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+++++++++++++++++++++++++++++++++++++++++++++++++++++++
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Imprimis, On Line
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November, 1993
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IMPRIMIS (im-pri-mis), taking its name from the Latin
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term, "in the first place," is the publication of
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Hillsdale College. Executive Editor, Ronald L.
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Trowbridge; Managing Editor, Lissa Roche; Assistant,
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Patricia A. DuBois. Illustrations by Tom Curtis. The
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opinions expressed in IMPRIMIS may be, but are not
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necessarily, the views of Hillsdale College and its
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External Programs division. Copyright 1993. Permission
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to reprint in whole or part is hereby granted, provided
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a version of the following credit line is used:
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"Reprinted by permission from IMPRIMIS, the monthly
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journal of Hillsdale College." Subscription free upon
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request. ISSN 0277-8432. Circulation 480,000 worldwide,
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established 1972. IMPRIMIS trademark registered in U.S.
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Patent and Trade Office #1563325.
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---------------------------------------------
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"Health Care and a Free Society"
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by Matthew J. Glavin
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President, Georgia Public Policy Foundation
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---------------------------------------------
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Volume 22, Number 11
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Hillsdale College, Hillsdale, Michigan 49242
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November 1993
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---------------------------------------------
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Preview: In this month's Imprimis, public policy expert
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Matthew J. Glavin examines some of the issues involving
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the alleged "health care crisis." Most important, he
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warns that if we choose "managed competition" over
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genuine free market solutions, we will never be able to
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turn back--socialized health care will be here to stay.
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Mr. Glavin's remarks were delivered before a
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Shavano Institute for National Leadership audience in
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Atlanta last May.
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---------------------------------------------
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Health care reform is one of the most complex public
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policy issues to face this nation since the creation of
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the social welfare programs of the 1960s. And, like the
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welfare programs of the sixties, the decisions
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currently being discussed in Washington will affect not
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only health care for millions of individual Americans,
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but the very foundations upon which our free society
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was built.
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Our current health care system has been
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characterized as "in crisis." What we ought to remember
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is that it is the best in the world. However, there is
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no denying that there is room for improvement and that
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there are serious problems that must be addressed.
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After all, nationwide, health care costs Americans more
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than $2 billion per day. Health policy experts have
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considered a variety of reform proposals including the
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Canadian-style universal, single-payer program. We have
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studied the "play or pay" system which would have
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instituted employer mandates. We have tried tinkering
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with insurance laws to control costs or expand access.
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And we have even heard about, albeit fleetingly,
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market-based reforms based on competition and consumer
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choice. However, many of the proposed cures currently
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being debated are worse than the disease.
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The centerpiece of the Clinton health care
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proposal is "managed competition." Managed competition
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is being presented as a compromise that would
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supposedly preserve many free market aspects of health
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care, while making the market more accountable to
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government control. As envisioned under the Clinton
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proposal, managed competition would establish a system
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of collective purchasing agents on behalf of employers
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and individuals. All residents of a state would be
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enrolled in one of these purchasing cooperatives,
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either through their employer or individually. The
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purchasing cooperative would negotiate on behalf of its
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members with "Accountable Health Partnerships" (now
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known as insurance companies) for a benefits package.
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This "Uniform Effective Health Benefits" package would
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be established by the government as a minimum standard
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benefits requirement.
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Accountable Health Partnerships would be required
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to charge all citizens the same rate, regardless of age
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or lifestyle factors. You would be charged the same
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whether you were 65 years old, smoked three packs of
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cigarettes and drank a quart of whiskey a day, and
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weighed 275 pounds or whether you were 25 years old,
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exercised an hour a day, never smoked or drank, and
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were in perfect health. You would be charged the same
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whether you were monogamous and disease-free or whether
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you had AIDS as a result of drug use or promiscuity.
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You would not realize any financial benefit because of
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the lower or higher risk you represent, resulting from
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your personal decision as to your lifestyle.
