The First Rule of Health Care Reform: Do No Harm

Ronald Reagan famously said, "The government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."

If he were watching Washington today, Reagan might add, "Once government subsidizes it to near death, nationalize it."

Since 1960, privately funded health care has been regulated, mandated, subsidized, and lawyer-ized. Now Washington is talking about subsidizing it to near death so that government can take it over.

Regardless of intention, government involvement in the economy has always led to higher costs, lower quality products, and lower economic activity.

Respondents to a recent CNN poll said that while 70 percent are satisfied with their current health care arrangements, 55 percent think the U.S. health care system needs a great deal of reform.

Consumers are receiving quality medical care at little direct cost to themselves. This creates runaway costs that need to be addressed. Health care costs have been rising faster than the economy since government became involved in health care delivery. However, ill-advised reforms can make things much worse.

The proposals moving through Washington fail to address the fundamental driver of health care costs: the health care wedge. The health care wedge is an economic term that reflects the separation between what health care costs the provider and what a patient directly pays.

Thus, health care reform should be based on policies that diminish the health care wedge rather than increase it. President Obama's reform principles -- a public health insurance option, mandated minimum coverage, mandated coverage of pre-existing conditions, and required purchase of health insurance -- only increase the size of the wedge and, thus, health care costs.

This type of health reform further desensitizes health care consumers, does nothing to address the issues of defensive medicine, and increases cost pressures on the market. Ultimately, this reform platform can only control costs by imposing quantity constraints -- in other words, rationing.

According to research I performed for the Virginia Institute of Public Policy, a $1 trillion increase in federal government health subsidies will accelerate health care inflation more than 5 percent, weaken the economy another 5 percent, and add $285 billion to the federal deficit and $2 billion to the Virginia state budget deficit. Despite these costs, millions of people will remain uninsured, while others will lose their current plans -- and even their jobs -- to pay for the subsidies.

All told, the present value of the government costs of these reforms (on top of the current costs) is another $4,176 per person in Virginia today.

Rather than expanding the role of government in the health care market, Congress should implement a patient-centered approach to health care reform. A patient-centered approach focuses on the patient-doctor relationship and empowers the patient and the doctor to make effective and economical health policy choices.

A patient-centered health care reform begins with individual ownership of insurance policies, and leverages Health Savings Accounts (HSAs). It allows people to purchase insurance policies across state lines and reduces the number of mandated benefits insurers are required to cover. It reallocates the majority of Medicaid spending into simple vouchers for low-income individuals to purchase their own insurance. It also reduces the cost of medical procedures by reforming tort liability laws and eliminating unnecessary scope-of-practice laws so that non-physician health care professionals can practice to the extent of their education and training.

By empowering patients and doctors to manage health care decisions, a patient-centered health care reform directly addresses the distortions weakening our current health care system and will simultaneously control costs, increase health outcomes, and improve the overall efficiency of the health care system.

Donna Arduin is a partner with Arduin, Laffer & Moore Econometrics, and a senior fellow for health care studies at the Virginia Institute of Public Policy. To contact the institute, call (703) 753-5900 or go to http://www.VirginiaInstitute.org.