Heritage Foundation Wrong on Healthcare...Again

On 12/02/08, the Heritage Foundation released a document entitled, “Ensuring Access to Affordable Health Insurance—A Memo to President-Elect Obama,” written by Stuart Butler and Nina Owcharenko. It’s a serious document, and one which Heritage hopes will serve as a keynote for conservative action on health care reform over the next four years.  Let’s take a look at what they have to say.

Heritage has a history of getting health care wrong.  In 1994, they got Senator Don Nickles (R-OK) to sponsor a plan which was opposed by virtually every conservative organization.  In 2007, they backed a plan which would result in a net income tax increase.  Heritage is like the red kryptonite on “Superman” or the box of chocolates in “Forrest Gump”—you never know what you’re going to get, but there’s a high probability of something going wrong.

The Good: Heritage opposes a “public plan” designed by the government, and toward which all incentives would over time direct.  This is rightly regarded as socialized medicine through the back door.  Heritage also calls for auto-enrollment in health insurance plans, for similar reasons that conservatives have called for auto-enrollment in 401(k) plans.  Finally, Heritage opposes a “Federal Health Board” (endorsed by HHS Secretary-designee and former South Dakota Senator Tom Daschle) which would become the politburo for American health care.

The Not-So-Good: The Heritage outline calls for a reform of the tax treatment of health insurance.  The problem here isn’t that this is wrong, or a bad idea—the problem is that every single proposal (with the notable exception of President Bush’s “standard deduction” concept) to reform the tax treatment of health insurance has had the result of raising net income taxes.  This is because 40% of households don’t have an income tax liability, and 10-15% of households don’t even owe payroll taxes.  In order to get resources to these families, taxes are raised higher up the income ladder.  In the aggregate, the refundable credits that do this wealth redistribution tends to raise overall net income taxes.  This is a violation of the Taxpayer Protection Pledge which virtually every House and Senate Republican has signed.

The Heritage plan also calls for health plan portability, which is a great idea.  However, it would create a new tax preference for health insurance obtained through an “exchange” (formerly known as a “connector,” and last seen failing miserably in Massachusetts).  For a couple of decades now, Heritage has had a fetish for these “exchanges.”  After the failed field test in Massachusetts, this infatuation should end.

Finally, Heritage calls for letting the states be the laboratories of health insurance reform.  States could apply for waivers of laws and regulations in order to experiment on new and innovative health insurance reforms.  This harkens back to the successful state experiments in welfare reform in the early 1990s, and is a good idea.  The fly in the ointment is that the federal government would set the “broad goals” of the health system.  This risks letting the Left rig the game and prevent the states from doing what they need to.  If you tell someone to bake any pie they want to, but they must use pumpkin, you’re pretty much guaranteeing a pumpkin pie outcome.

The Ugly: There are two really ugly parts of the Heritage outline—bipartisanship and the Federal Employee Health Benefits Plan (FEHBP).  Let’s take each separately.

When it comes to conservatives and health care, bipartisanship is to be avoided at all costs.  Republicans don’t know health care.  Those that think they do usually know just enough to get snookered by the likes of Ron Wyden and Max Baucus.  There’s not a health care bill that would pass out of this Congress and be signed by this President-elect which would not be a complete disaster for free markets and liberty.  In that environment, it’s incumbent on the Republican opposition to do just that—oppose.  Calling for Republican fingerprints on an Obama-Daschle-Wyden health care bill is dangerously-naïve.

Also, like the “exchange/connector,” Heritage has long had a thing for the FEHBP.  This is the menu of health insurance options that 1.8 million federal employees and their families choose from once a year.  Heritage has (several times) in the past called for using the FEHBP as a model.  Here, they reinforce that.  The only problem is that the FEHBP stinks.

You can find the range of plans on OPM.gov.  In the District of Columbia, family plans range in price from $7044 for Aetna’s HSA option to $15,249 for Aetna’s “High” option.  On average, family plans cost $10,516.  That’s right in line with the national average of $11,000 per family, and is overly-skewed by the number of high-deductible, low-premium plans available.  In an Obama-Wyden-Daschle regime, these HSA-compatible plans would almost certainly go away.  Furthermore, most people would probably sign up for something like the Carefirst option, which has a price tag of $12,150 and is 63% more expensive than it was in 2002.

The FEHBP, in short, is one of the most expensive health insurance plans in the country.  It has “guaranteed issue,” which means a healthy person could wait until they get sick or pregnant to sign up.  It has “community rating,” which means that the plans must charge a chain smoking obese man the same premium as a marathon-running vegetarian woman.  “Children” are covered until age 22.  The benefits package must be “comprehensive.”  In short, it’s some of the most gold-plated health insurance available.

The FEHB is the exact opposite of where conservatives should be going on health care reform.  Conservatives should not be for this at all.  We—and Heritage—should instead argue in favor of consumer-driven health care that gives patients and doctors power, not governments and insurance companies.  Health insurance should be like car insurance—used only in emergencies.  All other times, patients should pay for routine care in a free market with price competition.

The above post was authored by Americans for Tax Reform (ATR) Tax Policy Director Ryan Ellis. Ryan can be reached at [email protected]