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Managed competition also will severely limit
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consumer choice_choice of insurer, choice of benefits,
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and choice of physician. Because the Clinton proposal
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prevents insurers from competing on the basis of their
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ability to price and manage risk, most traditional
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insurers would be driven out of the market. The
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criteria established for Accountable Health
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Partnerships essentially limit the market to "the
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Blues"--Blue Cross and Blue Shield--and a handful of
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large HMOs. The insurance business, now among the top
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10 "industries" in the United States, will no longer
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exist as we know it. The economic impact of this alone
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will have a devastating effect on the American economy.
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As one noted economist has said, managed
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competition is not so much a coherent government plan
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as an oxymoron. It is possible to have either managed
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health care or to have open competition in health care
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services. It is not possible to have both
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simultaneously. As proposed, managed competition
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appears to offer a great deal of management and very
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little competition.
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Doctor-Patient Relationship
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While our economy may be able to survive the
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destruction of the insurance industry, an even more
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insidious problem lies ahead with managed competition.
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Managed competition holds the potential of severely
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disrupting the traditional doctor-patient relationship.
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Because everyone pays the same, regardless of current
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health status or lifestyle, managed competition changes
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the historical role of insurers from "financial
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intermediaries with expertise in underwriting risks" to
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"health care delivery systems" organizing, managing,
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and purchasing medical care.
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In short, the Clinton administration apparently
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believes that physicians should be responsible to
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insurers, rather than their patients. This means the
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patient's choice of a physician will be limited to give
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the insurer increased bargaining power with the doctor.
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It also means increasing insurer control over the
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physician's choice of treatment, so that insurers can
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"apply quality assurance or review appropriateness." As
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Swiss medical philosopher Ernest Truffer has noted, the
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increasing interjection of third parties between doctor
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and patient "amounts to a rejection of the medical
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ethic, which is to care for a patient according to the
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patient's specific medical requirements, in favor of a
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veterinary ethic, which consists of caring for the sick
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animal not in accordance with its specific medical
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needs, but according to the requirements of its master
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and owner, the person responsible for meeting any costs
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incurred." Are Americans willing to reject the medical
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ethic in our health care system in favor of a
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veterinary ethic?
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The Cost of National Health Care
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The cost of socializing American health care has been
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estimated to run from $100 to $300 billion. Even these
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estimates may be too low, but regardless of the final
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price tag, we would be buying surprisingly little
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health care. The one common characteristic of all
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socialized health care systems is a shortage of health
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care services. For example, in Great Britain, a country
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with a population of only 55 million, the waiting list
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for surgery is more than 800,000. In New Zealand, a
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country with a population of just 3 million, the
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surgery waiting list now exceeds 50,000. In Canada,
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citizens must wait nearly 10 months for hip replacement
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surgery, 2.5 months for a mammogram, and 5 months for a
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pap smear.
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What do these statistics mean in our everyday
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lives? In January 1990, two-year-old Joel Bondy needed
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urgent heart surgery. It was a serious operation, but
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one that was performed many times each day in hospitals
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across America. Unfortunately, Joel did not live in
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this country. He lived in Canada, where the country's
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socialized health care system has resulted in a severe
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shortage of cardiac care facilities. Canada has only 11
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open heart surgery facilities to serve the entire
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country. The United States, by contrast, has 793.
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As a result, Joel's surgery was repeatedly
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postponed as more critical cases preempted the
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available facilities. Alarmed at their son's
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deteriorating condition, Joel's parents arranged for
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him to obtain surgery in Detroit. Embarrassed by the
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media coverage of Joel's situation, Canadian
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authorities told the Bondys that if they would stay in
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Canada, Joel would be moved to the top of the list and
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surgery would be performed immediately. Joel was taken
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on a four-hour ambulance ride to a hospital equipped
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for the procedure, but there was no bed available. The
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family had to spend the night in a hotel. Joel Bondy
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died the next day.
