New Lessons for Health Care Reformers

Published November 11, 1994

Government-run health care stood trial twice in 1994, once in Washington D.C. and again in California. It was a two-time loser.

Health care in America must be reformed. There is ample evidence of waste and fraud in the current system. But the solution may not be greater reliance on government. Policymakers should heed the lessons of “Clintoncare” and California and reject solution s that involve more spending, price controls, and less freedom of choice.

The Clinton Administration’s plan was crushed by the weight of its own contradictions. Americans quickly discovered that this convoluted scheme would force them to pay more for less care. The plan’s premium caps would have forced nearly all Americans into managed-care plans or health maintenance organizations (HMOs), which many Americans believe provide lower quality or less personal care. The plan’s regional alliances, which were to run the “private” system, were actually government bureaucracies that wo uld have exercised great power over private health care decisions.

Growing public opposition to the Clinton plan undercut its support in Congress and eventually forced the President to abandoned his effort. On September 28, The Washington Post declared that the Clinton plan was “dead.” But government-run health care was still alive in California, where proponents of single-payer medicine had placed Proposition 186 on the November 8th ballot.

Proposition 186 promised a complete government takeover of the financing of health care. It offered voters something tangible: An escape from “corporate medicine” and a return to the fee-for-service halcyon days of yesteryear. The quid pro quo, however, w as that Californians had to put the government in charge.

California was the logical laboratory to test public support for government-run health care. First, California’s constitution allows populist initiatives to become law even in the face of opposition from well-heeled and politically powerful lobbies. Secon d, California has one of the highest rates of uninsured people in America, approximately one out of five non-elderly residents. And finally, one out of two people with insurance in California is enrolled in an HMO.

If the solution to America’s health care troubles lays in government control, California’s single-payer initiative should have ignited a populist blaze. In reality, it didn’t even start a smolder. Like the Clinton plan, Proposition 186 ran head first into the electorate’s skepticism of the government’s ability to manage something as complex and important as their health care. Californians voted by nearly a three-to- one margin to stay with the private sector.

The defeats of the Clinton Administration’s “managed competition” plan and California’s single-payer plan do not mean health care reform is impossible. There is broad-based support for two reforms that would truly improve the quality and reduce the cost o f health care in America.

The first is tax equalization. Today, businesses are allowed to deduct the cost of insurance premiums from their taxes while their employees cannot. This system was born out of the wage and price controls of the 1940s. It stands at the root of many of the problems in today’s health care marketplace, including “job lock,” price insensitivity by people with employer-paid insurance, and “one-size-fits-all” insurance policies. It cries out for reform.

The second reform Congress should adopt is Medical Savings Accounts (MSAs). MSAs would operate much like popular Individual Retirement Accounts, except that money could be withdrawn to pay for health care expenses rather than for retirement income. An MSA program would create incentives for people to shop around and ask for prices, and it would force health care providers to compete on the basis of price as well as quality. Since an MSA would be the personal property of each person who elects to create on e, it would offer security and portability.

The recent events in Washington D.C. and California show that the advocates of government-run health care are deep in the wilderness. The Clinton plan was flattened and California’s single-payer initiative took a licking at the polls. Proponents of greate r government control will try, no doubt, to get such plans passed in other states. But they will once again be rejected by voters motivated by common sense.

It is time for the reformers to give up their illusions of a top-down elaborately planned utopia, and support instead the bottom-up kind of reform represented by tax equalization and Medical Savings Accounts. Now that the Republicans are running the show in Congress and many state capitols, they carry the responsibility for proposing these sensible reforms.

Sally C. Pipes is president of, and Michael Lynch is a public policy fellow, at the Pacific Research Institute, an independent nonprofit research center locate