insurance pool altogether, sign up for insurance coverage when they foresee the imminent need for coverage, and drop the coverage when they believe they no longer need it.
While both of these mandates lead to demonstrably undesirable results, guaranteed renewability is a mandate that ought to be continued. It requires insurers to continue coverage for any insured so long as premiums are paid; coverage cannot be terminated as a result of high medical costs. Typically the premium for a policy is related to the claims experience of the group of which the insured is a member.
5. States should allow insurers to offer healthy lifestyle discounts.
When states have implemented strict community rating, premium discounts for non-smoking, responsible drinking, or other healthy lifestyle choices are not allowed (because it would shift costs from people with healthy lifestyles to people with unhealthy lifestyles).
Encouraging personal responsibility is a key to sound health care policy. All states ought to allow insurers to offer such discounts for responsible behavior, as they do for auto insurance (driver training, good driving records, air bag use, etc.).
6. States with income taxes should allow taxpayers and third parties to deduct contributions to MSAs.
States can encourage the spread of Medical Savings Accounts by making contributions to MSAs tax deductible. Alternatively, states could match a sliding scale federal tax credit for the purchase of health insurance.
7. States should create Medicaid Health Accounts and insurance vouchers for their acute care Medicaid case load (not including permanent chronic care patients).
This would put Medicaid patients into a normal insurance market and give them the means to buy suitable policies (at least basic coverage). Medicaid-eligible families would be allowed to devote their MHA balances in excess of expected needs to a personal health-related benefit not otherwise covered by traditional Medicaid. Since the MHA is funded by appropriated funds and not by contributions from taxable entities, the federal MSA rules would not apply.
States would also need to supply considerable health information and education to enable MHA families to make wise choices, along the lines of the Florida Cash and Counseling program. An MHA debit card, similar to those increasingly used for TANF (welfare) payments, would be a practical way to manage the accounts.
8. States should create high risk pools.
High-risk pools serve persons with chronic high-cost medical conditions, who have been rejected by insurers as uninsurable, or who have been quoted premiums that are far beyond their capacity to pay. Such pools, now in operation in some 28 states, typically charge insureds 150 percent of the normal premium for their classification. The pool’s expenses above premiums collected should preferably be financed by state appropriations, but some states finance them in part by a tax on insurance premiums.
9. States should enact medical malpractice reform as an important component of broad-based tort reform.
States should reform medical malpractice law in the same way as recommended for federal action. (See “A Health Care Reform Agenda,” Health Care News, February 2003.)
Such action would include
- imposing a limit on non-economic and punitive damages and attorneys’ fees;
- ending joint and several liability (where every contributory party is at risk for the entire judgment, regardless of his contribution to the injury);
- adopting a high tort standard of “gross and willful negligence” in medical malpractice cases, in place of a lower standard that allows plaintiff victories where the doctor makes a well-informed, rational judgment call that unexpectedly leads to harmful results (especially important for charitable and humanitarian care); and
- assigning punitive damage awards to state high-risk pools, health information program support, or other public program instead of to the plaintiff’s attorney.
10. States should make full-cost payment to Medicaid providers.
Many states have succumbed to the temptation to finance expanded government health care by forcing providers (hospitals, doctors, nursing homes, dentists, etc.) to serve Medicaid populations at significant discounts from the actual cost of services. Faced with this mandatory exaction, providers are forced to increase prices to private patients.
This cost shift leads to higher private insurance premiums, more workers dropping coverage due to the higher cost, and more demand for the expanded but underpaying Medicaid programs. In addition, doctors and dentists may decide to stop treating Medicaid patients.
Medicaid underpayment of true costs is an unlegislated tax on health care providers and through them, on their private patients. If governments are going to qualify citizens to receive health care benefits at nominal cost, governments must honestly face the fiscal consequences.
11. States should not attempt to enact price controls on prescription drugs.
Nor should they enact measures that require pharmaceutical companies to give a supplemental rebate on their products in return for the state allowing doctors to prescribe those companies’ products for Medicaid patients. Such schemes, which essentially amount to blackmail, are ethically unacceptable.
