[Publisher's Note: As part of an ongoing effort to bring original, thoughtful commentary to you here at the FlashReport, I am pleased to present this column from Sally Pipes, President of the Pacific Research Institute. Read more about Pipes below her column.]

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After the election and assuming Governor Arnold Schwarzenegger is re-elected, health care reform will move to the top of his agenda. In fact, the governor has stated that it will be the central tenet of his January State of the State address.

The governor has a fairly strong record on health care. He campaigned to have the employer mandate law repealed, recognizing that it would have caused tremendous pain for very little gain. He has rebuffed efforts to import price controls on pharmaceuticals through the importation of foreign drugs. He understands that allowing government-sponsored theft of intellectual property is morally wrong, would do little to decrease medical expenses for average citizens, and would send thousands of Californians who work in the biotech field to the unemployment office. And he vetoed SB 840, Senator Sheila Kuehl’s single payer bill, the legislature’s latest attempt to completely socialize health care funding in California. In each of these areas his strong leadership has benefited us in the Golden State.

On the negative side of the ledger, the governor signed the California Prescription Drug Initiative, a bill passed by the Democratic-controlled Senate and Assembly, which calls upon drug manufacturers to offer five million low-income Californians huge discounts on prescription drugs. Under this legislation, if companies fail to offer to sell drugs at the government-imposed discount prices within three years, they could be kicked out of Medi-Cal, the expensive health care system for low-income Californians. The threat of this hammer on drug companies by the governor is not good for citizens who need drugs or for the development of innovative new drugs.

It is again time for Arnold to be strong in health care policy, deliver the truth to citizens of California, and make bold, incremental changes that will affect people’s lives in a positive way.

The Sky Hasn’t Fallen

The first step is to put the issue in proper perspective. The health care agenda has long been set by people with a strong ideological desire for socialized medicine in conjunction with the media that has a bias for bad news. If the advocates are to be believed, the sky has been falling for at least 20 years.

The sky hasn’t fallen, and is, in fact, quite pleasant in most of the state. California does an excellent job of providing access to health care for its residents. Over the last 12 years, California has added four million residents, yet the number without insurance has held constant. A look at the most alarming national data show that 18 percent of the state’s residents lack insurance. But this is deceptive. Statistical experts estimate that this survey doubles the amount of people who are actually uninsured. More important, California’s numbers are driven by its large population of recent immigrants, many who have tenuous ties to the formal workplace. If we correct for length of residency, California is above the national average.

Health insurance isn’t the equivalent to access to health care, it is merely one means of financing health care. Short of boosting taxes and instituting a compulsory government- administered system, a portion of society will always spend some time without third-party health coverage. The average American who is uninsured consumes $2,700 a year in health care, spending only $702 out of pocket, or less than $2, the price of a cup of non-specialty coffee, per day. There is a vast informal sector, government and privately-financed safety net meeting people’s basic needs.

The options for sweeping reform are not attractive. Single payer, a plan premised on the idea that the government is more efficient and compassionate than the private sector, has been rejected by voters and vetoed by the governor.

The latest policy innovation from Massachusetts—a plan to treat health insurance like car insurance and mandate that people purchase it or face fines—holds little promise for California. It will not achieve universal coverage, as 14 percent of drivers in a state where car insurance is compulsory, don’t even have car insurance. The projected costs in Massachusetts have more than doubled, even before the first plan has been purchased. And policymakers are already backing away from requiring people who are eligible for highly-subsidized plans from purchasing them.

Even before the implementation problems emerged in Massachusetts, a study by the California Health Care Foundation estimated that a similar plan would cost California taxpayers between $6.8 and $9.4 billion. California needs incremental reforms based on sound theory and practice. If insurance is more affordable, more people will purchase it.

What California Can Do

Proper diagnosis is the key to successful treatment. The reason health care is so expensive to society, is because it’s nearly free to individuals at the point of consumption. Federal tax law provides strong incentives for Americans to secure health insurance through their workplace, since a dollar spent by an employer on health care escapes federal, state, and payroll taxes. This is why our health plans are really prepaid medical schemes—a card that entitles us to extreme discounts on routine services—rather than insurance that kicks in only when catastrophe strikes.

