Top Ten Ways to Fix Health Insurance

THE NUMBER OF AMERICANS WHO GO without health insurance at some point during the year—some 42 million, by most estimates—could rise dramatically in the coming decade unless lawmakers administer some serious medicine to our ailing health-care system.

States too often bear the brunt of this problem that is mostly the result of inaction at the federal level. The strategies outlined below show ways for Congress to increase access to health insurance. State efforts can complement, or in some cases even precede, congressional action by offering tax credits for the uninsured and eliminating costly and burdensome mandates on insurers. These actions would make coverage more affordable for people in need. But states must look to the Congress to change federal laws so that all Americans can have greater access to health insurance.

Policymakers must begin to think “outside the box” and look for solutions beyond the employment-based health insurance system that is a relic of the World War II era. The current system provides tax benefits for those who purchase insurance through their employers but no incentives for people who do not have access to employment-based plans. Without reform, the uninsurance trend will continue to rise in today’s dynamic information-driven economy that puts a premium on mobility. But it will accelerate even faster if the economy enters a recession or if Congress passes so-called patients’ rights legislation and imposes a new level of detailed regulation and mandates on the market, raising costs and expanding liability for employers.

Congress and the Bush Administration must work together to ensure equity in the tax code for those who do not have access to employer-based coverage. Providing the resources alone, however, will not be enough. Congress must also pave the regulatory way to empower individuals, families, and groups other than employers to make their own health care decisions and purchase insurance to fit their needs. These 10 steps offer policymakers ways to make sound improvements in the current system that will greatly expand accessibility, coverage, and choice. Specifically, they should:

1. Provide tax credits for the purchase of health insurance. The most recent research, conducted by Mark Pauly and Bradley Herring of the University of Pennsylvania’s Wharton School of Business, indicates that a tax credit equal to 50 percent of premiums would reduce the number of uninsured by half. The tax credits should be fully refundable, pre-payable, and made available to all Americans.

2. Clarify the liability of employers who offer defined contributions. Employers have moved from offering defined benefits to providing defined contributions in retirement accounts, and many would like to do the same with health benefits. Congress should make plain in statute that by giving their employees control of the plans in this way, employers would be free from fiduciary responsibility.

3. Allow employees to make tax-free contributions to their health plan. Congressional staffs now enjoy this perquisite. Surely, private-sector workers should enjoy the same benefit.

4. End the caps on medical savings accounts (MSAs). Congress should lift the restrictions on MSAs so that individuals can participate regardless of employment status or size of employer.

5. Permit the formation of association health plans (AHPs). Allowing owners of small businesses to band together across state lines to increase their purchasing power or to self-insure and spread the risks would enable them to offer or improve health plans for their workers.

6. Allow individual membership associations (IMAs) to offer health insurance. Like AHPs, IMAs could leverage the buying power of members of fraternal, religious, or professional associations. Because people tend to be members of such groups much longer than they tend to work for one employer, members of IMAs could enjoy continuity of coverage regardless of job mobility.

7. Allow health care consumers to choose between plans covered by federal or state regulations. Congress should amend the Employee Retirement Income Security Act of 1974 (ERISA) so that a plan purchased with an employer’s defined contribution need not be considered a group plan as is now the case. A group plan brings with it certain federal regulations, whereas individual plans are regulated by the state. If employees could choose the regulatory framework behind their plans, they are more likely to be satisfied.

8. Encourage responsible buying of insurance. Congress should eliminate the “guaranteed issue” provision in current law, which mandates that insurance companies and HMOs selling in the small group market must sell insurance to any employer regardless of the employer’s claims history or employee health. This encourages employers to buy coverage only when employees need it, which is similar to purchasing homeowners’ insurance after the house burns down.

9. Consider creating a new federal charter for health insurance. The current morass of federal and state regulation is confusing and often duplicative. Congress should examine the feasibility of creating a new federal charter for health insurers and consumers. Consumers could participate in this new option or in their state-regulated systems, much as people today can choose to save in a federal- or state-regulated bank.

10. Promote a national high-risk pool for the highest-cost, most vulnerable people—the “uninsurables.” A national high-risk pool should be part of the federal charter so that people who are turned down by an insurer can still obtain coverage. Although “uninsurables” represent as little as 1 percent of the population, their needs are the greatest and must be accommodated.

By focusing on strategies such as these, the Bush Administration and Congress can reverse the growing numbers of Americans without health insurance and make today’s health insurance system reflect the needs of families in today’s rapidly changing economy.


Mr. Frogue is Health Care Policy Analyst at The Heritage Foundation. This article is excerpted from his paper, “Top Ten Ways to Fix America’s Health Insurance Market and Expand Coverage.”