- The Washington Times - Monday, March 26, 2012

The U.S. Supreme Court is hearing oral arguments on the constitutionality of the federal health care law President Obama pushed through Congress two years ago, the Patient Protection and Affordable Care Act. The court is expected to issue an opinion by the end of June.

Not since the New Deal legislation of the 1930s has an issue of this magnitude regarding the size and reach of the federal government arrived before the court. If the act is struck down in its entirety or even in part, the next president will need to articulate a new health care vision for the country.

The way forward should include the following four steps:

First, the president would do well to learn from the last major federal entitlement reform: the Welfare Reform Act of 1996. Built on a foundation of dozens of state policy experiments, led by Gov. John Engler of Michigan and Gov. Tommy Thompson of Wisconsin, among others, welfare reform was catalyzed by federal waivers that promoted state innovation.

By 1996, the public was comfortable with key elements of the reform plan because they had seen the ideas at work in their states. The next president should similarly encourage states to experiment and innovate, taking into account their unique market structures, populations and health care and insurance challenges.

Such a process stands in stark contrast to the Obama administration’s myopic focus on Massachusetts’ health care reform law, which was based on the unique needs of a small, high-income state constituting just 2 percent of the U.S. population.

But the federal government must do more than seed and harvest innovation. As a second step, our federal leaders also must offer solutions to key issues, like how to cover the 2 million to 4 million Americans with pre-existing conditions who may be denied affordable coverage when between jobs. By funding state high-risk pools for individuals with pre-existing conditions who are seeking work, the federal government could cover those between jobs at a cost of roughly $150 billion over 10 years. That’s a far cry from the Affordable Care Act’s estimated price tag of $1.75 trillion to $2.5 trillion.

Key to successful implementation of this initiative would be giving states the power to administer the high-risk pools, determining eligibility and penalties for insurers who try to push ineligible individuals, such as smokers and others with unhealthy lifestyles who do not have diagnosed diseases, into the publicly subsidized pools.

Third, a new vision for health care must reject the use of a central bureaucracy to control costs, a strategy that can work only if innovation and the quality of care are diminished. Instead, federal and state policies must encourage individuals to be active health care consumers through incentives to seek high-value plans. That would require insurance that is less tied to employer and government decisions.

Only Congress can make this happen because federal tax law has created the problem by penalizing those who buy insurance individually. But removing the prejudicial tax advantage enjoyed by those with company and government insurance can be accomplished only gradually.

The new president and Congress could move us in this direction by converting the current tax preference for employer-paid premiums into a refundable tax credit that would be available to small-business employees and individuals who are not in stable employer-based insurance plans.

Again, states should administer the refundable tax credits and determine or establish what health benefits, if any, to require in the insurance plans offered to tax-credit-eligible customers.

Finally, Medicaid should be converted into a per-capita block grant. Giving states broader authority over Medicaid would enable them to align regulations on benefits, premium assistance and other features with their refundable tax-credit policies, placing many who are currently eligible for Medicaid into the mainstream market.

Instead of passively receiving Medicaid services, non-elderly and non-disabled enrollees could choose among competing plans and pay extra for additional benefits.

Under this scenario, Medicaid would provide better coverage for the poor and rein in costs.

These four policies - replicating the experimentation that led to welfare reform, creating a right-sized plan to deal with pre-existing conditions, doing away with prejudicial tax treatment for employer health insurance and setting up a thoughtful Medicaid block grant - are practical alternatives to a health care policy doomed to fail either in the courts or in the court of public opinion.

Jim Stergios is executive director and Joshua Archambault is director of health care policy at the Pioneer Institute, publisher of “The Great Experiment: the States, the Feds, and Your Health Care” (2012).