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Health and Human Services
Health Care Reform

Rapidly rising medical costs are making health care insurance more expensive and less available to individuals. Workers are less likely to find insurance through their employers, and those who receive coverage face higher premiums, copays, and deductibles. Little surprise, then, that health care is a top concern among voters nationally and in North Carolina.

Many proposed changes to the health care system focus on making health insurance more affordable for some groups. But in trying to expand access, these proposals often contribute to rapidly rising health care costs, which in turn limit access. Would-be reformers who simply want to expand access to Medicaid or mandate that people purchase insurance should focus on promoting competition, which will help control prices and thereby expenditures.

What Drives Health Costs?

Four factors are driving health care costs higher, two positive and two negative:

• Innovations. New pharmaceuticals, better diagnostic tools, and less-invasive forms of surgery often increase costs even as they improve health.
• Demographics. An aging, growing, and increasingly diverse population has more health care needs and those needs are more varied.
• Insurance. Most people with insurance have premiums subsidized by their employers for low-deductible policies that hide the true cost of care. When care is nearly free, people have little reason to limit how much they use.
• Government. The same problem affects government health programs such as Medicare (for seniors), Medicaid (for the poor), and North Carolina Health Choice (for children). So governments at all levels are looking for ways to push the cost someplace else (see chart, "Personal Health Care Spending: Direct Payment vs. Third-Party Payment").

Government regulations such as certificate-of-need laws limit the availability of doctors and medical facilities throughout the state and particularly in rural areas, restricting access and driving up prices where services are available. Other regulations privilege those inefficient employer subsidies for insurance over individual purchases, mandate benefits, and prohibit insurance sales across state lines. Those regulations increase the cost of health care and insurance by limiting the insurance individuals can choose. The result is one group of workers earning good wages at large companies who are overinsured and another group earning lower wages at small companies who are uninsured or underinsured. Those with insurance often face "job lock" and are stuck in the wrong job for fear of losing their insurance or having to pay the full premium on their own.

Letting Competition Work

Any reform needs to fix the entire market for health care and health insurance, rather than trying to expand insurance to uninsured subgroups. Simply mandating that all individuals have health insurance, as Massachusetts recently enacted, will not work. Auto insurance is a legal requirement in North Carolina, but despite the mandate, 21 percent of drivers are uninsured. This is 50 percent higher than the 14 percent of North Carolinians with no health insurance, even with no mandate. Despite this, there is no "car care crisis" (see chart, "Benefit Mandates on Health Insurance in Southern States").

In 1995, the General Assembly moved towards market-based reform by rolling back some insurance regulations, passing a limited tort-reform bill, and endorsing the concept of medical savings accounts (MSAs) to increase access, portability, and efficiency of medical coverage. In 1998, the legislature took a major step forward by passing a limited tax credit for child health care insurance purchased directly by parents, though unfortunately a subsequent legislature eliminated the credit as part of a tax-increase package passed in 2001. Finally, lawmakers engaged in serious debate about medical-malpractice reform in 2003 and 2004, but failed to pass legislation.

Malpractice reform was again before the General Assembly in the 2006 short session as one of the better proposals from the House Select Committee on Health Care. Other proposals included a high-risk pool for those with conditions that might otherwise make them too expensive to insure. Most ideas proposed for the private sector, such as the Massachusetts plan or Healthy New York, continue to rely upon the failed model of Medicaid or employers as insurance consumers.

The federal government, however, is making progress toward real reform. As part of the 2003 bill to provide drug coverage within Medicare, Congress created Health Savings Accounts (HSAs), which allow employers and employees to save pre-tax dollars for health needs and to earn tax-free returns on their unspent funds. Already over 3 million people have enrolled in HSA-eligible insurance plans with deductibles as low as $1,100 for an individual or $2,200 for a family. Companies that had not previously offered insurance have taken up HSAs, as have individuals who were uninsured. Rep. John Shadegg of Arizona has offered a bill to create a national market for insurance, thereby limiting states' ability to require long lists of mandated benefits that drive up premiums.

The N.C. State Employee Health Plan, which provides insurance for state employees and teachers, has added a PPO option with a separate rate for employees and their spouses to the traditional fee-for-service indemnity plan. The plan's executive administrator, George Stokes, has also begun discussing with the Office of State Personnel the logistics of providing an HSA option. As the private sector and the State Health Plan respond to the changes, state policymakers can take steps on their own to treat families fairly and encourage those who lack employer coverage to provide for their own needs without going on the public dole.

Recommendations

1. State lawmakers should reinstate and expand the tax credit for child health insurance by giving a refundable credit to families for all out-of-pocket health care expenses, including premiums, deductibles, copayments, and deposits into health savings accounts. The state's health plan for state employees and retirees should also include an HSA option to provide greater choice and help constrain the plan's exploding costs.
2. State policymakers should end certificate-of-need regulation and eliminate state benefit mandates on health insurance. They should also reduce licensing restrictions on non-physician providers and create a subsidized assigned-risk insurance pool to help those with preexisting conditions obtain coverage.
3. Lawmakers should enact changes in the tort system — such as a loser-pays rule for attorneys' fees and expert pretrial reviews — to reduce medical-malpractice costs without excluding patients from just compensation.

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