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Choice and Competition for Health Care—Ideas We Should Finally Try

by Nina Owcharenko and Robert E. Moffit
June 01, 2014

Conservatives, if they prepare now, have a golden opportunity to fix America’s health care system with the free market ideas they have been developing for decades. The Affordable Care Act (ObamaCare) is coming apart at the seams, and the real world experience of the Left’s health policy agenda brings unfriendly headlines almost every day. Polling confirms the increasing unpopularity of the law.

President Barack Obama and his allies have spent over four years and hundreds of millions of taxpayer dollars working furiously to implement their massive law, rewriting, junking, or delaying key provisions, while trying to overhaul almost one-fifth of the American economy. The President’s broken health care promises multiply, while millions of Americans struggle with soaring health care costs and cancelled coverage. Meanwhile, businesses find their health care decisions blocked, checked, or smothered in an avalanche of arbitrary and impenetrable rules and regulations.

Surveying the wreckage, Franklin Foer, writing in the November 24, 2013, edition of the liberal New Republic observed:

Liberalism has spent the better part of the past century attempting to prove that it could competently and responsibly extend the state into new reaches of American life. With the roll out of the Affordable Care Act, the administration has badly injured that cause, confirming the worst slurs against the federal government. It has stifled bad news and fudged promises; it has failed to translate complex mechanisms of policy into plain English; it can’t even launch a damn website. What’s more, nobody responsible for the debacle has lost a job or suffered a demotion. Over time, the Affordable Care Act’s technical difficulties can be repaired. Reversing the initial impressions of government ineptitude won’t be so easy.

Of course, American health care was already broken long before ObamaCare made things worse. Going back to the 1960s the nation suffered the consequences of a malfunctioning health care market: the absence of a level playing field for health insurance, perverse incentives and inflation, lack of personal control over health plans and benefits, and various structural obstacles to free market competition that would have controlled costs. The result has been excessive growth in health care costs, the inability of individuals to buy and keep affordable health plans, and gaps in coverage and quality.

Government policy was often responsible for creating—or worsening—these problems. So, the direction of government policy has been the focus of the continuous health care battles between liberals and conservatives, especially in the 1980s and the 1990s. The key differences between liberals and conservatives have not been over the identification of persistent problems, but rather workable solutions to those problems. For the Left, the answer is, and always was, more direct government control over health care decisions, either in the form of a government monopoly (i.e., a “single payer” system) or through a detailed regulation of all of health care financing and delivery (e.g., ObamaCare). At the same time, the Left always was plagued with a public relations problem: Government-run or single-payer health care is not particularly appealing. Rather than explicitly using those terms, which scared many Americans, the Left emphasized individual security and borrowed the language of free markets: choice and competition. So, the Left’s legislative titles have been appealing: The Health Care Security Act, the Patient’s Bill of Rights, the Patient Protection and Affordable Care Act, to name just a few. Yet all of those bills were rooted in government making decisions instead of patients.

For conservatives, the answer has been that key decisions in health care should be left in the hands of patients and their doctors. For decades, conservatives, particularly in the think tanks, developed detailed and comprehensive reform proposals, often vetted with sophisticated econometric analyses, and offered in the form of technical assistance to members of Congress and their staffs. The American Enterprise Institute, the Cato Institute, the Galen Institute, The Heritage Foundation, and the National Center for Policy Analysis, among many others, participated in these efforts. While the plans differed in details, they all advanced common themes and focused on moving America towards a patient-centered, market-based health care system.

The Epic Battle over ClintonCare

Before the battle over ObamaCare, the biggest national health care debate was over the Clinton Health Plan (ClintonCare). In substance, the Clinton Plan, with centralized bureaucratic control and detailed micromanagement of health plans and benefits, was strikingly similar to what is now ObamaCare, but its development and presentation were very different. Right after President Clinton’s inauguration, the White House, under the leadership of Hillary Clinton, spent nine months developing and writing a massive and detailed 1,300-page health care bill, “The Health Security Act,” and unveiled it on October 22, 1993.

