A New Approach to Health Reform

WASHINGTON - For a study in contrasts, look no further than President Obama's State of the Union Address. The president, in a spasm of fiscal responsibility, asked Congress to freeze discretionary non-defense spending for three years, for $250 billion in savings over the next decade. Then, he proposed student loan write-offs, new middle-class entitlements, and reiterated support for expensive high-speed rail and $1 trillion health "reform."

Mr. Obama declared, "By the time I'm finished speaking tonight, more Americans will have lost their health insurance. Millions will lose it this year... I will not walk away from these Americans, and neither should the people in this chamber. As temperatures cool, I want everyone to take another look at the plan we've proposed. "

The Democrats' health proposal featured overarching regulation on insurance companies governing what benefits their policies must offer and what range of prices they could charge; a requirement that individuals buy conforming policies; cuts in Medicare; a panel to determine allowed cost-effective treatments; and taxes on expensive plans, high-income individuals, and on employers who don't offer the right kind of health insurance.

There has to be a better way to combine fiscal responsibility with health care reform. For better ideas, look no further than the food stamps program, which costs about $56 billion a year, and gives low-income people a debit card to use at stores to buy whatever food they choose. This approach to subsidizing nutrition allows freedom of choice and gets few complaints.

But imagine if, instead of food stamps, the government delivered bags of groceries to people's front doors. Complaints would soon abound, because people probably would not like the contents. Some might say that they didn't want Corn Flakes, they wanted granola. Others might reject Velveeta in favor of Kraft Slices, or chicken in favor of beef.

The Democratic health insurance bills take a similar approach, specifying what coverage people must buy. But one size does not fit all well.

Representative Paul Ryan, Republican of Wisconsin has applied the food stamps idea to health reform. In his Road Map for America's Future, reintroduced this month, Americans would take refundable tax credits - $2,300 for singles and $5,700 for families - and choose private insurance. All insurance plans that are licensed in a particular state would be eligible, and each company would be free to set its own premiums. Low-income individuals would get extra tax credits so they could buy the same kind of health care as other Americans.

Medicare would remain the same for current beneficiaries and for those 55 and older when they reach 65. But when those born in 1955 or later become eligible for Medicare at age 65, their plan would change. They would receive $11,000, adjusted for inflation, to buy a Medicare certified plan. Those with lower incomes or with more serious health conditions would receive more funding.

Under Mr. Ryan's plan, health insurance companies could offer high-deductible plans carrying lower premiums combined with health savings accounts, or more traditional managed care or fee-for-service plans. Persons with high-cost chronic illnesses, such as hemophilia or diabetes, would be placed in special affordable state high risk pools, with subventions paid by the government.

On Wednesday, Congressional Budget Office Director Douglas Elmendorf wrote to Mr. Ryan to tell him that this plan reduced health care costs and the federal deficit. He said: "Under the proposal, national health expenditures would almost certainly be lower than they would under the alternative fiscal scenario. Federal spending for health care would be substantially lower, relative to the amount in that scenario, for working-age people and the Medicare population."

Another approach along the lines of food stamps is the Empowering Patients First Act, H.R. 3400, sponsored by Georgia Representative Tom Price, a physician and chairman of the House Republican Study Committee, which seeks to insure more people and cut costs. Like the Ryan bill, it would insure more people by letting individuals take tax deductions for health insurance premiums that they pay, just as employers do. Workers with employer-paid insurance could retain it.

Low-income individuals would be given refundable tax credits in advance to help them pay premiums. States would be required to set up subsidized risk pools for those with chronic conditions who might otherwise be uninsurable.

The most innovative aspect of the Price bill allows - but does not require - employers to offer a monetary sum to workers so that they can purchase whatever insurance plan they choose in the open market, similar to defined contribution pension plans. Employers would still enjoy the same tax benefit for providing coverage, tax-free to the employee, but workers would be able to choose from an entire range of options, policies that they could carry with them when they change jobs. Now employees are generally limited to one plan, sponsored by their employer, and lose that coverage when they change jobs.

The contrast with the Democrats' health care plan could not be starker. Rather than turn the insurance industry into a federally-controlled public utility, the Republican plans would allow all Americans, including recipients of Medicare, Medicaid and the Children's Health Insurance Program, to shop around and purchase health insurance on the open market - just like food stamp recipients take their debit cards to grocery stores.

Last night Mr. Obama called for new ideas, saying "...if anyone from either party has a better approach that will bring down premiums, bring down the deficit, cover the uninsured, strengthen Medicare for seniors, and stop insurance company abuses, let me know." Representatives Ryan and Price, it's time to call on the president.