Health Reform in One Lesson

I’ve been following the national health care reform debate for 20 years, and you know what? It turns out to be very simple. Cut through all the bureaucratic jargon and mind-numbing acronyms, and there are only two basic ideas in health policy: HMOs and HSAs. That’s it.

If you understand the essential difference between an HMO (health maintenance organization) and an HSA (health savings account), you will have acquired the only tool you really need to navigate the entire, complicated health policy debate and see through all the blah-blah of the so-called experts. It’s a lesson so simple that housewives, janitors, and even many college professors can understand it.

Here, then, is health reform in one lesson: “All health care reform proposals boil down to either HMOs or HSAs.”

What’s an HMO?

An HMO is a health insurance arrangement that charges you a flat monthly fee, in exchange for a promise to keep you as healthy as it can. The essence of the HMO is the assumption that a health insurance company can manage your health care better than you can. 

HMOs save money, at the cost of patients. They ration care. They deny access to certain treatments deemed too “costly” by insurance-company bureaucrats or — if the HMO is regulated by the government — by government bureaucrats. 

HMOs first appeared in the mid-twentieth century, as an attempt by employers to get control of their workers’ health costs. Then, in 1973, President Richard Nixon joined forces with ultra-progressive Massachusetts Senator Ted Kennedy to give federal subsidies and legal protections to HMOs. Within 15 years, HMOs had become the dominant model for providing health insurance in the U.S.

The political Left and most Beltway Democrats love HMOs because they’re a great tool for centralizing power in the government, and thus for enhancing the power of the Party of Government. (Well, I use the word “love” here somewhat equivocally, for reasons that will become apparent.) 

What’s an HSA?

An HSA is a special savings account that enables you to pay for your medical expenses with tax-advantaged dollars. HSAs are based on the opposite assumption from that of HMOs. HSAs assume that individuals, spending their own money, can manage their own health care better than anyone else can. 

All human experience has shown that people spend their own money more wisely than they spend other people’s. The HSA concept rests on that simple, solid truth of human nature. The Left and most Beltway Democrats hate HSAs because they de-centralize power and expand individual liberty. HSAs promote patient-centered rather than government-centered care.

HSAs save money, to the BENEFIT of patients. By becoming better shoppers, comparing prices and seeking out useful information, patients with HSAs make the whole system more efficient. HSAs drive waste out of the system.

In respecting our freedom and ensuring there’s more health care to go around for everyone, HSAs represent the truly compassionate approach.

HSAs were first created in 2004, and today more than 13 million Americans have one. The positive effects of more patients shopping more wisely for care is beginning to be felt in the National Health Expenditure statistics, which show a measurable slowing of medical inflation. Most health policy experts agree that at least part of this improvement is due to a noticeable increase in “consumer-driven” behavior associated with HSAs.

If everyone had an HSA, would we still need health insurance? Yes. We would still need insurance to help us pay for the costs we can’t cover through our own resources. Some health care therapies are very, very expensive. Most of us will never be rich enough to pay for such therapies entirely out of our own savings.

So health insurance companies are a necessary evil. But how involved should they be in trying to manage our health care? As little as possible!  In my own opinion, we should keep insurance companies as far away from the doctor’s office and the surgical suite as we can. The best way to do that is to minimize the roll of insurance in paying for health care. 

Pro Tip: Never, if at all possible, let a bureaucrat get between you and your health care.

The key is freedom. People should be left free to make their own arrangements. They should be free to enroll in HMOs, if they want. They should also be free not to enroll in them, if they want, or to disenroll from them. The same principle applies to government-run programs like Medicare and ObamaCare. We should should be free to enroll, not enroll, or dis-enroll from these government programs, as we please. Anything short of that isn’t freedom — and isn’t compassionate.

The HMO-ification of America

For decades, thanks to government policy, health care costs have been rising more rapidly than general inflation.  In the 1980s, to save money, employers began shifting their their workers into HMOs en masse, in hopes the rationing would spare the bottom line. Patients understandably rebelled. In the ’90s, the pendulum swung back, but only partway. There was a big movement of workers into PPOs (preferred provider organizations). PPOs can be viewed as “soft HMOs,” HMOs that don’t try to manage very aggressively, they just pay your medical bills.

Meantime, during the twentieth century, most countries moved to some form of national health insurance, which is really just the HMO concept writ large. National health insurance (aka socialized medicine) rations care, just like our homegrown American HMOs, except there’s not even a pretense of choice or competition. It’s all one big HMO.

This is what I mean when I say the Left “loves” HMOs. What they really love is the idea of putting us all into “one big HMO.” But if, to get there, we must first pass through a temporary stage in which a number of HMOs compete with one another, under government rules, then they are fine with that.

