Volume 62, No. 6 June 2006

THE ARCHIMEDES MOVEMENT

The Romney plan in Massachusetts is not the Revolution. But it may help prepare the way for the Revolution, which may be starting on the other coast in Oregon.

John Kitzhaber, M.D., an architect of the Oregon Health Plan (OHP), has decided not to run for another term as governor, instead seeking a lever and a place to stand so that he can move the earth. He calls his Vision the "Archimedes Movement." The short-term goal is a ballot measure for the 2008 election. The loftier goal is to "reboot democracy."

The Massachusetts plan is a "bold step," he said, but it "treats only a symptom" and goes only half way. Achieving universal access is not enough; we must examine "what is covered and how services are delivered."

Perhaps inadvertently echoing Lenin, who called medicine the keystone of socialism, Kitzhaber calls health the "cornerstone" of a "democratic society." He emphasizes health not "health care," and not medicine, which cares for the sick.

It's not that health is any more important than "education, sustainable economic development, and long-term environmental stewardship" to our future. But the "crisis in our health care system may prove to be the issue around which we can health [sic] the divisions within our sociey.... It is the great leveler," Kitzhaber writes (www.archimedesmovement.org ).

Health is the product not just of health care but of education, housing, stable employment, and a clean environment, Kitzhaber writes. And the cost of health care is devouring too much of "our public resources." Thus, spending on care needs to be constrained to benefit our health.

The Vision Statement reads: "To maximize the health of the population by creating a sustainable system which reallocates the public resources spent on health care in a way that ensures universal access to a defined set of effective health services" [emphasis added]. That is "care that is effective in producing health," Kitzhaber clarifies. Not care that merely "relieves pain, reduces disability, or postpones death" the purpose of medicine, according to Donald Seldin, M.D., of Texas Southwestern.

On a Rogue River raft trip, a friend asked Kitzhaber what was wrong with a large salmon that was struggling upstream despite obvious injuries and impairments: "There is nothing wrong with him. He is just dying," Kitzhaber replied.

We "expend an ever growing portion of our budget attempting to cheat death," Kitzhaber explains. Moreover, we allocate public resources for procedures that benefit individuals. Instead, the public-funded system should be like public schools. Everybody gets the same basics; shortfalls are distributed equitably; and the allocation benefits the health of all.

Our private system in fact seems to be "seriously bad for our health," asserts pundit Paul Krugman (NY Times 5/5/06). Possibly because American insurance pays for "extreme measures," but not for heading off disease, while the British National Health Service (NHS) "takes a broader, longer term view," the British are healthier, as claimed recently in JAMA.

Despite more smoking and drinking, the British have lower self-reported levels of diabetes, hypertension, heart disease, and cancer than American non-Hispanic whites of comparable socioeconomic status. They also have more favorable levels of Hbg A_1c, fibrinogen (mean 303 mg/dL v. 355), HDL-C (mean 52 mg/dL v. 59), and C-reactive protein (mean 0.32 mg/L v. 0.40) than Americans, based on blood samples from 4,644 British and 2,097 Americans (JAMA 2006;295:2037-2045).

As Russ Faria, D.O., and Linda Gorman point out (and the authors admit), U.S. cancer screening is more intense, and cancer survival is better (Cancer 2000;89:4). Also, Americans are more obese not a problem caused by private insurance.

Like the NHS, Kitzhaber would permit people to purchase extra medical care, using only "discretionary income" which he defines as that which is left after paying taxes. No one can provide for his own or his family's special needs, even to save lives, without first satisfying the obligation to societal health.

The enactment of the OHP, Kitzhaber says, "offers a real life illustration of the power of this approach" of creating a tension between the Vision and the status quo. However, he notes that, like the Romney plan, it treated only symptoms.

Incidentally, Gov. Kitzhaber vetoed a bill that would have prohibited OHP payments for assisted suicide. About 208 Oregonians have embraced death as of January 2006 under the Death with Dignity Act, instead of trying to cheat it.

With the OHP, Oregon "launched the most vigorous attack on inequality in American health care," writes Albert Jonsen appreciatively (Bioethics Beyond the Headlines, 2005). With explicit rationing "bioethics in practice" Oregon decreased the percentage of uninsured from 18 to 11%.

