Meeting In The Middle

Forbes, February 4, 2010

Last week President Obama sparred with House Republicans in an unprecedented debate that highlighted the two parties’ differences on the issues, particularly health reform. The president signaled that he’d be willing to work with Republicans if they could build on their shared goals for reform, like reducing insurance premiums.

Such a spirit of compromise is desperately needed, as lawmakers from both parties must forge a more prudent course in pursuit of health reform. Fixing our country’s tax code, insurance regulations and medical-malpractice laws would expand access to care and make coverage more affordable–without bankrupting the country. Proceeding in this fashion would also be politically popular, as these brands of reform poll well with voters.

Change the federal tax code. ObamaCare eschewed simple fixes to the tax code that would expand coverage without massive investments of taxpayer lucre. For instance, Congress could allow individuals to purchase insurance policies with pre-tax dollars, just as workers can through their employers. Equalizing the tax treatment of insurance would make policies not only more affordable but also portable, so that people could remain insured even if they changed jobs or were laid off.

Expand state-level high-risk insurance pools. In order to ensure that folks with pre-existing conditions could get coverage, the Democratic reform plan would have prohibited insurance companies from rejecting applicants because of their health status or medical history.

Such a “guaranteed issue” provision is a recipe for higher insurance premiums. With coverage guaranteed no matter what, people will drop their policies and avoid paying premiums until they actually need insurance. Only sick people will remain in the insurance pool. In order to cover all the care they’ll require, premiums will have to be sky high.

Premiums have gone up more than 200% in states that have implemented guaranteed issue. There’s a better way. Privately run, publicly funded, high-risk insurance pools administered at the state level have proven effective at delivering affordable coverage to those with pre-existing conditions. Policymakers should increase federal funding for these pools in the 35 states where they exist–and provide seed money to create them in the 15 states where they do not.

Legalize the sale of insurance across state lines. Presently, consumers can only buy policies approved by regulators in the state where they live. Patients are effectively barred from shopping around for the best deal.

Opening up the health-insurance marketplace would allow consumers to take advantage of better deals in other states. A 25-year-old male in New Jersey, for instance, pays about $5,600 annually for a basic insurance policy. He could obtain a similar policy in Kentucky for less than $1,000 a year.

That’s simply not fair. Fixing this inequity would lead to lower costs for everyone.

Reduce the number of mandates on insurance policies. Not only would ObamaCare mandate that insurers accept all comers–it would also dictate what benefits each policy has to cover–even if a patient didn’t want or need them. Such benefit mandates force insurance prices up. At the state level mandates increase the cost of a basic insurance package by 20% to 50%.

Reform the medical-malpractice system. The next round of health reform will be dead-on-arrival without an effective strategy for controlling health costs. Medical-malpractice reform should be a linchpin of that strategy.

The direct impact of malpractice abuse is easy to see. Each year, one in eight doctors faces a malpractice suit. Ninety percent of the time the defending doctor is found innocent. But those victories can be Pyrrhic–defense costs for an average medical tort case approach $100,000. Doctors and hospitals pass their legal costs onto patients as higher prices.

Malpractice abuse also raises health costs indirectly. Fear of a six-figure lawsuit causes many doctors to practice “defensive medicine,” whereby they order more tests and procedures than necessary to protect themselves from over-eager lawyers. Such overtreatment increased personal health care expenditures by $191 billion in 2008.

Malpractice reform could help curb such runaway spending. Stanford economist Daniel Kessler and Brookings Institute scholar Mark McClellan determined that several fixes to our tort system–including a $250,000 cap on non-economic damages–would reduce annual health spending by 5% to 9% without impacting medical complications or mortality.

With his popularity flagging and the American people restive, President Obama was wise to issue a call in his State of the Union address to “start anew.” Let’s hope he acts on those words by urging Congress to scrap its lifeless reform bills and adopt a more prudent bipartisan plan.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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