NCPA - National Center for Policy Analysis

Outline Of Health Care Reforms

April 27, 1999

The United States can achieve universal access to health care by every American through reforms that would allow individuals and families to purchase private health insurance and give those who do not choose coverage access to a health care safety net, say health policy analysts John C. Goodman, president of the National Center for Policy Analysis, and Merrill Matthews Jr., NCPA vice president of domestic policy.

They propose health care system reforms to eliminate distorted incentives, empower individuals and create new options in the health insurance marketplace. Among their recommendations:

  • Make a federal commitment to spend a certain amount on health care for every American -- say $800 per individual -- through tax incentives and government spending on a health care safety net.
  • Establish an assignable, refundable tax credit to allow individuals and families to purchase private health insurance without making out-of-pocket expenditures.
  • Allow employer health plans to use either the tax credit or the current system of excluding employer payments from employee taxable income -- but not both.
  • Create a Health Care Safety Net run by the states and funded with existing federal health care dollars -- plus an amount equal to any unused health care tax credits.
  • Allow individuals who use the tax credit to purchase catastrophic insurance coverage to deposit a certain amount of aftertax income -- say, $2,000 per adult with a $5,000 family maximum -- into a Roth MSA (Medical Savings Account) for the purchase of any medical expense not covered by a health plan.

According to Goodman and Matthews, these steps would increase the efficiency of the health care system by eliminating incentives to overinsure and overconsume health care. For example, the current system of Flexible Spending Accounts (FSAs) allows employees to make pre-tax deposits to pay premiums and purchase services not otherwise covered. However, a use-it-or-lose-it rule requires that employees spend the entire sum or forfeit any year-end balance in the account -- encouraging wasteful spending at year- end.

Source: John C. Goodman and Merrill Matthews, "Reforming the U.S. Health Care System," Policy Backgrounder No. 149, April 26, 1999, National Center for Policy Analysis, 12655 N. Central Expy., Suite 720, Dallas, Texas 75251, (972) 386-6272.

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