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Sadly, while this is a true story, it is not the
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exception; it is the rule. Physicians in Canada report
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that, for heart surgery, you have a better chance of
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dying on the waiting list than you do of dying on the
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operating table.
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One basic question that has received very little
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attention throughout the recent debate is whether our
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government is even capable of providing quality health
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care at a reasonable price. For a preview of
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government-run health care programs, we need only look
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in our own backyard. Medicare and Medicaid are prime
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examples of health care delivered via bureaucracy. They
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are rife with mismanagement, fraud, and abuse. Will the
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federal government be able to control costs? History
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would suggest otherwise. Between 1987 and 1992, for
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example, total Medicaid expenditures rose at three
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times the rate of total national health expenditures.
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If government is not the solution to our health
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care "crisis," how do we solve its problems? How do we
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maintain quality in health care while assuring
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accessibility and affordability? The only reforms
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likely to have a significant impact are those that draw
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on the strength of the free market.
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Deregulate Health Care
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There should be a thorough examination of the extent to
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which well intended but mistaken federal and state
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government policies already are responsible for rising
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health costs and the unavailability of health care
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services. I believe that such an examination will prove
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that government can lower health care costs and expand
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health care access by taking immediate steps to
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deregulate the health care industry, including
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elimination of state mandated benefits, the repeal of
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state Certificate-of-Need programs, and the expansion
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of the scope of practice for non-physician health
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professionals.
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Restructure tax policy
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Current tax policy allows employers to purchase health
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insurance with pre-tax dollars while individuals pay
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with after-tax dollars. This difference in tax
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treatment creates a disparity that effectively doubles
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the cost of health insurance for people who must
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purchase their own.
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For example, the family of a self-employed person
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who earns $35,000 a year and pays federal, state, and
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Social Security taxes must earn more than $7,000 to buy
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a $4,000 health insurance policy. A person working for
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a small business that offers no health insurance would
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have to earn more than $8,000 to pay for a $4,000
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policy. Tax equalization would add a measure of
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fairness to current tax policies that penalize the
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self-employed, part-time workers and employees of small
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businesses, while subsidizing health care for the most
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affluent in our society.
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Establish Individual Medical Accounts
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Individual Medical Accounts (IMAs) are another key to
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controlling health care costs and strengthening the
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role of the individual as a health care consumer. An
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Individual Medical Account would work like this:
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Individuals would be exempt from taxes on money
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deposited in an IMA, in the same way they currently pay
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no taxes on deposits to Individual Retirement Accounts
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(IRAs). Money to pay medical expenses could be
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withdrawn without penalty.
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The current corporate insurance policy costs about
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$4,500 per year. With Individual Medical Accounts in
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place, employers could be expected to change the way
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they provide insurance. Once a year, a corporation (or
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an individual, if self-employed) would deposit $2,000
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into an employee's IMA. This money, and any interest
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accrued, would be exempt from taxes. The employer or
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individual would also purchase a catastrophic health
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insurance policy that would have a $2,000 deductible.
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The cost of the catastrophic policy would be about
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$1,800. The employer who previously provided a $4,500
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insurance policy would save $700 a year. Individuals
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could withdraw money from the IMA without penalty to
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pay medical expenses. Money left over at the end of the
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year would accumulate and belong to the individual.
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Only about 10 percent of families in this country
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spend more than $2,000 per year on health care. This
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means 90 percent of all doctor visits would require no
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paperwork for insurance because they would be paid
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directly by the consumer out of the IMA. This also
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would increase consumer responsibility because there
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would be an incentive to control costs; the consumer
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keeps what he doesn't spend.
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The use of deductibles in traditional insurance
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policies right now offers a perverse incentive,
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particularly for low-income workers. Low-income workers
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have little discretionary income, and as a result are
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often forced to forego preventive care or early
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intervention because they can't afford the deductible.