On Capitol Hill, the initial and profoundly disappointing Republican reaction was that ClintonCare was inevitable. But conservatives launched a full court press against the bill, and forced debate over the proposal all over the country. Conservative think tanks came together to form the Washington-based Consensus Group under the leadership of Grace-Marie Turner of the Galen Institute. That group outlined a common set of policy prescriptions as an alternative to the Left’s health care agenda as embodied in the Clinton Plan. Those ideas would have advanced a patient-centered, market-based health care system for the country. Key elements of the conservative alternative included:

• Individual tax relief for all Americans, in the form of tax credits or direct assistance for low income persons, would enable them to get access to affordable private health insurance of their choice. The tax changes would ensure equity in the tax treatment of health insurance, personal ownership and portability of coverage, and guarantee personal choice and robust competition among health plans and providers.

• Insurance market reforms would allow insurers to offer consumer-directed products, such as Medical Savings Accounts; as well as given consumers the right to renew coverage and secure lower premiums by pursuing healthy lifestyles.

• Defined-contribution financing (premium support) and choice and competition would spur innovation and greater productivity within Medicare and Medicaid as well as throughout the entire health care sector. Defined-contribution financing would empower patients and force plans and providers to compete directly for consumers’ dollars. The Medicaid changes would allow low-income persons to be mainstreamed into the private health insurance markets, intensify competition, and maximize cost control.

These key conservative reforms, promoted by virtually all major conservative think tanks, were at the heart of House and Senate proposals that countered and eventually thwarted the massive ClintonCare bill. Indeed, these key elements, in one form or another, are still at the heart of various legislative proposals offered today by leading conservatives in the House and Senate. They also remain at the core of many conservative think tanks’ health care proposals.

In the fall of 1994, the Clinton Plan collapsed and died on the Senate floor when Senate Majority Leader George Mitchell (D-Maine) withdrew the bill from Senate consideration. Public opinion had decisively turned against the White House on health policy. Republicans captured the House of Representatives for the first time in 40 years. Polling showed that the GOP enjoyed greater trust than the Democrats on health care.

The Left Regroups and Resumes the Offense

Even though they had just won a major political victory on health policy, opponents of the Clinton plan, in Congress and elsewhere, failed to seize the offensive and press for conservative health care reform. They largely moved on to other issues. The one exception was Medicare reform, but congressional Republicans were stymied by demagoguery that frightened seniors and they failed to gain traction on significant reforms throughout the 1990s.

For the Left, however, the liberal health policy agenda was only delayed, and its response to the 1994 Clinton defeat was to pursue incremental steps to advance the principles of the Clinton plan and a government-centered health care system. States like Kentucky, Washington, and Minnesota enacted their own versions of the Clinton health plan. Not surprising, these plans also failed and were rolled back or repealed, as state health care costs soared and insurance competition shrank and public opinion soured.

At the federal level, the Clinton administration and its allies in Congress focused their attention on enacting key parts of ClintonCare as stand-alone proposals. Congressional Democrats, most notably Sen. Edward M. Kennedy (D-Mass.), secured Republican support by incorporating elements of the Clinton plan in larger bipartisan bills. The two best examples were the Health Insurance Portability and Accountability Act (HIPAA), enacted in 1996, and the State Children’s Health Insurance Program (SCHIP), enacted in 1997.

HIPAA accomplished the worthy goal of providing portability of insurance for some persons moving from one group plan to another; elements of the failed Clinton health plan were incorporated into the bill, including, word for word, the “administrative simplification” provisions of the Health Security Act.

SCHIP was an entirely new federal-state children’s health insurance program that was incorporated into the larger but temporarily successful bipartisan effort to balance the federal budget, the Balanced Budget Amendment (BBA) of 1997. President Clinton’s allies in Congress, particularly Sen. Kennedy, saw the opportunity to cover children as both emotionally and politically irresistible, and thus expected and got Republican acquiescence in their incremental agenda. SCHIP was thus adopted as part of the larger budget package, and champions of greater government control scored yet another victory and continued the incremental erosion of private health insurance.

The Balanced Budget Act of 1997 reflected conservative and especially Republican priorities on balancing the budget; health policy was, as it so often was, a secondary consideration. The BBA restrained Medicare spending growth primarily by tightening up the program’s rigid system of price controls, a strategy that was particularly damaging to home health agencies which exited the program by the thousands. Under Section 4507 of the Act, Congress enacted a statutory restriction on the right of seniors to go outside of Medicare and privately contract with physicians, mirroring a similar provision of the discredited Clinton plan.

