San Francisco Examiner

SAN FRANCISCO - Gov. Arnold Schwarzenegger, nursing a broken leg, now has more reason to make health care the keystone of his State of the State address today. An agenda based on increased choice could fix a broken system and set an example for other states.

The governor has already opposed government monopoly health care, what proponents call a “single payer” system. On the other hand, he has placed price controls on drug makers, and promised to spend money expanding government programs to cover every child and most adults with health insurance. But Californians should not be fooled by schemes to cure health care woes with bigger government.

State-sponsored programs and government regulations harm the interconnected components of California’s health care industry. They deprive the system of good incentives, and break the connection that should exist among patients, providers and insurance agencies.

Gov. Schwarzenegger can make several meaningful changes to free California’s health care system from its shackles of regulation and bureaucracy. Health Savings Accounts represent the type of important reform the governor encourages. HSAs are a kind of 401(k) for health care, and early evidence shows that they help Americans to be less dependent on employers and government as they are empowered to take more responsibility for their own health.

Contributions and earnings to HSAs are nontaxable federally — though not yet in California — and you can own your HSA for life. Furthermore, HSAs benefit the very Americans that need health care help the most. Surveys suggest that 25 percent of Americans with HSA-qualified health plans have incomes of $35,000 or less. Between one-third and one-half were previously uninsured.

If Gov. Schwarzenegger continues to press tax deductible HSAs at the state level, Californians will have an incentive to open them and enjoy more control of their health care expenses.

Health Opportunity Accounts are similarly helpful for Medicaid recipients. Some states are developing “consumer-directed Medicaid,” which will put money under beneficiaries’ control, enabling them to choose the services they need without government interference.

The more California patients are empowered with their own savings and choices in health care, the more they will demand low-cost insurance plans. Like all other insurance, health insurance should cover catastrophic care and unexpected expenses. Californians should be able to use their HSAs to pay for routine care.

If insurance companies are to respond to Californians’ demands, they, too, need to be freed from government regulation so they can compete with other insurers to offer a larger variety of plans.

California already offers cheaper health insurance premiums than most other states, and it could be even better without superfluous benefit mandates. These require insurance companies to cover 49 health benefits for individual plans. The governor should work closely with newly elected Insurance Commissioner Steve Poizner to reduce excessive regulation and promote competition among insurers.

Government regulations also make it difficult for hospitals to survive. Hospitals should be able to give charity care and discounts voluntarily, rather than suffer government price controls.

The federal Emergency Medical Treatment and Labor Act requires hospitals to accept emergency patients, but then it doesn’t guarantee payment for services. On top of that, federal programs such as Medicare and Medicaid usually underpay. This drives prices up for private insurers and insured patients.

Patients empowered with HSAs will not tolerate the high price of hospital care. They will demand price transparency, and choose physician-owned and “retail” clinics rather than wait, or pay, for hospital care.

The clinics, already successful in states such as New Jersey, could also thrive here if the governor can promote key reforms. Unfortunately, California’s heavy regulations prevent more than four nurse practitioners working under one supervising physician at a time, a restriction that limits this great opportunity.

Californians cannot blame the market for health care problems created by excessive government regulation. The answer lies in more choice for Californians. In 2007 and beyond, Gov. Schwarzenegger and the Legislature should lift burdensome government regulations and allow market incentives to work in the Golden State.

Diana Ernst is a public policy fellow in Health Care Studies at the San Francisco-based Pacific Research Institute. She can be reached at dernst@pacificresearch.org.