Need for Greater Consumer Choice in Health Care

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Health Insurance Choice

Several new policy analyses, all published in the past few months, provide valuable insights into the need for and potential of free-market reforms of government health care regulations.

Perhaps the most ambitious of these reports is The Promise of Consumer Driven Health Care, from Vermont's Ethan Allen Institute. This 20-page booklet explains the different components of consumer-driven (CD) health care and delves into 12 separate case studies of CD at work in employer groups.

The report explains how all this fits into various policy initiatives in Vermont and calls on the state legislature to get on board with programs that "not only empower health care consumers with information, control, incentives, and choice, but also hold out the promise of restraining health care costs while promoting better health outcomes."

The Promise of Consumer Driven Health Care is available upon request from the Ethan Allen Institute, 4836 Kirby Mountain Road, Concord VT 05824; phone: 802/695-1448; fax 802/695-1436.

Medicare Drug Benefit Critiqued

In February, John R. Graham of the Pacific Research Institute released a provocative analysis of the new Medicare prescription drug program, Republican HillaryCare: The Medicare Drug Benefit's Prescription for Perverse Incentives.

Put on your thinking cap before reading Graham's analysis, because it avoids the usual chatter both for and against Medicare Part D.

Graham points out that the immediate charges of the critics - "too many choices, too much confusion" - were overwrought. "These are frictional challenges," Graham says, "that will be sorted out sooner rather than later."

But the supporters' hopes that Part D will ultimately lead to privatization of the whole program are unrealistic as well. "There is really no plan to extend this mechanism to other parts of Medicare, beyond increasing payments to insurers to motivate them to enter the program," Graham writes. And these payments are coming out of the hides of hospitals and nursing homes, a doomed strategy.

The real problem with the program is long-term, Graham says. The program is free-market only in the sense that government does not provide the benefits directly; it fails to use any consumer-driven tools that would give beneficiaries a "reason to restrain their demand for medicines," Graham notes. Further, because these are standalone programs, the carriers do not benefit from the considerable substitution effect (cheap drugs instead of expensive hospitalization), so "the [program] fails almost completely at creating incentives to optimize the use of prescription drugs."

Graham concludes the only (small) hope for this program is a bidding process by carriers that could perhaps lead to a voucher program some day.

Republican HillaryCare: The Medicare Drug Benefit's Prescription for Perverse Incentives, http://www.pacificresearch.org

State Laws Harming Employees

The Council for Affordable Health Insurance (CAHI) in April released a short paper, One Solution for the Small Group Market, encouraging states to re-adopt "list billing" as a way for employees of small businesses to acquire coverage.

List billing is a simple process in which employers agree to payroll-withhold health insurance premiums on behalf of their employees and send the premium payment to the insurance carrier. This is basic non-group coverage, so it is owned by the employee and stays in force when the worker leaves the job. List billing is simply a more efficient and reliable way to pay the premium. It can be made even more attractive if the employer sets up a Section 125 "premium conversion plan" that enables these premiums to be paid on a tax-favored basis.

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Unfortunately, many states have outlawed the process, believing it to be a dodge from the small group laws they've enacted. If the states won't do it, CAHI would like to see Congress enact legislation clarifying the fact that list billing is not "group coverage" and that Section 125 may be used in these situations.

The paper concludes, "List billing alone will not solve the uninsured problem, nor is it a substitute for small group coverage. However, it does provide an option for an employer to help uninsured employees find affordable coverage, while reducing the costs and challenges of finding insurance."

One Solution for the Small Group Market, http://www.cahi.org

Portability of Health Insurance Needed

The National Center for Policy Analysis (NCPA) this spring released two papers by John Goodman in its Brief Analysis series.

The first, released March 14, titled "Personal and Portable Health Insurance," points out ways portability of insurance coverage could be increased. "Just because employers pay all or most of the premium does not mean that health insurance must necessarily be employer-specific," Goodman writes. "As an alternative, why can't employees enroll in health plans that meet their needs and stay in those plans as they travel from job to job?"

The paper points out that one of the problems aging baby boomers are going to have to wrestle with in huge numbers is that, as older husbands become eligible for Medicare, their younger wives may have to scramble for coverage in the individual market, at ages that make them nearly uninsurable. If they had their own coverage, they could simply take the older spouse off the policy, while the remaining spouse stays on it until she also qualifies for Medicare.

The other paper, "Transparency in Health Care," released March 29, says, "Health care cannot be both easily accessible and free. It must be one or the other." Currently, Goodman notes, "we force people to pay for care with their time--our system rations by waiting." Goodman points out, "if doctors don't compete with each other on the basis of price, they do not compete at all."

The paper observes that in other markets--even other health care markets such as cosmetic surgery - a value is placed on the customer's time, and customers can choose to wait less by paying more. Goodman goes on to list some examples of new information resources that have been created to help people make the tradeoff between time and money.

Elder Care Reforms Wanted

The Alliance for Health Reform also issued a couple of policy papers in April.

The first, HSAs and High-Deductible Health Plans: A Primer, is a pretty fair and balanced look at what is driving the move to health savings accounts (HSAs), though it gives far too much attention to an EBRI/Commonwealth survey and ignores the more credible surveys from Blue Cross Blue Shield and the McKinsey Company. It ends with an astute quote from U.S. Rep. Tom Miller (D-CA) of the U.S. Congress' Joint Economic Committee saying people should "chill out a little bit about this and ride the wave. There are a lot of interesting things that could be done and will be done, but they're going to come in stumbling starts, trial and errors."

The other paper, Cash & Counseling Moves into the Mainstream, is an update on the Cash & Counseling programs for long-term care, which are being expanded from the original three states (Arkansas, Florida, and New Jersey) to 12 others. These programs are supported by the Robert Wood Johnson Foundation, which "draws its inspiration from the independent living movement launched in the 1960s by disability rights advocates," according to the report.

The premise is that people can select and hire their own caregivers with better results than by having a third-party case-management firm do it for them. The results have been very positive, especially given that most of the people involved have been elderly, disabled people on Medicaid - old, sick, and poor.

One might think liberals would be well-disposed toward such consumer empowerment in long-term care, but the Service Employees International Union doesn't like the fact that non-union people are being hired, and a vice president at the Robert Wood Johnson Foundation cautions against applying these ideas to health care in general.

Greg Scandlen is president of Consumers for Health Care Choices in Hagerstown, Maryland.

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