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Yet, once the deductible is met, they have no incentive
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to limit additional expenditures. With an IMA, the
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incentive is to spend wisely throughout the year.
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Individual Medical Accounts would also be
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completely portable. One of the most serious problems
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of our current medical system is that insurance is so
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closely linked with employment. Individuals who lose
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their jobs or change jobs often lose their health
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insurance as well. Of the estimated 37 million
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Americans uninsured at any given time, half are without
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insurance for four months or less, and only 15 percent
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are uninsured for more than two years, but it still
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leaves them vulnerable, if only for a short time. With
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an IMA, individuals would continue to have funds
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available to pay for health care during temporary
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interruptions in employment.
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Privatize Medicaid
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The current Medicaid system has been one of the
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greatest failures of American government. Costs are
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skyrocketing, patients are receiving second-rate care,
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and providers are being shortchanged. Actual
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expenditures for the Medicaid program in 1992 were
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$124.6 billion. This compares with just $52.1 billion
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in 1988, meaning expenditures have increased on average
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24.4 percent annually over the last four years. The
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states' share of this joint federal/state program is
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growing twice as fast as overall state spending. In
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1970, Medicaid consumed only four percent of all state
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spending. Today, the average state spends more than 14
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percent of its budget on Medicaid.
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As spending increases, states are cutting back on
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their payments to health care providers. Nearly all
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states reimburse at a rate well below the actual cost
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of procedures. The result is that fewer and fewer
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providers are willing to treat Medicaid patients. Those
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providers that do treat Medicaid patients often offset
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losses by passing along the costs to patients with
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private health insurance, a practice known as cost
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shifting. The federal government should begin to
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restructure the system to give Medicaid and Medicare
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recipients more flexibility to obtain private health
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insurance that meets their individual needs. As much as
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possible, responsibility for care of the poor and the
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elderly should be moved from the public to the private
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sector.
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The average cost per person on Medicaid is more
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than $3,300 per year. This compares to $1,500 for a
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privately insured individual. These figures only
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include direct health care benefits; administrative
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costs are excluded. For a Medicaid family (a mother and
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two children) in the United States, we spend almost
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$10,000 per year in direct medical benefits. The
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obvious question is: "Why don't we simply privatize
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Medicaid?" Privatizing Medicaid would create market
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mechanisms that would achieve all the major goals in
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health care reform: affordability, accessibility, and
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quality.
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Privatization could be achieved in a variety of
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ways. Individual states could provide vouchers to
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Medicaid recipients. The value of each voucher would be
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equal to the current average Medicaid expenditure for a
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family of the same size as the recipient's family.
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Recipients may pool vouchers for the purpose of
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purchasing group policies. For example, residents of a
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public housing project may choose to pool their
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vouchers and purchase a group policy for themselves.
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Insurance policies purchased with a voucher would
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include coverage for all federally-mandated Medicaid
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services. However, all other mandated benefits,
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including optional Medicaid services could be exempted.
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Another option would allow individual states the
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ability to contract with private insurers (after
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competitive bidding) for large group policies that
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would cover Medicaid patients. The state could offer
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Medicaid patients several private options including
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traditional insurance, PPOs, or HMOs.
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Regardless of which method is selected,
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privatizing Medicaid would result in substantial
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benefits for Medicaid recipients, health care
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providers, and taxpayers. Medicaid recipients would no
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longer be treated differently from the privately
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insured--because they would become part of the
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privately insured. A Medicaid recipient going to a
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hospital or physician and presenting his insurance card
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would be indistinguishable from any other patient. No
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one would know how that insurance was obtained. And,
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finally, the patient would have an expanded number of
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providers to choose from, no longer excluded from the
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35 percent of physicians who refuse Medicaid.
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Since reimbursement would be at the same rate as
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private insurance, health care providers would no
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longer be shortchanged for treating Medicaid patients.