The OHP would be seen "either as a grand experiment or a crazy aberration," some predicted (Science 1990;249:468- 471). Former HCFA Director Bruce Vladeck wrote: "They've chosen to let treatable poor women and kids die if Medicaid runs dry" (Med World News, October 1990). But it got its HHS waiver.

The results? Touted as a measure to expand access without increasing cost, the OHP was four times as costly in 2001-2003 as at its inception, according to state budget figures. Comparing the OHP's ranking of services with the state's own cost- effectiveness estimates, Harvard medical researchers concluded that priorities were set almost entirely without regard to cost- effectiveness (Cascade Policy Institute 3/4/06).

How will the implementation phase of the Archimedes Movement differ? Details are lacking. But tension there will be. The abstract Vision of health and equity will confront traditional individual rights to life, liberty, and property.

As Joseph Lee Pugh reminds us, "helping the uninsured is a strategy, not a goal." The goal is One Plan, one utopia.

More on Massachusetts Health Reform

Historical Background. Massachusetts passed a "universal health care" law in 1988, featuring a "pay or play" employer mandate. It was repealed before it was fully implemented. Lessons learned: the need for "symmetry and synchronicity of pain and gain," the creation of a substantial constituency of people with something to lose from its repeal, and guarantees of cost control. A ceiling on total health spending was recommended, with the conflicting requirements of separating money from decisions about care and forcing caregivers to "accept responsibilities to marshal inevitably limited resources to take care of everyone" [emphasis in original]. (Sager A, et al. Access and Affordability Project, Boston Univ., 10/26/93).

Failure Predicted. Supporters acknowledge that the program will run short of money in its third year. Without effective cost control, the plan will collapse like other celebrated state initiatives. Few believe that the mandated insurance will be affordable; middle-class families will be forced to spend up to 20% of their income on coverage (Lancet 2006;367:1291).

Six of Eight Vetoes Overridden. Almost all of Gov. Romney's vetoes were overridden, and consideration of the other two has been postponed. Dental and vision benefits were restored, as was the $295 fee on businesses with more than 10 employees that don't provide insurance (www.hcfama.org).

The Fine Print. Betsy McCaughey points out that most of the uninsured earn too much ($29,000 or more) to qualify for subsidies, and individual coverage costs about $3,600. All who purchase individual coverage must buy an HMO (PPOs are not allowed). Union shops are exempt from the "free rider" provision that makes the state the bill collector if uninsured employees are hospitalized (Wall St J 5/5/06) and without any of the due process that applies in collecting any other debt (Healthcare News, May 2006).

Aetnacare. The real beneficiary of Romneycare is insurers, writes Michael Rozeff for www.lewrockwell.com. It creates a captive clientele of millions of Americans who do not want to buy full-scale insurance "to line the pockets of insurers and to relieve the financial strains upon other regulated players." Rozeff estimates that the premium for insuring against the contingency of a life-long debilitating disease may be as low as $100 a year for children and adults under the age of 40.

"Insurance schemes, really the fake appearance of real insurance, are one of the state's main devices to bait the population," Rozeff writes. "But the state insures nothing it anti-insures." It undermines the true safety net of family, church, friends, a broad education, savings, and so on.

Disparities

Some statistics offered by Craig Cantoni: Families headed by a never-married parent have an average annual income of $9,000 and a net worth of $350, versus $54,000 and $120,250, respectively, for those headed by married spouses who have never been divorced. Single-parent families account for 73.6% of families in the lowest quintile of income; two-parent families for 95.1% of those in the highest quintile. A child living with a mother who cohabits with a man is 33 times more likely to suffer serious abuse than a child living with married parents.

From the Archives: Socialist Inefficiency

Both Britain and Canada set up health systems that were supposed to allocate resources based on need, rather than price. Both have provided examples of disastrous bureaucratic inefficiency from the outset.

The NHS was based on a fundamental fallacy that once the "backlog" of untreated cases was eliminated, the workload would decrease as the nation got healthier. But the "`new' enemies of health multiplied."

In both systems, the government decides what "needs" should be addressed, and which should remain unmet. A government-run system is "a political tool, first and foremost."

