TCS Daily

As California Goes...

By Dale Franks - November 3, 2003 12:00 AM

Residents of Southern California have been inconvenienced for the past several days by two separate labor union strikes. A strike by the mechanics of Los Angeles' Metropolitan Transit Authority (MTA) have left half a million commuters scrambling to find alternate means of transportation in LA County. Another strike, this time by the United Food and Commercial Workers Union (UFCW), has affected the three main supermarket chains everywhere in the southern half of the state. Picket lines and empty shelves are forcing consumers to shop elsewhere -- and often at higher prices -- for their groceries.


In both cases, one of the central issues is the attempt by management to require employees to pay for a larger share of their health insurance coverage. In addition to asking for higher monthly contributions from the employees, employees are also being asked to pay higher co-payments to cover a greater share of their medical costs.


The UFCW derides these proposals as simple corporate greed. The actual situation, however, is a little more complex than that. As management officials for both the supermarkets and the MTA point out, spiraling health care costs are making it increasingly difficult to provide health benefits to employees.


It is often said that, as California goes, so goes the nation. If so, then current events in California serve to remind us that health care is a problem that should -- and inevitably will -- concern us all.


For the last four years, the cost of health care and health insurance has risen by 11%-14% per year. This year, it's expected to rise another 12% nationwide. In California, the California Healthcare Foundation estimates costs will rise by 14.7%. Over the past three years, many businesses have seen the cost of health coverage increase by 50%.


The picture is just as disturbing for people who try to buy individual health care. The cost of an HMO plan from the non-profit Blue Shield of California costs over $300 per month, with a $500 deductible. For a family, the cost is much greater. If you have 1 spouse between 35 and 39, one spouse between 30 and 34, and two+ children, the costs for the Blue Shield Spectrum PPO Plan 500 ($500 deductible) is $678 per month. Paying costs like that require either a very healthy amount of disposable income, or significant sacrifices. With costs like these, it's no wonder that the number of Americans without health insurance has risen to a record 43 million people.


Nor is it any wonder that, according to a 20 October ABC News/Washington Post poll, 62% of Americans want some form of universal health care coverage and 78% of the respondents were dissatisfied with the cost of the nation's health care system. In fact, a majority was dissatisfied with the overall quality of the country's health care system. Clearly, a system where costs are doubling every seven or eight years, and where 54% of the customers are dissatisfied, is ripe for change. But, what sort of change?


In the short-term, a high priority must be given to restraining the rise in health care costs. One of the prime reasons for the increasing cost of health care is the cost of litigation. Medical liability costs are skyrocketing, and malpractice insurance for a physician costs up to $250,000 a year, now. Many doctors are simply dropping out of medicine, because their malpractice premiums are killing them. And who can blame them?


The only way to stop this expensive legal juggernaut is through tort reform. We must take a serious look at eliminating contingency fees and forcing lawyers to work strictly on an hourly basis, implementing some sort of "loser pays" tort system, or some combination of the two.


We must also look at ways to reduce health care demand. One way of doing this would be through the increased use of Medical Savings Accounts (MSAs). At the beginning of every calendar or fiscal year, the employer puts $2000-$3000 into an MSA for each employee. On top of that, the company buys a major medical policy for catastrophic health care problems. These types of policies are much less costly than traditional medical plans.


Any time the employee or his family needs to go to the doctor, the employee pays for it out of the MSA. At the end of the year, any money remaining in the MSA is either rolled over into the employee's 401(k)/IRA retirement plan, or the employee can take it as income after paying income taxes on it. Medical costs over and above the amount in the MSA would be covered by the major medical policy provided by the employer.


This would provide both primary and major medical care coverage to the employee, while at the same time reducing health care demand by providing an incentive for the employee to use as little of the MSA money as possible. The less the employee uses, the more money he gets at the end of the year. In essence, the MSA provides an incentive for the employee to ration his own health care.


Beyond cost-cutting measures such as these, however, the issue of universal health coverage must still be addressed.


One view is that some sort of single-payer national health system should be devised. Advocates of this kind of system point to Canada, where it has operated for years. Critics respond that such a system results in terribly high levels of taxation in order to fund it, and widespread rationing of health care in order to restrain costs.


But for many Americans, the idea of universal coverage remains a compelling one. Many people fear losing health care benefits for their families if they are laid off. The self-employed find it difficult to afford individual health plans. And people with employer-provided health benefits are seeing those benefits shrink or their costs rising -- or both.


In such an environment, free-market critics of single-payer coverage must remind the public about the true nature and costs inherent in a single payer-system. The public should be reminded that, as American Medical Association president, Dr. Donald J. Palmisano, has said, "By implementing a single-payer system, the United States would be trading one problem for another."


In addition, voters should be educated about the large number of free-market health care reforms proposed by such groups as The National Center for Policy Analysis or the Heartland Institute. Such reforms would greatly reduce the cost of providing health care, make health coverage personal and portable, and help uninsured individuals obtain and keep health coverage.


As Americans become increasingly dissatisfied with the current health care system, they need to know that there are better alternatives than those the statists are keen to implement.

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