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Cost shifting would be eliminated, with a beneficial
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effect on all health care consumers. Further, by
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eliminating many of the costly optional benefits and by
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encouraging insurers to experiment with cost
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containment, privatization would stop the spiral of
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increasing Medicaid costs.
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Insurers would compete for customers on the basis
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of the benefits offered, crafting policies to meet the
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needs of the purchaser. While many of the costly
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optional benefits no longer would be covered,
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individuals would be able to purchase a policy that
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more closely meets their individual requirements.
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Insurers also would compete on the basis of which cost
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containment mechanisms they include. Some may offer
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managed care. Others may offer co-payments and/or
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deductibles. Still others may offer fewer benefits.
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Some may even offer "lifestyle incentives" or rebates
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for nonuse. Everyone would have the freedom to choose
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the plan that is best for them.
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Conclusion
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It has long been noted that the Chinese character for
|
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"crisis" is the same as the character for
|
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"opportunity." If America's health care system is
|
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indeed in crisis, as the Clinton administration has
|
|
alleged, we also have a unique window of opportunity to
|
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reform it in a way that will make health care
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affordable and available to all Americans.
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What is outlined here is a series of proposals
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|
that tend toward increasing freedom of the market,
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|
proposals that draw on the strengths of competition,
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consumer choice, private ownership, and personal
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responsibility. The Clinton administration has offered
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a plan that tends in an exactly opposite direction. It
|
|
is an about face. The Clinton proposal creates more
|
|
centralized government control. Government bureaucrats
|
|
will decide what services you receive. Government
|
|
bureaucrats will decide how much you will pay.
|
|
Government bureaucrats will decide what services your
|
|
doctor can provide. "Competition" will be managed--not
|
|
competitive. There will be a single source of revenue--
|
|
the taxpayer.
|
|
|
|
This is socialism! And, like the social welfare
|
|
programs of the 1960s, once socialized health care is
|
|
in place, we will never go back to a market-based
|
|
system.
|
|
|
|
All agree that the time for reform is here. But,
|
|
what decisions will we, as a nation, make? Will we move
|
|
in the right direction or are we going to make an about
|
|
face? Will we continue to preserve the heritage of our
|
|
founding fathers, the principles of a free society, and
|
|
a market economy based on individual freedom and
|
|
responsibility, or will we embrace the failed policies
|
|
of central planning and socialism? Freedom and free
|
|
enterprise are sweeping the globe. While Europe,
|
|
Canada, and the former Soviet Union are searching for
|
|
ways to restore market mechanisms to their socialized
|
|
health care systems, America is in serious danger of
|
|
adopting one--a bureaucratic, government-run, taxpayer-
|
|
financed health care system that will limit patient
|
|
choice and ration the availability of care, while doing
|
|
nothing to hold down health care costs.
|
|
|
|
|
|
---------------------------------------------
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|
|
|
Matthew J. Glavin is president of the Georgia Public
|
|
Policy Foundation, an independent public policy
|
|
research group headquartered in Atlanta, Georgia. Prior
|
|
to joining the Foundation, he served as the founding
|
|
president of the Hannibal Hamlin Institute for Economic
|
|
Policy Studies in Augusta, Maine. Mr. Glavin is also a
|
|
political commentator for Georgia Public Television;
|
|
founder and former president of the State Policy
|
|
Network, an association of more than 30 free market
|
|
state think tanks; and a founder of the Education
|
|
Roundtable, a national association of organizations
|
|
working toward education reform.
|
|
###
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|
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|
+++++++++++++++++++++++++++++++++++++++++++++++++++++++
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|
End of this issue of Imprimis, On Line; Information
|
|
about the electronic publisher, Applied Foresight,
|
|
Inc., is in the file, IMPR_BY.TXT
|
|
|
|
For the November 1993 issue, there is a special edition
|
|
supplement of Imprimis issued by Hillsdale College.
|
|
See the file, SPECIAL.TXT
|
|
+++++++++++++++++++++++++++++++++++++++++++++++++++++++
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|
|