For a discussion of the turmoil and complexity in these systems and attempts to reform them, see Moran JJ, Dickinson J Int Law 1989;8(1):101-123. Moran concludes: "The control of health care should never be placed into the hands of a political operation which cares more about reducing costs and winning votes; life is entirely too precious."

Privatizing Medicine in China

In the early 1980s, China virtually dismantled its public medical system, which had been so much admired by Western intellectuals, and re-legalized private practice. Between 1978 and 1999, the central government's share of health spending dropped from 32 to 15%. In an attempt to curb overuse by the insured, the government focuses on cost-sharing by patients through medical savings accounts. If it doesn't listen to Western "experts," China may show the world how to create a system that works (Wall St J 5/1/06).

While lamenting the passing of the "barefoot doctors," David Blumenthal and William Hsiao recognize the damage done by Chinese Communist policies, including price controls and an ethical framework that replaced professionalism with loyalty to the state and Communist ideology (N Engl J Med 2005;353:1165- 1170).

NICE Is NASTY

Like in Orwell's 1984, the name of a public agency frequently means the opposite of what it promises. The NHS's National Institute for Clinical Excellence (NICE) really means Not Available, So Treat Yourself. Rather than widening treatment options, it narrows them, and "in the most misleading manner possible on the pretext of rationality." Its only plausible purpose is "to provide a supposedly objective alibi behind which intensely unpopular political decisions rationing health care can be hidden," writes Stephen Pollard (Fraser Forum, March 2006).

AAPS Calendar

Jul 15. Roundtable, Pier 66 Hyatt, Ft. Lauderdale, FL.
Sep 13-16. 63rd annual meeting, Embassy Suites, Scottsdale, AZ.

Patients' Rights Revolution in Canada

The Canadian Supreme Court's decision in Chaoulli v. Quebec has sparked a seismic shift in Canadian medicine. And it has sent a message round the world that "health care regulations that result in the suffering and death of patients violate those patients' fundamental rights to life, liberty, and security of person," writes Jacques Chaoulli, the physician who argued the case despite lack of formal legal training.

The Court overruled Quebec's ban on private insurance coverage of services that Medicare is supposed to provide, opening the door to private payment (AAPS News, July 2005).

Early efforts to restrict freedom to contract were rationalized as necessary to prevent the suffering of ordinary citizens. Now the restrictions themselves are causing suffering, even loss of life, yet social engineers oppose the freedom to opt out, turning the rationale on its head, Chaoulli observes.

Lower court judges wrote that prohibitions were needed to avoid an "unequal" situation in which one individual could get better access to care than another.

"This shows how far the Left has gone in its hostility to the freedom to contract and the lengths to which it will go to protect a state-run Medicare program, rather than the people the program was created to serve," Chaoulli writes.

Chaoulli contrasts equality before the law, the "cornerstone of a stable, liberal society," to the Marxist ideal of absolute equality. As Pope Leo XIII wrote in the encyclical Rerum Novarum, the latter in reality results in "the levelling down of all to a like condition of misery and degradation."

As political philosopher Michael Quinn pointed out, "rendering all persons equally dead" was possibly the only way to eradicate all differences.

Today's tendency to suppress the freedom to contract and the right of economic initiative harms the people it is meant to help, argued Pope John Paul II, putting "everyone in a position of almost absolute dependence."

Chaoulli argues that "requiring individuals to purchase health insurance has never made much sense." After all, the state may not coerce a person to undergo treatment.

"Every individual has the right to opt out of a state-run health insurance scheme, either on a treatment-by-treatment basis or entirely," Chaoulli states. The freedom to opt out entirely is needed to protect those who are not wealthy enough to pay twice, first through taxation.

"If all individuals had the freedom to stop financing deficient state-run programs, we would see private markets flourish, and many more individuals could then afford to better protect their health," he believes (Cato Policy Analysis No. 568, May 8, 2006, www.cato.org). He hopes that other affronts to patients' rights (as from the FDA) might also be stricken.

Calling Chaoulli a "bombshell," the lead Wall Street Journal editorial on June 13, 2005, said that the high court had held that "Canada's vaunted public health-care system produces intolerable inequality." The editorialist hoped that the case might help to save American medicine also.

Private clinics are opening around Canada at the rate of about one per week (NY Times 2/26/06).

