Healthy Choice

Despite much rhetoric about America's health-care system, a recession-restricted Congress probably won't undertake any expensive reforms soon. (See "Political Prescriptions," March.) A new organization of insurance companies and health-care consultants hopes the lull will give it time to propose its own market-oriented plan.

Based in Alexandria, Virginia, the Council for Affordable Health Insurance believes that encouraging people to purchase insurance when they're healthy will bring rates down. It also argues that if consumers have incentives to shop around for routine, nonemergency care, the costs of such procedures will fall too.

Greg Scandlen, the council's executive director, notes that perverse incentives drive health-care costs up. Consider a person whose health-insurance policy covers 100 percent of his medical expenses. When he goes for a physical examination, the doctor may charge the insurer $50. As much as half of that fee is eaten up by the paperwork needed to file the claim, says Scandlen, so the patient really gets only $25 of health care.

By contrast, if the patient had to pay for the physical with his own money, he would probably try to find a doctor to perform the examination for less than $50. Scandlen says entrepreneurial physicians would accommodate him.

Coverage that requires little or no contribution from policyholders, and therefore gives them little or no incentive to shop around, usually comes from employers. The cost of such coverage is tax-deductible for businesses and tax-free for employees. When individuals purchase their own insurance, on the other hand, they still have to pay taxes on the money they use.

The council would eliminate this artificial incentive for employer-provided health insurance. It argues that if the tax code treated health-care spending by individuals and businesses identically, workers would rather receive the money their employers currently spend on health-insurance premiums in cash. Then any money they could save by economizing on coverage would be theirs to keep.

As an extra incentive for individuals to purchase insurance, the council backs tax-deferred individual medical accounts (IMAs), analogous to individual retirement accounts. An IMA holder could add as much as $3,000 a year to the account and use the money, tax-free, to purchase any medical care, including insurance. Poor people would receive taxpayer-supported medical vouchers, which Scandlen hopes would eventually replace Medicaid.

The council supports an IMA proposal sponsored by Sen. Dan Coats (R–Ind.). Eventually, Scandlen says, the group hopes to draft a model bill outlining its entire program.