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How To Stop This Rush To Failure And Fix What Really Needs Fixing

Tarren Bragdon, Paul Howard
Investor's Business Daily
July 23, 2009

Nancy Pelosi and Harry Reid promised the president that they'll have a comprehensive health reform bill on his desk by October. They're probably right: All signs point to the Democrats passing budget-busting legislation costing trillions.

Yet, it will likely lack the one sensible reform that might slow health care inflation while also expanding access to individual portable private health insurance.

We're referring to the idea long advocated by economists across the political spectrum: Repeal the current tax exclusion for employer-sponsored health care and replace it with a refundable tax credit or standard deduction for the purchase of health insurance.

Economists recognize that the current exclusion is regressive (the rich benefit more than the poor), arbitrary (why tie insurance to employment?) and drives up health care costs (because the exclusion rewards employees who opt for high cost plans with few incentives to discourage unnecessary or wasteful health care use).

Rather than fix the system's underlying problems (the tax treatment of health insurance and perverse payment systems in the Medicare and Medicaid programs), Democrats stand poised to heap more taxes, fees and regulations on private businesses and insurers. The only hope for fiscal sanity is the public's growing unease with Congress' profligate spending.

The Congressional Budget Office scored the original Kennedy-Dodd bill (from the Senate health committee) costing $1.5 trillion over 10 years, with similar tallies for other bills in the House and Senate.

The oddity is that White House experts suggest that as much as 30% of all health care spending—about $700 billion annually—in the U.S. is wasted every year, more than enough to pay for health coverage expansions and still have plenty left to pay down the deficit.

So where's the savings in Democrats' legislation?

Commentators on the right and the left have bemoaned the fact that none of the major health care bills in Congress do much to contain costs. It's not surprising: No government entitlement has saved money.

Medicare and Medicaid both cost far more than originally anticipated, and Medicare alone has tens of trillions of dollars in unfunded liabilities. Once a subsidy starts flowing from Washington, special-interests groups will fight to the death to keep their "fair share" of taxpayers' money.

There's another way. Don't increase government spending and taxes in the midst of a recession and further strangle productivity and kill jobs. Instead, develop incremental, patient-centered reforms that address fundamental problems. Help the low-income uninsured, eliminate fraud and waste in federal health programs, and empower small businesses to expand coverage.

Here's how:

Target the uninsured who most need help. Only a fifth of the uninsured can't afford to buy health insurance and don't qualify for public programs or work for businesses that don't offer health insurance, perhaps only 10 million to 12 million Americans.

Congress should focus on helping these people by extending the tax exclusion to the self-employed and letting employees at small businesses set aside money, tax free, to buy at least low-cost, catastrophic coverage.

Congress could also open the Federal Employees Health Benefit Plan, which offers a menu of plans to the federal employees, to these longer-term uninsured—about a third of whom earn $50,000 or more a year.

Eliminate waste, fraud and abuse in the Medicare and Medicaid programs. Experts estimate that Medicare alone may lose $60 billion a year to fraud, which could be redirected toward creating state-guaranteed access, high-risk pools for Americans with preexisting conditions who may struggle to afford to buy their own portable, private health insurance outside of their employer.

This "show me the money" approach would force policymakers to prove they're serious about reducing waste before raising taxes in the middle of a recession, a recipe for killing jobs.

Give small businesses and individuals new private insurance options and don't take away any plans currently available. Congress should create an optional federal charter that allows health insurance companies to offer health plans over a multistate region to small businesses and individuals purchasing insurance outside their employers.

These plans would spur competition and increase choice, particularly in the small-business health market, which is a monopoly (or duopoly) in too many states. These plans would include all mandates covered by a majority of states in that region and be in addition to the state-licensed plans currently available.

President Obama says that we either enact comprehensive reform now or do nothing. This is a false choice—we don't need to fix everything when everything doesn't need fixing. By opting for cost-effective incremental reforms over the next few years, we'll get better outcomes at a lower price.

Howard is the director of the Center for Medical Progress at the Manhattan Institute for Policy Research.

Bragdon is the chief executive officer of the Maine Heritage Policy Center.

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