"There's a lot of money to be made breaking Medicare," opined Michael McBane, national coordinator of the Canadian Health Coalition, which opposes privatization. "The end game is that people with money no longer want to pay the taxes required to provide quality health care for everybody" (N Engl J Med 2006;354:1661-1663).

States Define "Legitimate Medical Purpose"

Gonzales v. Oregon was a challenge to the Oregon Right to Die Act, but the legal principles are much broader than physician-assisted suicide. Had the Supreme Court ruled for the the U.S. Dept. of Justice (DOJ) and its Drug Enforcement Administration (DEA), this agency would have received the high court's sanction to override state legislatures and professional licensing boards on all questions concerning the legality of prescriptions for controlled substances. The DEA could, for example, have declared that prescribing opioids for longer than 60 days was not a "legitimate medical purpose."

Courts defer to administrative agencies when they are interpreting their own rules, or exercising interpretative authority delegated to them by Congress. In this case, however, the DEA was simply parroting the language of the Controlled Substances Act. The CSA bars doctors from engaging in illicit drug trafficking, but manifests no intention to regulate the practice of medicine generally.

This decision could give medical professionals the ability to "reclaim authority over their standards of practice through their power of self-regulation," especially in the area of pain management, writes David Brushwood (Am J Health-Syst Pharm 2006;63(5):e1-e4). It is being cited in the appeals of a number of physicians sentenced to prison for using opioids to treat chronic pain because the DEA asserted their prescriptions were "outside of the legitimate scope of medical practice."

IPA Tries to Impose Rates on Non-Participants

Two emergency physicians groups, Northridge Medical Group and St. John's Emergency Medicine Specialists, sued Prospect Medical Group, an IPA, over its attempt to impose its controlled fees on them. The physicians, who are nonparticipating, balance billed the patients after Prospect paid the managed-care rate for their services. The plan argued that physicians had an "implied contract": physicians are required by federal law (EMTALA) to care for all patients regardless of payment source, and health plans are required to pay for emergency care as regulated by the California Health and Safety Code. That Code forbids physicians who contract with managed-care plans to charge more than the amount they agreed to. Prospect asserted that the Medicare rate was "fair."

The Court of Appeal for the State of California Second Appellate District did not buy Prospect's argument. The IPA is appealing to the California Supreme Court.

British Hospital Refuses Treatment to Activist

After 74-year-old Edward Atkinson, a pro-life activist, mailed graphic abortion photographs to Queen Elizabeth Hospital (QEH) and some of its staff, he was stricken from the waiting list for a hip replacement and barred from receiving any medical treatment there except for a life-threatening condition. He was also sentenced to 28 days in jail and will have to report to an Anti-Social Behavior Order for 5 years.

Testifying before the Court in the action that led to the jail sentence, QEH chief executive Ruth May said that "because he continued to send extremely graphic material to us we exercised our right to decline treatment to him."

Henry Bellingham, a member of Parliament, told EDP News of Norfolk that refusing treatment was wrong despite Atkinson's behavior ( www.lifenews.com/nat2247.html).

Correspondence

What's Next? Princeton economist Uwe Reinhardt predicts that premiums for the Massachusetts universal plan will increase by 10% per year and soon become unaffordable.

"Within a decade not only Massachusetts but the entire nation must face the question politicians are avoiding: Will the upper third of the population be willing to pay for the working poor in the bottom third who by then will be unable to afford health care?" Reinhardt continues: "My only hope is that the taxpayers of Massachusetts will either voluntarily step up to the cashier's window, or these people will revolt."

While Reinhardt is banking on people choosing to work harder so as to give the government more money for the over-riding goal of equality, people ask: "Why should I?"
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY

Poor Model. New Jersey legislators wonder how we can follow Massachusetts in requiring universal health coverage. Let's hope New Jersey takes enough time considering this to watch Massachusetts fail. We already suffer under insane laws and thus have the country's highest health insurance premiums. Perhaps the goal is to extend our lead.

Massachusetts will have a new authority to meddle and create "guidelines" to certify and decertify health plans. It will collect money for four trust funds, remitting to insurers via a still un-established "system." Presumably, the state expects insurers to trickle down funds to hospitals and doctors.

