Bush Wrests Health Care From Democrats

Commentary by John C Goodman

Ever since Hillary Clinton's calamitous attempt to restructure the nation's health care system, Democrats have been reluctant to propose any major health care reforms. For almost 10 years, therefore, the health-policy field has been a wide open area of opportunity for Republicans. But they too have been reluctant to act.

Then came George W. Bush, who made reforming health care and passing a "Patients' Bill of Rights" a priority before the legislation was run through the shredder last year over Republican calls for caps on lawsuits against health maintenance organizations. Well, he hasn't given up the fight; that much was clear in his speech in Milwaukee on Monday when he once again laid out his ambitious plan to reform Medicare, create a prescription drug benefit for the elderly and provide more than $89 billion in tax breaks to make private health insurance more affordable.

Health care reform must begin with a vision, and Mr. Bush left little doubt about how he departs from those who have gone before him. "We must build a modern, innovative health care system that gives patients more options and fewer orders and strengthens the doctor-patient relationship," he said in his speech, echoing sentiments from his campaign. Indeed, the president has long argued that the solution to the nation's health care woes is to empower individuals rather than large, impersonal bureaucracies.

Mr. Bush clearly understands the problem with managed care is that bureaucrats collect all the health care dollars and then make all the treatment decisions. Although medical practice in such plans is supposed to be based on sound science and proven technologies, managed care organizations have an economic incentive to sacrifice patient welfare to the goal of cutting costs. Worse still, doctors in such a system tend to see employers and health insurance companies as their real customers.

One antidote to this condition is to put more money in the hands of the patient. One way President Bush intends to do this by allocating some $14 billion over the next 10 years to expanding medical savings accounts; i.e., tax-exempt accounts that individuals may use to pay for medical treatment short of catastrophic illness.

The second empowerment idea is granting tax relief to those who purchase their own insurance. Federal tax subsidies for employer-provided insurance currently total $141 billion a year. Yet people who purchase their own insurance get virtually no tax relief. Moreover, the subsidies for employer-provided insurance are extremely regressive: Families in the top fifth of the income distribution get six times as much tax relief as families in the bottom fifth. To remedy these inequities, the president proposes a refundable tax credit under which all families up to a certain income level receive the same tax break if they purchase health insurance.

The main goal of this proposal is to encourage people to voluntarily obtain private insurance. But in achieving this goal, the proposal also opens the door to something desperately needed: personal and portable insurance. The problem with employer-provided coverage is that people must switch health plans whenever they switch jobs. Given the prevalence of managed care, this often means they must also switch doctors. And for people with a health problem, that means no continuity of care. Individually-owned health insurance is the only permanent solution to the portability problem inherent in an employer-based health care system.

Ironically, a major hurdle the president faces is the fear on the part of some members of his own party that a health insurance tax credit would turn into another costly "entitlement." What they overlook-and Mr. Bush understands-is that health care is already a virtual entitlement. Under federal law, hospital emergency rooms are required to take all comers, and we spend billions of dollars every year on free care for the uninsured.

Although not part of the president's proposal, a properly designed tax credit for health insurance need not cost the government extra money. Instead, it would ensure that the money we are now spending is spent rationally. A tax credit system would reward those who purchase insurance with a lower tax bill, and the credit could be funded by a reduction in spending on free care, since the ranks of the uninsured would be smaller.

Another conservative objection is that health insurance tax credits would further muck up the tax code at a time when we should be moving toward a simpler system with lower rates. Fair enough. But the perfect should not be the enemy of the good.

The tax system has already shaped and molded our health care system. The problem is the current system is arbitrary and unfair, lavishly subsidizing health insurance for some and providing no relief for others. The system is in desperate need of reform, and we should not put reform off indefinitely with the hope that a flat tax is somewhere in our future.

The president's proposals are not without risks, particularly since they will be acted upon by many in Congress who do not share his vision. Although patients' rights legislation seems to be working in Texas, a bill produced by Congress could raise costs and close off options, thereby harming the very people the bill intends to help. Similarly, the president's proposals to expand private sector options for Medicare enrollees could be distorted by those who simply want a larger government program.

Nevertheless, these are risks worth taking, especially with someone in the White House who is ready to lead.