If homeowners insurance operated like health insurance, it would cover yard maintenance, light bulb changes, and spring cleanings. It would also be prohibitively expensive. Or consider if we had employer paid food insurance. We’d go to the store and fill the cart up with the most expensive items and send the bill to someone else. Two things would happen. The bill would become huge and someone else would start managing costs.

What needs to happen—and is happening in the group insurance market, if slowly—is to put the insurance back in health insurance and put the consumer in charge of health care. This makes the insurance part of the plan affordable, and leverages the tax savings for cash accumulation accounts, Health Savings Accounts, that can be used to offset expenses in future years.

California policymakers could immediately cut the price of insurance by extending state income tax deductions to contributions to health savings accounts. These consumer-directed plans put the insurance back into health insurance by combining a high deductible health plan with a savings account to accumulate funds for a rainy day. Catastrophic expenses are covered, so financial ruin is averted. Yet in the many years in which healthy people don’t use health care, they, not the insurance company, get to accumulate the money.

Most states have followed the federal government’s lead and extended state tax deductions to these plans. California’s stubborn Democratic legislature refuses to do so. The governor should elevate the issue, make it his own, and get it done.

And, it is not the time to expand the State Children’s Health Insurance Program (SCHIP) in California, the government program for children without health insurance. The governor needs to look to South Carolina’s Governor Mark Sanford and work with the legislature to introduce Health Opportunity Accounts for Medi-Cal recipients. The governor should promote individual responsibility in health care.

Continuing on this important theme, the governor should call for the deregulation of the state insurance market. The individual insurance market is loaded up with mandates for such things as drug treatment, acupuncture, and chiropractic care. These requirements increase the cost of policies by as much as 30 percent, according to the Council for Affordable Health Insurance. We don’t require all drivers to purchase a Lexus. If we did, there would be far fewer cars on the road and drivers would be a lot poorer. The government shouldn’t dictate the features of health plans.

This bolsters an effort at the federal level to allow individuals to cross state lines to purchase health insurance. Sponsored by Arizona Congressman John Shadegg (R-AZ), this bill recognizes that competition and choice are the driving forces of innovation and cost savings and that allowing choice of health plans will lower the price of insurance for many and therefore increase the number of insured.

This lean agenda is certain to displease the Democratic legislature, left-of-center health policy activists, and many in the media. It will, however, make health insurance more affordable without crushing the state’s taxpayers and business climate. At the end of the day, that’s a job well done.

Ms. Pipes addresses national and international audiences on health care, women’s issues, education, privatization, civil rights, and the economy. She has been interviewed on CNNfn, “20/20,” Fox News, “The Today Show,” “Dateline,” “Politically Incorrect,” “The Dennis Miller Show,” and other prominent programs.

She has written regular columns for Chief Executive, Investor’s Business Daily, and the San Francisco Examiner. And her opinion pieces have appeared in the Washington Post, USA Today, Financial Times of London, New York Times, Los Angeles Times, San Francisco Chronicle, Sacramento Bee, and Boston Herald. Recently, she was quoted in Shape Magazine for her support of Consumer Directed Health Care.

A Canadian residing in the United States, Ms. Pipes writes, speaks, and gives invited testimony at the national and state levels on key health-care issues facing America. Topics have included the false promise of a single-payer system as exists in Canada, pharmaceutical pricing, solving the problem of the uninsured, and strategies for consumer-driven health care. Over the past year she has participated in prominent debates and public forums, testified before five committees in the California legislature, appeared on popular television programs, participated in talk radio shows nationwide, and written several dozen opinion pieces on the issue of drug importation.

Her book, “Miracle Cure: How to Solve America’s Health Care Crisis and Why Canada Isn’t the Answer” was released September 28, 2004. It is available on Amazon.com. Hillsdale College published her essay on health care reform in the 2006 edition of Champions of Freedom. It was part of a conference on “Entrepreneurship and the Spirit of America”.

Ms. Pipes serves on the Medical Advisory Council of Genworth Capital’s Long-term Care Insurance Division.

She received the Roe Award at the 2004 annual meeting of State Policy Network. The award is a tribute to an individual in the state public policy movement who has a passion for liberty, a willingness to work for it, and noteworthy achievement in turning dreams into realities. In 2005, she was named one of the Top 10 Women in the Conservative Movement in America as published by Human Events. She was also featured in a new book “Women Who Paved the Way” as one of 35 most outstanding women in business in the nation.