Bureaucrats on the new commissions will certainly be paid. Hospitals will face price controls and taxes.
Alieta Eck, M.D., Somerset, NJ

Unaffordable. Americans neither need nor can afford third-party payment for noncatastrophic medical care. The tax break for health insurance amounts to a subsidy to everyone in the medical industry at the expense of all others. This is not only unjust, but inefficient. It creates the need for perhaps 2 to 3 million people to settle small claims. Every expense that is not involved in direct patient care unnecessarily increases the cost of all goods and services. Returning the human capital involved in insuring routine medical costs to productive use would be a tremendous boon to the economy.
Robert S. Berry, M.D., Greeneville, TN

Pariahs. In the Middle Ages, two groups of people could not be buried in cemeteries with decent people: usurers and middlemen. I can see how this could apply today to certain insurers who take people's money and then don't cover their sicknesses and injuries.
Robert B. Thorne, M.D., Bloomfield, NJ

Who's the "Connector Authority"? And what are its rules? I have a feeling that membership on the Connector will be a sought-after political plum. Get your bribes ready!
Russell W. Faria, D.O., Newport, OR

What "Insurance" Means. To me, insurance means financial protection against a particular event. The insurer must collect enough in premiums plus investment income to equal the expected value of payouts plus profit. But in the current policy debate, the above terms are irrelevant. Being insured simply means that somebody else will pick up the bills for your medical care or for the care that you are allowed to have. It's a gigantic game in which the horrid pay-as-you-go system keeps passing costs to somebody, anybody else. Gouge employers; impoverish physicians; drive insurers out by banning catastrophic policies, passing price controls, and instituting ridiculous mandates; loot drug companies; force hospitals to provide care and don't pay them. Make everybody pay but the consumer, because if a single consumer has to pay, he by definition doesn't have insurance.
Linda Gorman, Independence Institute, Englewood, CO

True Competition. Insurers leveraging millions of members to negotiate deals with providers does not result in genuine price competition; in fact, it more often hinders it. Millions of consumers independently in the market most effectively brings pressure to bear on prices.
Steven Bassett, Oak Park, IL

The Terms of the Debate. Talk about who has and doesn't have health insurance diverts attention from the real issues. If we'd talk about access to care, we might get somewhere.
Frank Timmins, HealthBenefitsReform Group

Data Mining Alert. I sent two of my billers from our pulmonary/critical care practice to a coding course recently. They learned that CMS now pays for "smoking and tobacco use cessation counseling": G0375 (3 min) and G0376 (10 min). However, the speaker advised caution in using these codes because CMS plans to use claims data to identify smokers so that their premiums can be raised. (I can't confirm this.)
Debi Carey, Lexington, KY

"Be Active or Perish." This saying is as appropriate for solo and small-group practitioners as "publish or perish" is in academia. Lack of networking with like-minded people is far more dangerous than one can imagine. In today's world there is no escape from politics. Being active in groups like AAPS is vital for your future, and that of the medical profession.
Walter Borg, M.D., New Iberia, LA

Legislative Alert

As this goes to press, the Senate will be taking up a series of health policy items for "Health Week," a time set aside by the leadership to parade and enact their health policy changes.

The Health Insurance Marketplace Modernization and Affordability Act (S. 1955), sponsored by Sen. Mike Enzi (R- WY), would amend the Employees Retirement Income Security Act of 1974 (ERISA) to allow small businesses to realize some of the economic and legal benefits now enjoyed by large businesses that self insure. S. 1955 would permit small employers to band together in association health plans, free of state mandates and state health insurance premium taxes.

S. 1955 would also set up federal standards for health insurance, including rating rules for health plans sold to small business, plus a new federal option for health insurers to offer plans that would preempt many state-mandated benefits. Finally, the bill would create a federal Board that would review existing state health insurance laws, and then make recommendations to the Secretary of HHS to standardize rules for health insurance rate filing, prompt-payment rules, internal review of disputed claims and marketing. In other words, federal regulation would, in effect, override state law in these areas.

Look for business groups, desperate to escape high health costs and many conservatives to support the Enzi bill. This support is understandable. American health insurance markets are increasingly concentrated, distorted, and inefficient. Costs are soaring and shifting, and quality is suffering; millions of Americans are uninsured, and millions more fear losing coverage that they don't even own. State rules are, in many cases, an unmitigated mess, and small businesses and their employees are often the residents who suffer the most.

