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. It should be no 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. In their efforts to expand access, however, 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 among providers and insurers as ways to expand access and lower costs.

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. This is also a problem with government health programs such as Medicare (for seniors), Medicaid (for the poor), and North Carolina Health Choice (for children). As a result, governments at all levels are looking for ways to push the cost someplace else.

Government regulations such as certificate of need 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 inefficient employer subsidies for insurance over individual purchases, mandate benefits, and prohibit insurance sales across state lines. These 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 not just insured but insulated against medical costs, 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 has tried, will not work. Instead of getting people to purchase insurance, the state merely encouraged them to take free coverage through the state, driving costs to $78 million instead of a forecast $21 million. The policy board overseeing the Massachusetts Connector decided not to fine individuals without insurance because, without deregulation of insurance benefits, policies are still too expensive for lower-income individuals to afford.

In 1995, the N.C. General Assembly moved toward market-based reform by rolling back some insurance regulations, passing a limited tort reform bill, and endorsing the concept of medical savings accounts (MSAs), which paved the way for health savings accounts (HSAs). A good way to ease the tort system's burdens and provide relief to patients who have been harmed is with waivers of liability as proposed by David Hyman at the University of Illinois.

In 1998, the legislature passed limited tax credits for child health care insurance purchased directly by parents and for long-term care insurance, though unfortunately a subsequent legislature eliminated both as part of a tax-increase package passed in 2001. The long-term care tax credit was revived in 2007. Broad tax credits to offset the tax penalty for individuals whose employers do not provide health insurance would be a welcome next step.

Also in 2007, the legislature passed legislation to create a high-risk pool for those with conditions that might otherwise make them too expensive to insure. Legislators used money from the tobacco settlement-created Health and Wellness Trust Fund to pay for the pool instead of new taxes or fees. As important, the law included a health savings account option for those in the pool. This could provide some impetus to incorporate health savings accounts more broadly, including incorporating into the state health plan.

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, were created as part of the 2003 Medicare Modernization Act.

Already more than 6.1 million people, including 128,000 in North Carolina, 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.

Recommendations

1. The goal of health reform should be to provide greater access to quality care, not to enroll more people in health insurance schemes. State lawmakers should reinstate and expand the tax credit for child health insurance by giving a refundable credit of $250 per person, up to $1,000 per family. 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. The state should also reduce licensing restrictions on non-physician providers.

3. Lawmakers should enact changes in the tort system — such as a waiver of liability — to reduce medical-malpractice costs and improve the ability of harmed patients to receive just compensation.