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Vermont Bipartisan Commission on Health Care Availability and Affordability

Review and Critique: Greg Scandlen

From Ethan Allen Institute, The Governor's Bipartisan Commission on Health Care and Affordability: Review and Critique (2002)

Mr. Scandlen is Senior Fellow in Health Policy at the National Center for Policy Analysis. He was formerly the executive director of the Council for Affordable Health Insurance and is one of the nation's leading experts on defined contribution insurance plans. He can be reached at [email protected].

The Governor's Bipartisan Commission on Health Care Availability and Affordability should be commended for its recent report on Vermont's health care problems. The Report is an important examination of the issues facing Vermont, and all of America, as we move ahead in the new century.

While the report examines the problems, it falls short in identifying the causes of those problems, and so fails to suggest credible remedies. Vermont's current problems are the direct result of decades of well-meaning but misguided governmental activism in health care. Of all the stakeholders in the health care system - doctors, hospital administrators, insurers, employers, patients - only government can impose its will on others. All the rest are voluntary participants who must cooperate with each other to gain mutually beneficial results. In Vermont, the government has been especially intrusive in these relationships and must accept responsibility for its actions.

It seems clear that every time the Commission started down the path toward meaningful reforms, it found itself blocked by prior governmental policies that it was unwilling to challenge. Certificate of Need and Community Rating are two notable examples. Those who have long been active in shaping government health care policies are naturally reluctant to criticize their own handiwork.

If Vermont is going to confront its health care problems head-on, its leaders need to start over. They need to start looking for new and different approaches to health care delivery and financing, beginning with first principles. This is not easy to do, because we are all locked into traditional ways of thinking. We want to believe that old and familiar policies will continue to work with just a few tweaks here and there.

But consider this: there is an entire universe of services and products that can be considered "health care." This universe grows every day as new research and technologies come along. In fact, we are currently on the cusp of a revolution in health care delivery with the decoding of the human genome and the miniaturization of electronic devices. There are new molecular level treatments and nano-technology. Even in more conventional terms, there are some 400 new drugs and treatments currently in the R&D pipeline. At the same time, people are rediscovering a host of ancient practices such as herbal medicines and acupuncture that were nearly lost in the scientific revolution in medicine.

It is impossible for any insurance mechanism to cover all of this. It is also undesirable, because third-party payment invariably leads to excessive use of the thing that is covered. There will always be some portion of legitimate health care services that are not part of any insurance mechanism, private or public. Vermonters will always have some portion of their health care choices uncovered by third-party payment.

We must decide, then, what portion of this universe of services should be covered by whatever insurance mechanism is created. Some things will be reimbursed by the insurance; others will be paid for directly. But different people will have different preferences. Some people are risk-averse. They want everything possible included in the insurance coverage regardless of how much the premiums might be. Others would prefer to pay lower monthly premiums and have more cash available to pay for needs as they arise. Some people would like to have nurse midwives included; others wouldn't let a nurse midwife in the same room. Some people want abortion covered; others would never think about having an abortion. Some want herbal medicine included, or acupuncture, or dental care, or psychiatric social work; others do not. Even if they would use those services, they would rather pay cash for them instead of paying higher premiums and filing claims with an insurance company. Each person or family has their own preferences and values. Each should be able to acquire the insurance package tailored to those preferences and values.

Some may object that since families are not paying for the coverage, they should have no right to choose. But in fact, they are paying for it, even when their employer acts as the middleman. Employers consider the total cost of compensation when making hiring decisions. If the value of an employee's labor is not at least equal to the total of wages plus benefits, that employee will not be hired.

The employer might prefer to pay out some portion of that total compensation in the form of health benefits because it reduces sick time expenses, encourages productivity, and lets the employer avoid the cost of payroll taxes on the health benefits portion. But every dollar paid out in benefits is a dollar that is not available to pay wages. Workers should not be disadvantaged if an employer decides to pay out the whole compensation in the form of wages rather than benefits.

What would the world look like if we each were able to control the resources available to us and choose the health insurance product we most preferred? It would look much more like all the rest of our economy. People would choose how much of their resources to put into insurance and how much to set aside for direct payment of services. They would shop around for the insurance provider that most closely gave them what they wanted at the price they wanted to pay. If the company did not satisfy their needs, they would drop it and look for a better one.

Would Vermont have a competitive insurance market? Of course it would. Vermont has a competitive market for automobiles, and new cars cost about the same as health insurance on a monthly basis. In such a market health insurers would have to use risk-based rating to price their products appropriately, just as auto and life insurers do. But that simply means that the people who are likely to consume more services and value their coverage more highly would be willing to pay more for it. Younger and healthier people would pay less because they don't think it is as important.

There would be some people who are disadvantaged. They are especially high-risk or low-income, and the state could supplement their ability to pay with targeted financial assistance.

Meanwhile, Vermonters would come to value those insurance companies that gave them the best value. They might stick with an insurance company the way they currently stick with their banks. They might be interested in entering into a long-term contract with such a company, which would save the carrier considerable marketing, enrollment, and retention costs, and allow lower premiums. Other Vermonters might want to join purchasing clubs to achieve the same marketing efficiencies that employers currently enjoy. These clubs could be based in an affinity group, like a labor union, church, cooperative, credit union, or homeowner association.

In buying their own health insurance, Vermont consumers would become a lot more savvy about everything else relating to health care. They would be picking and choosing their own benefits program, so they would be more demanding about the way services are delivered. They might resent providers who were only available during business hours, forcing the consumer to take time off of work. They might insist on evening hours. They might not like driving great distances to go to a hospital for outpatient services. They might demand that hospitals decentralize their facilities, bringing services to the people instead of the other way around.

This is all speculation. No one can predict exactly how consumers will behave once they are empowered to make decisions. But that is precisely the point. Markets are effective because they are unpredictable. They solve problems in ways that no one can anticipate. And that is why a market-based system is essential.

We are entering a time of unprecedented change in health care. None of us can know what the system will look like ten or even five years from now. So none of us can prescribe the future. Attempting to do so closes off possibilities that are inconceivable today. The way to cope with such unpredictability is by trusting the people of Vermont to make their own decisions based on their own values and resources. The very last thing Vermont needs is more centralized planning and control. It's time to move on.