A principled case can be made to substitute federal regulation for state regulation, particularly within the context of a comprehensive overhaul of the federal tax code and the creation of a national market powered by interstate commerce of health insurance products. But that is not what is being attempted here, and Congress shows no serious interest in dealing with the one item directly under its jurisdiction: the tax code. Under the Constitution, the states enjoy an equality of status in legislating what is particular to them. One state is equal to any other state in the exercise of its rightful authority over the matters that directly concern its citizens. In this instance, the Congress would in effect set up a different standard, deviating from the letter and spirit of the Constitution, which would hold that a number of states' decisions on particular matters of health insurance regulation should be overridden by the federal government to achieve what is deemed to be a desirable end.

A far better approach is the bill offered by Rep. John Shadegg (R-AZ) and Sen. Jim De Mint (R-SC): The Health Care Choice Act (S. 1015). It would preserve the primacy of the states in the regulation of health insurance, but allow people to buy more affordable health plans across state lines. This interstate competition would create a national market for health insurance, and force a reconsideration of the state benefit mandates in many of the big states that impose them. Competition is the best response to excessive regulation.

There are other serious items for the Senate to consider: individual tax relief for insurance, as through an individual tax credit; defined-contribution options to health insurance in public and private programs; and allowing flexible spending accounts to roll over from year to year tax free for the direct purchase of medical services. Also, Congress could start fixing the left-over problems with health savings accounts (HSAs), including the coordination of fund transfers between health reimbursement accounts (HRAs) and HSAs.

HSAs, enacted as part of the massive Medicare Modernization Act of 2003, are a good idea (I have one). They have grown rapidly, and now there are more than three million enrollees in these plans. But that's still just 1% of the total number of people covered by insurance. Whether HSAs will transform the health insurance market remains to be seen.

HSAs need fixing. They were supposed to limit third-party interference in medical care. There has been little progress in this respect. High-deductible health plans still set "negotiated" rates for doctors, combined with standard third-party intrusion into the patient-doctor relationship, with excess administrative cost and record-keeping requirements. The "negotiated" rates often reflect administrative payment schemes like Medicare's.

As currently structured, HSAs probably cannot result in direct free-market transactions between patients and doctors. The best way to achieve this is to sever the accounts from health insurance altogether, reduce the role of third-party payment, and allow a market for genuine catastrophic insurance coverage to develop. Such a change in federal law would go along way to reducing the unnecessary level of third-party payment that characterizes the current market.

Medicare: It's Worse

The Medicare Trustees have just released their annual report, and the news is not good. The unfunded liability of the Medicare program is now checked in at $32.4 trillion, and the Medicare Part A trust fund is expected to become insolvent in 2018, not 2020 as reported last year. Simply to maintain the balance in the Medicare hospital fund would require an increase of the existing payroll tax from today's 2.9% to 4.3% by 2020, and 6% by 2030. Professor Tom Saving of Texas A&M University, a Medicare trustee, says that, unless something changes, the unfunded liabilities of the program will start eating up federal taxpayers' dollars at an alarming rate. By 2020, the Medicare shortfall would consumer 23% of all federal income tax revenue; that jumps to 38% by 2030 and 50% by 2040.

Apologists for the Medicare drug benefit will note that the projected unfunded liability for the Medicare drug benefit actually declined from a $8.7 trillion to $8 trillion this year, reflecting a lower-than-projected enrollment, and a slower-than- expected growth in drug spending. The competition among private plans has apparently had a chastening effect on Medicare drug costs. But that's quite beside the point. The total debt that Medicare Part D is imposing on future generations is almost twice that of the entire Social Security system, which has a long- term unfunded liability of about $4.6 trillion. The next year will see the effects of the increased pressure for price controls, the filling up of the silly donut hole, and the continuing displacement of other forms of drug coverage. As most independent analysts have noted, the most important single feature of the Medicare drug benefit is the displacement of existing private spending by federal spending. That much is indisputable.

Big numbers should kick off big action. This year, look for excuses from Congress as to why nothing can or should be done. The only realistic way to cope with the Medicare crisis is to "grandfather in" the current generation of retirees, and to change the program from a defined-benefit to a defined- contribution for the Baby Boomer generation. The Boomers hit retirement in 2011. Five years is not a long time. Time is running out.

