Contrasting conservative plans - health care reform - National Review Second Opinions: Health-Care Supplement - Cover Story

National Review, Dec 13, 1993 by John Hood

IN DEFENDING their various research and publication activities, conservative writers and activists like to cite Richard Weaver's most famous insight: "Ideas have consequences." But in reality, no matter how eloquent the article or comprehensive the study, the key to implementing policy is access to politicians. Critics write reviews, journalists write columns, donors write chocks--but only lawmakers write laws.

In the case of health-care reform, however, donors to conservative groups are definitely getting their money's worth. The two major philosophical challenges to the Clinton health plan on Capitol Hill were essentially written by conservative think-tankers. They are the Nickles-Hatch-Mack Consumer Choice Plan, based on work by Stuart Butler & Co. at the Heritage Foundation, and Phil Gramm's reform plan, based on work by John Goodman for the Cato Institute and the National Center for Policy Analysis. In both cases, conservative scholars with years of experience in the field have had the opportunity te translate their ideas directly into legislation (something the Jackson Hole Group wishes it had enjoyed with Hillary Clinton's task force).

The Heritage plan, as it is usually called, and the Gramm plan share a great deal of common ground. Both are based on the surprisingly controversial proposition that individuals can and should exercise significant power in the medical marketplace, rather than having crucial decisions made by public- or private-sector bureaucrats. Both focus on the disterting effects of the tax code, which rewards recipients of generous employer-provided insurance at the expense of the self-employed and of those whose benefit plans include greater use of out-of-pocket payments. Both view with dread the Clintons' plans to impose price controls, push insurers into state-controlled cartels, and effectively prohibit fee-for-service medicine.

So why are there two conservative alternatives instead of just one? Some observers suggest that institutional or personal rivalries split the opposition. But I don't think so. The two plans differ because their designers disagree about two main issues: 1) how to move from today's skewed system to a purer form of market competition, and 2) how to convince Congress--and the voters--that such a goal is preferable to bigger government.

The best way to examine these key questions is to describe the basic elements of each plan. Here goes:

The Heritage plan. In the bill advanced by Republican Senators Don Nickles of Oklahoma, Orrin Hatch of Utah, and Connie Mack of Florida (among others), all individuals or families would be required to buy at least "catastrophic" insurance, which would cover physician services, emergency services, hospitalization, and drugs. The maximum yearly deductible in today's dollars would be $2,000 per individual and $3,000 per family. The justification for this government mandate is similar to the one for mandated auto insurance: An uninsured person represents an unfair potential cost to everyone else.

Employees could still purchase insurance through their employers if they wished to, but could also demand that their employers "cash out" existing coverage and let them buy their own policies. Under this plan, insurance would be regulated to a greater extent than it is today: subscribers would be guaranteed re-issuance of the policy regardless of subsequent health problems, and premiums could vary only on the basis of age, sex, and geography, a provision known as "modified community rating." And, reminiscent of the employer mandates in the 1986 immigration law, the plan has employers acting as "coverage police," with the responsibility of notifying the state if an employee has not obtained insurance.

The plan would guarantee tax equity by replacing the current tax exclusion for company plans with refundable individual tax credits adjusted according to the percentage of personal income spent on insurance or medical expenses. At a minimum, for every $100 spent on health care, the individual or family would pay $25 less in taxes.

The Gramm plan. The Texas Republican's legislation differs from the Heritage Plan primarily by not imposing a mandate, either on business or on individuals. Employers who want to offer coverage would give workers a choice of membership in a managed-care network, a "catastrophic" policy coupled with a Medical Savings Account (Medisave), or more traditional insurance.

Medisave is the linchpin of the Gramm approach, though the Heritage Plan (and even some of the moderate bills) includes it as an option. In a nutshell, Goodman argues that too many health-care purchases are made inefficiently--through third-party insurers or the government--rather than efficiently, through direct payment of cash. Medisave accounts would enjoy the same tax status as employer-provided insurance, so consumers could freely choose without tax consequences.

Like the Heritage plan, the Gramm plan would increase regulation of insurance to some extent (with guaranteed re-issuance and portability) and provide means-tested tax credits to help poor people buy coverage or care. To prevent the working uninsured from hitting up the rest of the system, the Gramm plan would garnish their wages to pay the bill.