Health Care - and Less

THERE has been a great deal of speculation about the deliberations of Hillary Rodham Clinton's Task Force on Health Care. It is generally thought that the package to be unveiled in May will be a version of what is called "managed competition," an outline of which was included in "Mandate for Change," published by The Progressive Policy Institute (PPI). This volume received the seal of approval from President Clinton and its proposals offer more than a glimpse at the president's policy preferences.

Ironically, managed competition would eliminate nearly all real competition from health-insurance markets.

Imagine owning a business in an industry where the government requires everyone to purchase your product - pretty nice, right? Better still, imagine that potential competitors could only enter your market after meeting stringent requirements set by a team of government bureaucrats. In other words, you have very little to fear from up-start companies anxious to take away your customers.

Now, imagine what it would be like to be a consumer forced by the government to participate in this market. This would be health insurance under managed competition.

Managed competition would create a managed monopoly that, if attempted privately in another industry, would clearly violate antitrust laws.

At the center of managed competition would be a government-protected cartel in health insurance. A national health-care board would organize and enforce the cartel.

The board would decide which health-insurance plans could participate in the market, and officially sanctioned plans, called AHPs (Accountable Health Plans), would have all dimensions of their product defined by the governing body. As described by PPI's Jeremy Rosner, the board "... would define both the medical procedures covered and the financial parameters, such as deductibles, copayments, and annual caps on out-of-pocket costs."

In the name of universal coverage, all US citizens would be required to purchase, at a minimum, an AHP-provided plan. This transforms less-coercive concepts, such as the "right to health care" or "access to health coverage" into a mandate.

As part of this obligation Americans would be denied the right to choose from other plans or to choose no plan at all.

To compel the purchase of health insurance, the PPI plan proposes to enlist the most intimidating enforcer in Washington, the Internal Revenue Service (IRS). It notes that "to help achieve universal coverage, all taxpayers would be required to enclose a certificate as part of their federal income tax returns proving they had obtained coverage."

Furthermore, the tax code itself would be invoked to ensure that only cartel-member plans would be purchased by consumers. Under present law, employers can deduct all employer-paid health-care premiums for tax purposes. Most managed-competition plans propose to limit or eliminate this deduction.

Under PPI's plan, employers would be able to deduct only health-insurance costs associated with the purchase of board-approved plans. Expenditures for alternative plans or on coverage not mandated by the board would be nondeductible. The preferences of employees and employers would be ignored while a steady flow of business of members of the health-insurance cartel would be ensured.

Sound tax policy dictates that business expenses, i.e., payments for any factor of production, including labor, should be deductible for tax purposes. The costs of health-care plans are legitimate costs associated with workers' compensation packages and should be fully deductible by the employer.

Full deductibility of health-insurance expenses is also consistent with a free labor-management bargaining process, where compensation packages can be tailored to accommodate the needs of an individual work force.

To add insult to injury, most health-insurance consumers, forced to deal with a tightly organized cartel, will have their taxes increased for the privilege. Mr. Rosner states that managed competition, "... would make any employer contributions to an employee's health benefits ... taxable as income." This would push many, if not most workers, into higher tax brackets - effectively a tax rate increase.

These rate increases would be bad for the economy and regressive. For taxpayers pushed into higher brackets, all additional income would be exposed to higher rates of taxation with disincentive effects on work effort and savings. In turn, there would be a negative impact on economic growth.

Significantly, this tax change would have its greatest effect on those not already in the highest tax bracket, i.e., lower and middle income taxpayers.

More recently, as an alternative to changing the tax treatment of health-insurance benefits, the president has indicated he would consider higher excise taxes on cigarettes to defray new costs associated with his health-care package.

Oddly enough, the purpose of health-care reform is to reduce health-care costs. Given this, the president needs to explain why his proposal would result in a tax increase and not a tax cut.

"Managed competition" is an oxymoron. There is no competition in managed competition, but there would be plenty of bureaucratic management. The health-insurance market would be handed over to a tightly knit health-insurance cartel. Monopolization of an industry leads to inefficiencies and higher costs, yet managed competition is touted as the answer to cost control in health care.

The implications of Clinton's approach for individual freedom of choice are even more distressing. The preferences of health-care consumers would be driven out of the insurance market - replaced by the one-size-fits-all decisions of "enlightened" bureaucrats.