The Health Policy Consensus Group

The Health Policy Consensus Group is a task force of leading health care economists and health policy analysts, including researchers at the major market-oriented think tanks. The Consensus Group is working to increase public awareness that the tax treatment of employment-based health insurance underlies many of the problems facing the public health sector in the United States.

The incentive-based reforms the group proposes are intended to strengthen and rationalize the health care market. The Consensus Group believes that the competitive market is the most appropriate way to restrain costs and to give Americans more responsibility and opportunity to choose their health insurance and health care arrangements.

The group considers different approaches to reform and provides education on their benefits and disadvantages to help the public and policymakers understand the balances that must be struck in any reform effort. Members have been working together to provide policy advice since 1993. The group endorses basic principles but does not offer specific legislative proposals. The Galen Institute, a not-for-profit health and tax policy research organization, coordinates and facilitates the work of the Consensus Group.

The Consensus Group produced a statement entitled "A Vision for Consumer-Driven Health Care Reform." These ideas are based upon many meetings and exchanges of information by members of the Consensus Group, who are listed as signatories at the end of this booklet. The views expressed in this document reflect those of the individual signers and not necessarily their organizations. Grace-Marie Arnett, president of the Galen Institute, and John S. Hoff, health care attorney and Galen Institute trustee, were the principal writers for this vision statement.

Principles of Consumer-Driven Reform

The following are core principles to guide policy makers and the public in making key decisions about creating a true consumer-driven health care system.

Consumer choice: Individuals should have choices in the medical care and health coverage they obtain, whether they secure coverage as individuals or through their employers or other groups. Government policies should expand the opportunities for individual choice without dictating or distorting these choices.

Competition: Consumers of medical services will receive the best value when providers are competing to offer the best price, quality, and services. Therefore, the system should rely on market competition, not government regulation or price controls, to promote efficiency, quality, and value.

Fixed and limited incentives: Individuals and families with the same incomes should receive the same benefit when purchasing health insurance, regardless of their employment status or whether their employers offer health insurance. Individuals should not be able to increase their claim on taxpayer revenues by purchasing more health coverage.

Expanded access: In a market based upon consumer choice, a more attractive range of options for health coverage would be available to a wider range of people, including those presently without health insurance. Once the market is functioning more efficiently, it will be clearer whether further legislation is needed to enhance people’s ability to secure health coverage.

Responsible insurance: Health coverage should provide, at a minimum, protection against catastrophic loss -- namely, high cost, low probability medical events. The tax system has encouraged movement away from the basic principles of insurance, and, instead, health coverage has become a way to pre-pay routine medical bills. A first step toward reducing the number of Americans without health insurance is through insurance that provides access to medical care and protection against large expenses in the event of catastrophic medical events.
 
Responsible budgeting: Government incentives to help targeted populations obtain private health coverage should be explicit, on budget, and reviewable.

Public sector choice: Given the rapidly rising costs in federal health care programs, especially Medicare and Medicaid, the federal government should make full use of private sector competition to control costs by giving beneficiaries more options to participate in the private market.

Cost awareness: Programs that enhance individual purchasing power will be more efficient because costs will be more visible to consumers. Programs and plans that make payments directly to providers insulate consumers from costs, artificially increase demand, and distort the health care marketplace.

Full information: Employers who provide health insurance should periodically inform their employees how much of their compensation is being spent on health benefits and that this spending has reduced their cash wages by a commensurate amount.

Community versatility: The strength, diversity, and vitality of private-sector community organizations are an important resource in the health sector. Communities should experiment with public-private partnerships and other solutions for providing health care to low income citizens, utilizing local resources to solve unique community problems.

Group purchasing: Tax and regulatory barriers to creating competitive private health care purchasing groups should be eliminated. Barriers to the creation of innovative provider groups should also be eliminated.

Value: As a result of implementing these principles, consumers will obtain better value for their health care dollars. The price system will convey consumers’ needs and demands. Competition will facilitate more efficient use of technology and continued innovation in products and service delivery, and it will reduce waste and duplication.
 

Guidelines for a More Efficient and Equitable System to Help the Uninsured

The following guidelines will help lawmakers in policy decisions about reforming the tax treatment of employment-based health insurance to promote a more efficient market in the health sector.

1. Incentives for purchasing health insurance should be provided directly to individuals and families.
   
   
2. This assistance could be in the form of credits or other incentives to be used to purchase medical services or health coverage. Employer groups are efficient mechanisms for the pooling of risk, and some proposals would have employers offer plans on which the individual credit could be spent. However, the money also could be used to obtain coverage in a variety of other ways, either individually or through participation in groups, such as health plans sponsored by unions, trade or fraternal organizations, schools, or churches.
   
   
3. The incentive could take many forms: direct assistance which is administered through a stand-alone outlay program or as part of other incentive programs; in conjunction with the payroll tax; or, as now, via the income tax.
   
   
4. Health insurers and health plans should have the flexibility to offer rewards and incentives for healthy lifestyles.
   
   
5. Reform of the Medicare system should expand private-sector options for beneficiaries. Medicare benefits should be defined in terms of a risk-adjusted dollar amount, not in terms of an open entitlement to covered services.
   
   
6. Beneficiaries should be able to elect to participate in traditional Medicare or to privately purchase health coverage or medical services of their choice.
   
   
7. Medicaid beneficiaries should be incorporated into the private health care system envisioned by these principles. Beneficiaries also should be able to purchase health coverage through the private sector. Just as with Medicare, Medicaid benefits should be defined in terms of a dollar amount, not in terms of an open entitlement to covered services.