If the states are to serve as laboratory models with guidance on how to fix health care finance, there are already some models to avoid. One is in California, which is essentially proposing a plan to tax, spend, and regulate the state’s path to universal coverage, with an enormous additional subsidy from the Federal government. I’m sure there are many in the new Democratic majority in Washington including a few Presidential candidates, who welcome this leadership as a possible precursor to a national plan. It’s a recipe for disaster. A slightly better but still flawed plan is the one Massachusetts adopted early last year, which is too heavy on regulation and mandates, but does offer a way to equalize tax treatment of insurance premiums. In Texas, the lawsuit reform measures that cap non-economic medical malpractice damages have already improved the health insurance market, and the Texas Association of Business has some productive recommendations for Texas policy-makers that include expansion of consumer-directed health plans, increased information on cost and quality of plans, prohibition of so-called “balance billing”, reforms to physician referrals, and expansion of Medicaid managed care. In his State of the Union message, President Bush proposed a plan that has merit, particularly in ending the preferential tax treatment for employer-provided medical insurance that is a relic of the World War II wage and price control system. This, along with continued expansion of Health Savings Accounts, represents progress, but still isn’t bold enough.
For a bolder and better path, let’s listen to the late Milton Friedman in a Hoover Institution interview for the World Health Congress a year before his death. In answer to the question as to how he would reform the U. S. health care system, other than getting the government entirely out of the health care business, which he favored, he responded with two additional suggestions:
*Eliminate the tax exemption of employer-provided medical care insurance, because there is no reason to treat medical care differently from other essential goods, and businesses could then use the money to increase direct wages so that employees could then make their own health care insurance decisions.
*Nationalize the health insurance market by eliminating regulatory barriers to purchasing insurance across state lines, which are protectionist measures that are probably unconstitutional violations of the commerce clause.