Perhaps the only bone thrown to conservatives in the Balanced Budget Act of 1997 was some measure of state flexibility in the administration of SCHIP. Regrettably, Republican governors showed little interest in taking advantage of it as by design the easiest path for the states was simply to expand Medicaid. Therefore, the legacy of the Balanced Budget Act of 1997, so roundly applauded by Republicans at the time, was not a balanced budget but a new government entitlement.

The liberals next opportunity came in 1999 with the reported abuses in the managed care industry, specifically the delay and denial of patient access to specialty care by “gate keepers” in Health Maintenance Organizations. President Clinton launched a new campaign to create the so-called Patient’s Bill of Rights. The bill would have given patients the right to sue managed-care companies. It was politically ingenious to tap into the widespread backlash against the managed-care industry as a means of securing more government mandates and regulations. Ironically, the Clinton plan would have mandated a managed-care system, including “gatekeepers.” During the Senate debate on the Patient’s Bill of Rights, Sen. Don Nickles (R-Okla.) advanced a powerful argument: If Americans had a right to sue private insurance plans for denying and delaying care, then Americans should also have the right to sue Medicare and Medicaid for the same reasons. It was a show stopper. Congressional liberals were aghast at the idea of government bureaucrats being forced to go into the courts to defend Medicare and Medicaid claims denials. Meanwhile, throughout the debate conservatives insisted on the importance of relocating the power over health care dollars and decisions. If consumers were in charge of health care dollars and decisions, they argued, managed care executives would be accountable to consumers. There was no need to sue an insurance executive if one could simply fire him. In the end, the Patient’s Bill of Rights legislation died a quiet death. Undeterred, however, the Clinton administration launched a campaign to add a prescription drug benefit to the Medicare entitlement. It stalled—temporarily.

The Bush Era

The first major crisis in the Bush administration was, of course, the terrorist attacks of September 11, 2001. Following those attacks, the American economy suffered a shock and millions of workers lost their jobs and thus also lost their job-based health insurance. Congressional liberals responded to this crisis as an opportunity to radically expand Medicaid, a welfare program, up the income scale, in some cases to as high as 400 percent of the federal poverty level ($46,000 per person in today’s dollars). Under that plan, private coverage would contract while government coverage—and control—would expand.

Rather than advancing a Medicaid expansion, conservatives in Congress, supported by the free market think tanks, quickly responded with their own solution—extending tax credits to individuals to maintain or purchase coverage outside the place of work. In 2001, Rep. Bill Thomas (R-Calif.), chair of the House Ways and Means Committee, brought a tax credit bill to the House floor and passed it over objections of congressional liberals favoring Medicaid expansion. In the Senate, however, Majority Leader Tom Daschle (D-S.D.) blocked the tax credit bill twice. Nonetheless, as a political matter, conservatives were playing offense on health care policy for the first time in memory. While small, the proposal was a psychological victory for those who wanted to fix health care with more free markets.

In 2003, the Bush administration correctly diagnosed that drug access among some seniors was a problem and proposed a targeted assistance program to help the minority of low-income seniors who could not afford prescription drugs. The Bush administration also favored reform that would transform Medicare into a patient-centered, market-based, premium-support system. The Bush administration’s limited Medicare drug proposal was overcome by a bipartisan insistence on creating a universal entitlement for prescription drugs. Both big business and the pharmaceutical industry supported the entitlement expansion. It was a bitter battle, with The Heritage Foundation and other conservatives leading the fight and at odds with the Bush administration, the Republican congressional leadership, the business community and the pharmaceutical industry. In November 2003, after an epic battle, the Bush administration and its allies secured a narrow victory in Congress and created a universal drug entitlement with the passage of the Medicare Modernization Act of 2003. As a new, unfunded entitlement expansion, the bill was a serious defeat for conservatives. As The Heritage Foundation had predicted, the drug entitlement added trillions to the unfunded liability of the Medicare program. And the promising Medicare premium support initiative was reduced to a mere demonstration program that was later abolished with the passage of ObamaCare in 2010.