The Massachusetts Plan

Republican Governor Mitt Romney and the overwhelmingly Democratic legislature in Massachusetts have compromised on a major health bill that is complex and controversial. During the course of the debate, the Governor invited Heritage Foundation staff, including me, to Boston to discuss several specific problems with the health insurance market, and explore what could be done about them. These are just three of the problems Romney was trying to solve:

Problem #1: How do you enable employees of small business to get and keep a health insurance plan of their personal choice? The worst problems with employer- provided coverage are with small businesses that cannot afford a plan, or that find the administrative burden too heavy. Small firms that do offer coverage generally offer only one plan.Workers who try to buy health insurance on their own are punished by our federal government with a tax penalty, which increases the cost by 40% or more.

Romney's solution was to set up a new market that would avoid the problems caused by the federal tax code and operate like a stock exchange. The idea is for workers to choose the product that they want and keep it regardless of change in employment. This "insurance market exchange" was named "the Connector." It does not purchase health plans on behalf of individuals or businesses; it simply processes premium payment and paperwork. It is to function through defined-contributions by employers to the plan of the employees' choice. Employers who did not want to contribute anything to employees' health insurance would be required to offer a flexible spending account, so that the employee would at least be able to make tax-free premium payments. The idea is for individuals, not employers, to purchase health insurance plans. The exchange is intended to ease access to coverage for a lot of workers in nontraditional jobs, including part-time and seasonal employees, contractors and sole proprietors, and individuals with more than one job. HSAs would be among the available options.

Because employers would be able to designate "the connector" as their employer plan for the purpose of the tax code, all of the premiums for health plans offered in the exchange would be tax free, and the benefits for the employees are also tax free, just as they would be under conventional employer-based health insurance. The achievement, then, is that it would provide for broad employee choice of health plans without compromising the tax-free status of health insurance coverage.Employees would be able to pick health plans of their choice, have a property right in the insurance policies, and take them from job to job without a tax penalty. Personal ownership and control of health insurance policies has long been a major goal of common-sense insurance reform. This is a major structural change in health insurance.

Problem #2: How do you provide assistance to low- income people who cannot afford health insurance? For years, economists have been debating the best way to integrate low-income individuals into the private health insurance market, as an alternative to rising uncompensated care costs or Medicaid expansions. Conservatives in Congress, notably former House Majority Leader Dick Armey (R-TX) and Senator Rick Santorum (R-PA), along with the Bush Administration, have proposed refundable tax credits basically vouchers to help people buy private health insurance. Bush would phase out the credits at $60,000 annual income. Nothing, of course, has happened at the federal level.

Romney built upon a proposal by John Goodman and his colleagues at the National Center for Policy Analysis (NCPA): use existing government funding for the uninsured to provide them with the means to secure private coverage. With the support of HHS, Romney plans to redirect hundred of millions of dollars of "disproportionate share" money and other government subsidies that already go to hospitals and medical institutions (not including doctors, who just don't get paid) to offset the costs of uncompensated care. These subsidies will be transformed into direct financial assistance to individuals, in the form of "premium assistance" for the purchase of private health insurance. This is a basic structural change.

Problem #3: How do you cope with the "free rider" problem? Thanks to federal law, hospitals are required to provide care to persons entering the emergency room, regardless of ability to pay. Massachusetts taxpayers spend $1.2 billion/yr to cover this cost. There are few if any serious consequences for people who choose to be "free riders," who secure costly medical care, and then walk out and leave taxpayers holding the bill.

Romney originally proposed that individuals who could afford to buy health insurance but refused to do so be required to post a $10,000 bond, which would be used to cover the initial cost of any hospital care that was used or lose the personal tax exemption. Call this a "soft" mandate, which would permit one to self-insure but not skip out on the bills, leaving them for taxpayers to pay. The legislature instead enacted an individual mandate, along with an employer mandate that the Governor vetoed.

The Massachusetts compromise reflects the political coloration of Massachusetts. There is plenty of room for criticism: not enough deregulation; too much Medicaid expansion; an objectionable individual mandate. But there are serious structural changes that are worth watching.

Robert Moffit is Director, the Center for Health Policy Studies at the Heritage Foundation, Washington, D.C.