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A working prototype for health-care reform.

When Congress receives the Clinton administration's health-care plan, it should ask: Is it really necessary to reinvent the wheel?

All of the reform plans offered to Congress over the past few years have had the same objectives: to rein in runaway medical spending; to enable workers to keep their coverage even when they lose or change jobs; and to provide medical coverage to the estimated 35 million to 37 million uninsured Americans.

The trouble is, most of the proposed cures have toxic side effects. The so-called "play-or-pay" plan, championed in the previous Congress by the Senate majority leader, would have imposed costly new mandates on business, ultimately destroying jobs, while doing nothing to attack the underlying incentives that drive medical costs higher. The Canadian "single-payer" model would have necessitated price controls and rationing. And by the White House's own admission, the hybrid "managed competition" model proposed by President Clinton during his campaign for the Oval Office will be impossible to implement without substantially increasing the federal deficit, raising taxes, or imposing sharp price controls on medical services.

In the meantime, while members of Hillary Clinton's Task Force on National Health-Care Reform have been trying to find a solution that works, they may have overlooked the obvious: their own health-care plan--the Federal Employees Health Benefits (FEHB) Program.

As every executive knows, long before a new product is brought to market, you must create a prototype and test it. The health-care reform plan expected to emerge from the White House will be the equivalent of a draftsman's model: an untested conceptual blueprint. FEHB, on the other hand, has been around for 33 years and provides coverage for more than 9 million federal employees, both active and retired, plus their dependents--or nearly 1 of every 25 Americans.

Instead of offering just one health-care plan to employees, as most businesses do, the government's program allows each federal employee or postal worker to choose from dozens of different health-care options. Nationally, federal employees have some 400 plans from which to choose--from traditional, large carriers such as Blue Cross Blue Shield, to more than 310 managed-care plans, such as Kaiser-Permanente. The organizations offering the plans compete for customers. By carefully shopping and comparing price and value, federal employees can choose the plan best suited to their needs.

As we all know, the forces at work under FEHB--consumer choice and market competition--are the economic forces that hold down prices. According to the federal Office of Personnel Management, which oversees the program, costs increased just 7.4 percent under FEHB in 1992, compared with a 12.5 percent increase for other employer-based plans, and a 12.1 percent increase in health-care spending overall.

This performance is even more remarkable when you consider that the federal employee system covers far more retirees and their dependents than most private-sector company plans.

The message for the White House and Congress should be clear: Viewing FEHB as our working, tested prototype, if we could create a national health-care system similarly based on consumer choice and market competition, our problems probably would be solved.

Indeed, when America's leading health-care econometrics firm, Lewin/ICF, last year examined The Heritage Foundation's reform plan--appropriately called the Heritage Consumer Choice Health Plan--it found that every American could be covered by a basic plan without adding a penny to the federal deficit and without the government rationing care. In the first year alone, Lewin/ICF projected, total U.S. health-care costs probably would fall by $11 billion--reversing years of double-digit increases.

Under the Heritage proposal, which was first introduced in 1989, health-care benefits no longer would depend on people's place of employment. The current multibillion dollar employee tax break, or "tax exclusion"--now available only for company-provided health plans--would be replaced by tax credits given directly to individuals and families to help them buy their own health insurance and to cover out-of-pocket medical costs. (The tax credit would be "refundable," meaning that the working poor would, in effect, receive vouchers to help them pay for medical benefits.) When the Lewin/ICF numbers were run last year, the federal tax exclusion alone was worth $66.6 billion in 1991 dollars.

Under the Heritage Consumer Choice Health Plan, every American family would be required to purchase a basic health-insurance package. The size of a family's tax credit would depend on its health-care costs compared to its income. This way, everyone could buy their own coverage, as members of Congress and federal employees do. And there would be an incentive to become a smart shopper.

While the FEHB-like plan was not designed specifically with corporations in mind, the advantage of such an approach should be obvious. American companies have been staggered by years of double-digit increases in employee health-care coverage. AT&T, for example, pays a reported $3 million per day for employee health benefits. And when you buy a new car from a U.S. automaker, some $700 to $1,000 of the sticker price can be attributed to the company's health-care costs.

It's time to ask the obvious: If the new administration and Congress are serious about controlling medical costs and providing health-care coverage to the uninsured and unemployed, why not use FEHB as the model?

The Heritage Consumer Choice Health Plan would give all Americans--not just the privileged who work for Uncle Sam--the opportunity to choose how much and what kind of health-care coverage they need. Why not implement such a plan?

Well, for one thing, many of FEHB's most satisfied customers don't believe the rest of us are as smart as they are, and they don't have much confidence in our ability to make informed decisions on our own health-care needs.

But the federal system itself is proof that this isn't so. Most of the people covered by FEHB are not medical experts, nor do they understand all of the small print in insurance policies or possess Ph.D.s.

Yet, every year during "open season"--a year-end period when federal employees "shop" for health benefits--both cabinet secretaries and the people who sweep their floors all manage to make cost-effective decisions.

FEHB customers don't have to guess what the competing plans offer. They are given lots of help--both in the form of advertising from health-care providers eager for their business and expert advice on the "best buys" for people in specific circumstances--singles, families, retirees, and so forth.

Americans are intelligent enough to figure out what kind of health benefits they need. Let's hope the White House and Congress are smart enough to realize they can't reduce the deficit, provide health coverage for all Americans, and keep the U.S. from spending a projected total of nearly $940 billion on health care this year--up from $838.5 billion last year--without a fundamental change in the way health care is financed in America.

President Clinton says he's for change. That's good. But greater federal control of the health-care industry would not be change for the better.

Change for the better means freeing Americans from the current employer-based system and encouraging them to make informed choices within a competitive health-care market. If a health-care system based on choice and competition is good for the president and Congress, shouldn't it be good enough for the rest of us?

Edwin J. Feulner, Ph.D., is president of The Heritage Foundation, a Washington, D.C.-based public policy research institution. He also serves on the boards of several other foundations and research institutes. Dr. Feulner is the author of "Conservatives Stalk the House."
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Title Annotation:Above the Beltway
Author:Feulner, Edwin J.
Publication:Chief Executive (U.S.)
Date:Apr 1, 1993
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