There were also a couple of silver linings, however. First, the Medicare prescription drug bill incorporated Health Savings Accounts (HSA) in conjunction with high-deductible health insurance. This was a genuine improvement over the limited medical savings account program. HSA plans have since multiplied and have become a powerful force for consumer choice in health care. Second, the Medicare drug benefit was to be delivered through a system of competing private plans (Medicare Part D), resulting in an intensity of competition and choice unprecedented in America’s health care economy. Competition not only stabilized premiums, but also drove down program costs from original estimates.

The last big battle of the Bush administration was the reauthorization of the State Children’s Health Insurance Program. Conservatives in Congress and elsewhere seized upon the SCHIP reauthorization as another opportunity to articulate patient-centered, market-based policies for children and their families. For liberals, the debate was the occasion to press for a $60 billion expansion of the program. In 2007, the battle ended in a draw. Conservatives were not successful in transforming the program into a competitive model, nor were liberals able to secure the expansion they wanted. For the liberals, however, the setback was only temporary.

ObamaCare and Beyond

The debate over health care in the 2008 presidential campaign reflected the long history of health care  reform. Republican presidential candidate John McCain authored a comprehensive, conservative health care reform plan, firmly grounded in patient choice, that would have greatly increased health insurance coverage, ended the distortions in the tax code and the health insurance markets, and employed the power of competition to control costs. Democratic presidential candidate Barack Obama authored a comprehensive health care reform plan firmly grounded in government control and decision making.

After defeating Sen. John McCain (R-Ariz.) for the nation’s highest office, one of President Obama’s first initiatives was an expansion of SCHIP, which was vetoed twice before by President George W. Bush. Then, with overwhelming Democratic majorities in the House and Senate, he concentrated his efforts on the main event: the bitter, dramatic, and divisive debate over national health care reform. Republicans launched an aggressive agenda offering dozens of amendments at committee mark-ups but were rejected by Democratic majorities, in most cases on straight party line votes. On the eve of the special election of Sen. Scott Brown (R-Mass.), the Democratic leaders pushed through a hastily written version of ObamaCare which ended the debate. On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (ObamaCare) into law.

The debate over health care took place against a background of unprecedented federal spending and soaring deficits, and the administration suffered a serious political defeat in the 2010 mid-term congressional elections. And while the President secured re-election in the 2012 presidential campaign, his victory did not translate into an endorsement of ObamaCare.

The next phase of the national health care debate is already well underway, with alternative health reform bills offered by Senators Tom Coburn (R-Okla.), Richard Burr (R-N.C.), and Orrin Hatch (R-Utah), as well as Representatives Tom Price (R-Mich.), Steve Scalise (R-La.), and Phil Roe (R-Tenn.), to name just a few.

The failures of ObamaCare, superficial and substantive, are reminders of a few primary lessons:

• First, the fundamentals of ObamaCare are the problem and therefore full repeal is the clearest option.

• Second, overhauling nearly one-fifth of the economy on one proposal does have consequences and is disruptive. Congress would be wise to advance solutions in an incremental fashion with the ability to adapt along the way.

• Third, government promises more than it can deliver and delivers it less effectively than the private sector. Therefore, efforts for reform should embrace the market while giving consumers control of health care dollars so that they can hold providers and insurers accountable.

Conservative Opportunity

Conservatives have long argued that choice and competition are the path to health care reform. Now we have the opportunity—and the duty—to lead. When the time arrives, as it surely will, we will need to have coalesced around these core ideas that have been developed over decades. We should be ready and able to present the American people with health reform legislation that is competently crafted, meaning it will be free of the glitches and technical deficiencies that often undercut health reform proposals. It must also be consequential, meaning that its enactment will materially improve the lives of millions of Americans by broadening access to health insurance and quality care while controlling costs through the power of the free market. And most importantly, it must be principled, meaning that it is crafted to expand personal liberty and revitalize civil society, giving individuals and families direct control over their health care dollars and decisions. The opportunity is here for conservatives to usher in a renaissance in American health care.

Ms. Owcharenko is the Director of the Center for Health Policy Studies and the Preston A. Wells, Jr. Fellow at The Heritage Foundation. Dr. Moffit is a Senior Fellow in the Center for Health Policy Studies at The Heritage Foundation.


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