Give Consumers Choices in Health Care - Commonwealth Foundation

The Pennsylvania House of Representatives recently passed a modified version of Governor Rendell’s “Cover All Pennsylvanians”—renaming it PA ABC (Access to Basic Care). Despite the clever acronym, the program is a repackaging of failed proposals that will once again fail to solve the problems in health care today.

For starters, PA ABC (like “Cover All Pennsylvanians“) would not help all Pennsylvanians, or even a majority. The program is estimated to provide health insurance for only 200,000 new enrollees (excluding Medicaid recipients), approximately one-fourth of Pennsylvania’s uninsured population. More importantly, the plan does nothing to reduce costs for the 11 million Pennsylvanians currently with health insurance.

In fact, the number of uninsured will increase under PA ABC, as individuals and employers will continue to drop coverage due to escalating prices, and many PA ABC enrollees will be those dropping or choosing not to enroll in private insurance—a trend known as “crowd out.” Some studies estimate “crowd out” as high as 60% of enrollees in government programs.

Proponents of PA ABC claim the program will reduce the “cost of the uninsured” that gets passed on to those paying for their insurance through higher premiums. But the cost of the uncompensated care has been estimated to be only 1 to 2.5% of premiums. PA ABC would not even result in that miniscule level of savings, as the number of uninsured would not decline much, if at all.

In fact, PA ABC might force private insurance premiums to increase. PA ABC would require doctors who receive MCare subsidies to accept PA ABC patients. This requirement is deemed necessary as PA ABC payments would be less than doctors charge other patients. Interestingly, a recent study of Medicaid in California found that Medicaid paid doctors less than both private insurance and less than the uninsured paid out-of-pocket. In other words, it is underpayment by government-run insurance that drives up private health insurance costs (and results in lower-quality care for government insurance recipients).

Government intervention in health care is the problem, not the solution. To improve the quality of care and lower costs, we must instead give individuals more choices and control over their health care dollars:

Allow individuals and small businesses to buy insurance across state lines. Many states have less expensive mandates than Pennsylvania, making insurance more affordable. For instance, a search on eHealthInsurance.com revealed that I could buy a plan in Ohio for half the price of a similar plan in Pennsylvania. Yet state law prohibits me from purchasing insurance licensed by another state (though large, multi-state businesses have access to that market).
Allow individuals to opt out of certain mandates or buy “mandate-lite” insurance. Pennsylvania laws require insurance plans to cover 38 specific benefits, types of providers, and categories of persons. As insurers simply charge higher rates for services covered, each mandate drives up the costs of insurance and the number of uninsured. Individuals should be allowed to choose a less extensive, and more affordable, coverage package.
Use the tax code to promote equity. Both federal and state taxes exempt employer-based insurance, but individuals and families buying insurance for themselves are taxed. Individuals should receive the same tax benefits for purchasing insurance as businesses. List billing or “large health savings accounts” would allow individuals and families to control their own dollars, pooling individual, employer, and even government contributions to buy insurance and pay for health care services.
Make Medicaid work within the market. Instead of a government-run system, Pennsylvania should reform its Medical Assistance program (Medicaid) to provide risk- and income-adjusted credits, or subsidies, for private insurance. This model, based on Florida’s recent reforms, would give Medicaid recipients choices in coverage and allow them to combine Medicaid credits with personal or employer contributions.

Surprisingly, some of these reforms—enabling interstate competition and mandate-lite insurance—were proposed as amendments to PA ABC, but were rejected by House Democrats. Essentially, lawmakers are saying, “I’m sorry Mr. Benefield, but we must compel you to pay more for insurance.”

The problems of rising costs, an increasing uninsured population, and poor quality care will not be solved until consumers are given control over their health care dollars and choices in how and on what that money is spent. Unfortunately, PA ABC will only exacerbate rather than solve these problems.

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Nathan A. Benefield is Director of Policy Research with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.