Armey’s Axiom: ”The liberals don’t care what we do, as long as it’s mandatory.”

American progressives have been trying to establish national health insurance in this country for a century. FDR pushed for it in the 1930s, unsuccessfully, as did Harry Truman in the ’40s. JFK and LBJ pushed for it in the 1960s — and got part of the way there, with Medicare, which functions, in its own way, like a big HMO. They also enacted Medicaid, which has been evolving in that direction. Then, in the 1990s, Bill Clinton tried to put us all into HMOs via HillaryCare — and, quite famously, failed. Come 2007, RomneyCare (reviving the Heritage Foundation’s counter plan to HillaryCare) effectively “HMO-ified” Massachusetts. And now ObamaCare, enacted in 2010, will HMO-ify all of America, if we fail to repeal it.

Back in the ’60s and ’70s, in the wake of Medicare’s creation, the Left looked to the Kennedy-Nixon HMO legislation as the next stepping-stone to their ultimate goal of national health insurance. But when patients rebelled against HMOs in the ’80s, the Left blamed the evil profit motive and turned against them, touting instead “managed competition.” Ever since, the Left has been touting “managed competition,” and so have some on the Right. HillaryCare, the Heritage Foundation plan, Medicare Part D, RomneyCare, and ObamaCare are all specimens of this concept.

And what does “managed competition” manage, exactly? You got it. HMOs.

Among the many interesting things tucked away in ObamaCare’s 2,801 soul-killing pages is a set of provisions promoting something called Accountable Care Organizations, or ACOs. Folks on the Left are now touting these as a great new idea that will at long last drive the evil profit motive out of health care and create the necessary conditions for achieving the single-payer dream.

Guess what an ACO is, at bottom? You got it. An HMO.

How to Reverse the HMO-ification of America

The only sure way to reverse the HMO-ification of America is to encourage personal saving for health care (as through HSAs) and more reliance on high deductibles. (The “deductible” is the part of your health insurance coverage that you pay for, out of pocket, before your insurance kicks in.) 

Unfortunately, ObamaCare will effectively ABOLISH high-deductible health insurance and Health Savings Accounts (HSAs).

Therefore, the first step to a patient-centered health care system must be to repeal ObamaCare. Then, we must wean people — gently, voluntarily — off of low-deductible health insurance, while encouraging and enabling them to save for their own health care expenses.

In doing this, we need to address the root cause of today’s health care financing problems: the U.S. tax code. The tax code includes a massive, largely invisible subsidy for employer-sponsored group health benefits. This subsidy, known to policy wonks as Section 106, is why America has the world’s only employer-based health benefits system. Half the U.S. population obtains its health coverage from the workplace as a result of Section 106.

But that tax code subsidy is also the culprit behind today’s rapidly rising medical costs, high number of uninsured people, and folks finding themselves unable to obtain affordable insurance due to preexisting medical conditions. The tax code encourages OVER-insurance and low-deductibles. People have stopped paying attention to the costs of health care, because they don’t have to.

“I don’t need to know the cost, doctor. My insurance will cover it.”

So the answer to our health care woes, in my view, is:

1) Make the tax playing field more level.

This means level between group and individual health insurance, and also between insurance and out-of-pocket spending.

This idea is sometimes called “tax equity.” There are a number of ways to approach it. Speaking for myself, I’d achieve it by EITHER: a) abolishing the income tax; b) replacing the income tax with a true Flat Tax; or c) making medical expenses 100% deductible. 

2) Make HSAs more generous (i.e., encourage personal saving for medical expenses by letting people contribute more to their HSAs, and letting people spend the money on any legitimate medical expense, including insurance premiums).

3) Let Medicare seniors have HSAs.

4) Let Medicare seniors opt out of Medicare, either entirely or on a service-by-service basis. (In order to subject that big HMO to competition.) 

There are two ways to make Medicare voluntary and subject it to competition: 1) Let seniors disenroll, WITHOUT losing their Social Security. (I would not, however, let them recoup their lifetime’s worth of FICA tax payments, since those “contributions” have no actual connection to the amount of benefits received.)  2) Allow doctors to charge market rates for medical goods and services, and allow seniors to voluntarily pay out pocket for them, regardless of Medicare’s price controls.

It Really Is That Simple

So now you know the secret of health policy. Everything boils down to HMOs versus HSAs. One of these two approaches — HSAs — promotes lower costs and better health outcomes by expanding personal freedom. The other — HMOs — does the opposite.

And that’s “health reform in one lesson.”

Dean Clancy is FreedomWorks’ Legislative Counsel and Vice President, Health Care Policy. He leads our efforts to reverse the government health care takeover and build a patient-centered system.