Obama is right up to a point. The status quo on health care is unacceptable. Too many people are without access to affordable coverage, and millions of people are uninsured through no fault of their own. We need change. But President Obama’s government answer is not the way to go. Capitalism has been the engine of prosperity for this country going back to its founding. As such, I am now proposing that Congress and the President consider the “Capitalist Manifesto for Healthcare Reform,” several specific, free-market fixes for the healthcare problem. The most critical aspect of reform, and the starting point, must be increased competition—something else President Obama claims to favor.
Putting You in Control: There’s a basic principle in economics that isn’t talked about all that much, but it stands true thanks to human nature: If someone else—a middleman—is putting up most of the cash for something people really want—or need—they’re going to get it more. You’re not worried about the cost—someone else is paying. This is exactly what happens with healthcare.
Government regulation and policies have essentially mandated a third party-based system that forces the consumer to work through health insurance companies, HMO's, employers and other middlemen that pay the supplier. 84% of all personal healthcare spending is made through private health insurance, the government or other private expenditures that are not directly from the patient.
Encouraging the third-party system are tax exemptions for employer-provided health insurance that the millions of self-employed and small business owners and workers who pay on their own do not receive. Own a big business? Congrats—you get a nice little tax exemption for healthcare! Run that mom-and-pop shop down the street, or your own home-based business? Tough. As Seinfeld’s Soup Nazi would put it, “No tax exclusion for you!”
These government incentives, policies and regulations put in place, in large part by the federal tax code, do nothing more than exacerbate the problem. Because of the third-party-payer system, health providers aren’t competing for individual consumers—they’re contending for large corporations like Target and Cisco. The problem here is that individuals are separated from the cost, driving up prices (premiums), and thus taking away decision-making authority of the patient.
Not a day goes by where we don't see commercials for Geico, AllState and other car insurance companies competing over who provides the best service at the lowest price—competition absent from healthcare because of the third-party system. To fix this, the government must equalize the healthcare tax exemption across the board so that everyone, not just middlemen and big business, will benefit from it. That means small businesses as well as individuals, all of whom will then be far more equipped to go out and find an affordable health insurance plan for themselves, their families, and their employees—plans that are right for them.
We should also examine the other policies and regulations that encourage the third-party system. As a result of both of these decisive actions, costs will go down. Making these adjustments to the current system would open up the market to increased competition by allowing consumers to shop around on their own, decreasing costs substantially while maintaining high quality.
Expand the Sphere of Competition: In his recent speech to Congress on healthcare, President Obama acknowledged the extensive concentration of business in the health insurance industry. As he pointed out, “75 percent of the insurance market is controlled by five or fewer companies. In Alabama, almost 90 percent is controlled by just one company.” While there are some issues with the calculation of these numbers, he is generally correct—the market is highly centralized and void of real competition. Another fundamental reason for this problem is again government-created: the inability to purchase health insurance plans across state lines.
Thanks to the 1945 McCarran-Ferguson Act, which granted states the ability to use licensing laws to prevent trade with insureres in other states, John in Colorado cannot purchase a plan from a company licensed in Arizona; instead, he must buy a plan from a firm in his state. Health insurance is largely regulated by the states, which require that any plan an individual insurance purchaser wishes to buy must comply with all of that state’s regulations. This advantages both insurers and regulators in maintaining psuedo-monolopolies in their respective states, in turn hurting consumers, who have few lower-cost options available to them.
Congress should do what it is granted by the Constitution and mandate that every state recognize insurance licenses of other states. According to the CATO Institute, “Letting individuals and employers purchase health insurance from out of state could reduce the number of uninsured Americans by as many as 17 million, or one-third of the most-cited estimate of the number of uninsured.” An individual state’s regulations, as CATO points out, need not be changed and can be enforced in the other states.
But what about states’ rights, you say? If ever there were an area where the feds can play a legitimate role, it’s this. The Commerce Clause in Article I, Section 8 of the Constitution explicitly grants Congress authority to regulate interstate commerce. What was one of the big reasons they did this? Because each state had its own tariffs between states under the Articles of Confederation—basically the same thing as these obstructionist regulations.
By asserting its rightful authority to break down barriers to insurance purchasing across state lines via repealing McCarran-Ferguson, Congress and the President will strike a considerable blow to insurance market concentration, truly boosting the “choice and competition” that Obama likes to talk up. If done alongside dismantling the third-party system, we will see costs begin to lower for everyone—all without a massive, trillion dollar government overhaul.
Jimmy Sengenberger is a sophomore and conservative student leader at Regis University. This is the first in a series of columns proposing specific, free-market alternatives for healthcare. The next will center on empowering the individual through Health Savings Accounts and prescription drug importation.