On a practical level, they are likely to result in serious damage to the capacity of the pharmaceutical industry to develop and market valuable new drugs at a time when the use of drugs to preclude far more costly hospitalization has improved the quality of life for millions of consumers, and saved them (and state governments) untold billions of dollars.
States that restrict access to drugs for Medicaid patients to older, less expensive, or generic drugs should require proof in every case that the savings would not be outweighed by the higher costs of recurring treatment and hospitalization that newer and more expensive drugs may be able to avoid.
12. States and local governments should support community health centers.
Such clinics, with local community support and partially staffed by volunteer medical professionals, can play an important role in preventive care and treatment of non-acute medical problems for people not enrolled in Medicaid or in transition between jobs. Helping them meet overhead expenses is a valid use for taxpayer dollars, especially where the availability of low-cost clinic treatment reduces patient visits to high cost hospital emergency rooms.
13. States should repeal Certificate of Need (CON) programs that regulate the expansion of medical facilities.
The CON process, enacted to prevent costly duplication of facilities, has rarely if ever achieved that result. Maintaining a competitive market requires easy access by competitors who believe they can offer health care more efficiently and satisfactorily than existing providers. The CON process has more often been used as a weapon by politically powerful providers to deny entry to those competitors and thus preserve a service monopoly.
14. States should allow greater flexibility in practice boundaries among health care professionals.
As is relatively common in medically underserved rural areas, trained and experienced nurses, physician assistants, and nurse practitioners should be allowed to administer treatments where patient risks and opportunity costs are low and the time and money costs of engaging a physician are high. Such flexibility does involve higher patient risk, but it may well not be so high as the risk incurred by delaying treatment until examination by a physician is possible. The use of telemedicine makes such flexibility much more feasible.
15. States should encourage individuals to purchase long-term care insurance.
Consumers who purchase LTC policies receive a predetermined level of benefits for long-term care services through a private insurer. If the benefits under the private plan are exhausted and the individual still requires services, states should make Medicaid assistance available, but allow the patient to exclude the value of the benefits purchased under the policy from Medicaid’s required spend-down of the patient’s assets.
This relatively new type of insurance is most cost-effective when contracted for early in adult life. As such, its beneficial effects are far in the future. Nonetheless, as a way of easing Medicaid problems in the future, states should offer favorable tax treatment for LTC premiums, while avoiding rigid requirements on policy design.
States should also inform people about viatical life insurance policies, which advance payments to living insureds for their imminent end-of-life medical expenses.
16. States should consider pooling state and local government employees into a large health care plan.
Like the Federal Employees Health Benefits Program (FEHBP), such a plan should offer numerous coverage choices. The employing governments would make defined contributions on behalf of their employees, and the employees would choose the policies that best meet their needs, adding their own funds as required. Such a program ought to be designed to promote an MSA-high deductible option, and operate through debit card technology.
17. States should seek to recover through their income tax systems the costs of uncompensated care provided to persons who choose not to buy health insurance.
Providers would report the costs of uncompensated care to the state tax department on a 1099-type form in the patient’s name. For example, the patient could be required to add the lesser of one-tenth of the total uncompensated cost or $10,000, to his or her reported gross income each year. The balance would be carried forward for up to 10 years.
Whatever is collected from taxpayers would be remitted to the account of the provider. For persons with low or zero income tax liability, little or no funds would be recovered. For persons in higher tax brackets who ought to be able to pay insurance premiums but choose not to, the recovery requirement would discourage going without health insurance in the expectation that providers would write off the cost of their services as charity care.
While the receipts from this program would fall far short of recovering the total uncompensated costs, the program would encourage personal responsibility and the purchase of insurance coverage.
For more information …
on the Ethan Allen Institute, visit its Web site at http://www.ethanallen.org or contact John McClaughry by email at [email protected]. For more information on State Policy Network, visit its Web site at http://www.spn.org.
