Leading policy-makers and scholars explain how market forces, deregulation, and consumer choice can work to improve health care for all Americans.


Health Policy in Maryland and Massachusetts: A Study in Contrasts
Regina E. Herzlinger, Heritage Foundation, 4-13-06

Herzlinger, a senior fellow at the Manhattan Institute's Center for Medical Progress and a professor at the Harvard Business School, contrasts recent legislative efforts to broaden access to health insurance in Maryland and Massachusetts—and issues a powerful, well–qualified endorsement of the Massachussetts model.

The Maryland legislature's decision to require that its big businesses spend 8 percent of payroll on health insurance has turbo–charged the AFL–CIO's "Fair Share" campaign to enact similar legislation in 30 states. As always, the word "fair" implies that someone's pocket is about to be picked. In this case, it is that of the American business community. The problem the legislation addresses is serious. Sadly, the Maryland solution could not be worse. States should look to the best features of Massachusetts's recent reform efforts for a more promising approach...

Ironically, Massachusetts—a state not known for its embrace of business interests—points the way to a better solution. Its governor, Mitt Romney, wants to require individuals, rather than businesses, to buy health insurance. In a neat twist, he would finance the poor uninsured with the $1 billion now used to subsidize health care providers that today deliver "free" care.

Switzerland, too, has long relied on a legal requirement for individuals to buy coverage. The Swiss government subsidizes those who cannot afford to buy it and enables the sick to pay the same price as everyone else for health insurance by risk–adjusting insurers. Consumers, rather than businesses or governments, are thus the primary financiers of the Swiss health care system. The results speak for themselves: Health care costs that are about a third less than in the U.S., universal coverage, and world–class medical outcomes.

In a recent study for the Journal of the American Medical Association, a co–author and I compared Switzerland's results to those in the U.S. states with similar affluence, educational levels, employment and racial composition, such as Connecticut. We found lower death rates and spending of only $2,952 per capitaversus Connecticut's $4,623. Swiss physicians earn nearly as much as American physicians, and the country has proportionately more expensive resources like MRI machines. No wonder the Swiss health care system attracts users from around the world.

The key to the success of the Swiss system lies in consumer control. The resulting competition creates value for the money from the consumer's perspective, unlike the U.S. system where health insurance is purchased by a third party—usually an employer or a government. The power of consumer control is reflected in plans, newly offered in the U.S., whose combination of high deductibles, complete coverage of preventive care, and tax–supported health savings accounts (HSAs) have improved the health status of the chronically ill while controlling costs.

Neither the Swiss consumer–driven health care system nor the new system created by Massachusetts is perfect: both retain excessive governmental meddling in the design of insurance plans and compensation for providers. For the Swiss, this was a deliberate choice. Governor Romney, however, had hoped to remove more of Massachusetts's regulation, but was thwarted by the legislature. The outcome could differ in states that don't share Massachusetts's impulse to regulate.

Still, both systems are substantially better than the present one, in which millions of Americans are uninsured while the economy reels from the massive costs of third–party control. And while Maryland's "Fair Share" system that the AFL–CIO envisions for the rest of the country would only further entrench the present system's flaws, the new Massachusetts plan points the way to greatly expanded coverage, slower cost growth, and greater consumer choice and satisfaction.

Project FDA.
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