- The Washington Times - Wednesday, November 12, 2003

We are in the 11th hour of an epic health-care debate on Capitol Hill that could shape the health-care industry for years, even decades to come.

By all expectations, this new prescription drug bill for seniors will be the largest expansion in the federal role in health care in many moons. But if this bill carries with it a package of free-market reforms to the health-care system, all is not lost. In fact, the long-run efficiency of the health-care market may be radically improved.

A handful of Republican conservative crusaders in the House, led by Pat Toomey of Pennsylvania and Paul Ryan of Wisconsin are working to guarantee that free-market reforms like Health Care Savings Accounts (HSAs) are included in any prescription drug bill.

They are facing tough, but not impossible odds. The White House prefers a market-based system, but it also desperately wants a bill the president can sign into law before the next election. Meanwhile, Ted Kennedy-led Democrats have almost all pledged a blood oath to oppose any bill that even has the hint of free markets. They won’t allow any initiatives that would collide with the left’s grand vision of a socialized health-care system — which is the liberal’s loony notion of medical-care utopia.

Today, health care is arguably the most dysfunctional industry in America. Why? Because in health care the magic of markets are not permitted to operate efficiently, in fact, hardly at all. Government has ruined our health-care system; more government will not fix it.

One of the repercussions of the government’s dominating role in health care has been to cause hyper-inflation in costs. In the last three years, according to the Labor Department, employer-covered health costs have risen by 14 percent, 12.5 percent, and 13.9 percent (see chart). This is in an era when overall inflation in the economy has not grown at all, and in fact most consumer-driven industries have been characterized by declining costs and prices.

Today, the average annual cost for health insurance for a family is an astonishing $9,068 for a family of four. In just five years, health costs have doubled for families. The cost increases are making medical services increasingly unaffordable for employers and for families. This is the reason the ranks of the uninsured is surging in America today. Health care is just unaffordable to a growing number of families. Soaring health-care costs are also a major reason why so many states are broke today (Medicaid expenses) and why the federal government is running huge deficits (Medicare).

The government-run health-care programs of Medicare and Medicaid operate on a monopoly basis with almost no forces of competition to drive down costs. Medicare and Medicaid exhibit all the efficiencies and consumer-driven innovation of the U.S. Postal Service.

Ironically, moving toward a free-market health-care system will do far more to reduce out-of-pocket costs for seniors than providing a subsidized drug benefit. In fact, the Medicare prescription drug bill may not be the political savior that Republicans and the Bush White House seem to think it is.

That is true for two reasons. First, seniors will have to pay as much as $600 a year for the benefit. It’s not free. Second, the Heritage Foundation reports that as many as half of all seniors with existing prescription drug insurance may lose that insurance and be thrust into the government program. As such, many seniors may end up with worse drug coverage than they already have. They aren’t likely to be happy campers, if that’s the case — and they may take their anger out on Republicans. This is very thin political ice the GOP is treading on.

Ted Kennedy and Tom Daschle want a plan that is designed to fail and antagonize seniors, who will then vote Republicans out of office. This is where Reps. Ryan of Wisconsin and Toomey of Pennsylvania come in.

Mr. Toomey, Mr. Ryan and their conservative colleagues say they will not vote for a prescription drug bill that does not install free-market reforms in the health care and Medicare programs. They have insisted that any Medicare bill contain three must-pass provisions:

(1) A requirement that Medicare compete with private insurers after the year 2010 so taxpayer costs will be driven down through the benign forces of competition.

(2) Universal health-care savings accounts to give health-care consumers more options in choosing health plans and coverage that meet their individual needs and control costs.

(3) A cost-control feature in the bill that guarantees the price tag will not exceed $400 billion over 10 years.

By far, the most vital of these reforms is the (HSAs). HSAs are like tax-free IRAs where the money is stored in the account to pay for health expenses. If the family incurs a medical cost, it pays out of the account.

If the family does not incur expenses of $3,000 or more during the year, it gets to keep the money not spent and roll it into a regular individual retirement account (IRA). These HSAs already exist on a limited basis and are cutting health-care costs dramatically.

For example, one study by the Reason Foundation recently found MSAs combined with a catastrophic coverage plan could save the typical family about $2,000 a year on health costs compared to conventional insurance. In other words, the MSA plan could cut health care costs by 20 percent or more while providing more comprehensive coverage. That would make private health coverage far more affordable for families and give families far more choices in their health-care providers than is currently allowed.

Consumer choice and competition are the pillars of an cost-effective health care system, and thus are precisely the ideas that give Ted Kennedy heartburn.

If Republicans enact a Medicare prescription drug bill, they should do so only with a reform package that gradually gets the government out of health care and restores market discipline to this industry. That begins with the universal MSA provision — the perfect antidote to socialized medicine.

Conversely, if the president and Republican leaders in Congress ignore the Pat Toomey and Paul Ryan free-market coalition and instead pass a bill that makes nice with the Kennedy Democrats, they further will injure the health-care system to provide a $400 billion drug benefit many retirees don’t even want.

Inciting the wrath of seniors and taxpayers is no way to go into a critical election season.

Stephen Moore is president of the Club for Growth.


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