David Brooks discovers (firewalled) that the Brookings Institute is publishing articles from Heritage Foundation fellows and immediately endorses Evolving Beyond Traditional Employer-Sponsored Health Insurance by Stuart Butler. Since Brooks was gushing all over Butler and the proposal, I had to take a look to see what the proposal was and if Brooks had misunderstood any of it. As usual, Brooks was much more impressed than I am.
Brooks introduces the report with raves about Butler:
Few have thought about these matters as long or as well as Stuart Butler of the Heritage Foundation. Butler grew up in Shrewsbury, England, got a doctorate in American economic history in Scotland and became a U.S. citizen in 1996. As a result, he’s acutely aware of what makes American civilization unique, and which policies fit the national character.
As you read his work, you quickly see what priorities the new social contract should embrace. It should offer basic security, so Americans will feel comfortable enough to move around and seize new opportunities. It should demand reciprocity; if you contribute to society, you’re protected from catastrophes no one can control. It should foster personal responsibility, stimulating private savings and self-insurance among those who can afford it.
Finally, it should foster self-sufficiency; if people do slip and require government support, they should be induced to rebound and take care of themselves. If you are fortunate enough to be upper-middle class, you shouldn’t be rigging the game so you grab benefits that should properly be allocated to the needy.
Does the proposal stand up to this generous introduction? The basic proposal Butler makes is to add a health insurance exchange option to the current system of health care to improve prices for small groups and individuals and provide real portability. It would offer some changes that cap tax subsidies for those with high incomes and, apparently, use those to improve the tax subsidy for those who are currently employed and uninsured. What it won't do, despite claims in the proposal, is deal with out of control health care inflation, manipulation of the system by employers who sponsor health care through ERISA, guarantee portability, guarantee coverage to all, or control costs of administration.
Butler claims that his proposal would expand availability of insurance to all employed and make coverage portable. He does not. A tax-favored insurance exchange (or buyers' pool) might help small groups and individuals buy health care coverage at more reasonable prices, but it won't make coverage universal without mandates and subsidies. While a cap on deductions could sensibly be used to help subsidize those who do not have health care coverage, it will not be sufficient unless we tax all health care benefits. That option strikes me as politically impossible.
The rest of the proposal causes this proposed reform to fail since it allows employers who are self-funding under ERISA to continue to do so with no changes in the rules. This opt-out provision may or may not unfavorably affect the insurance exchange, but it will kill portability since he says he won't change the self-funded rules under ERISA. That means that anyone going into or out of a self-funded ERISA program will not have portability. Self-funding under ERISA must only cover employees or COBRA beneficiaries. Employers are not allowed to become insurers. COBRA would still be available, but it is not portability.
Any reform that has a chance to work needs to take control of health care out of the hands of employers and, possibly, insurance companies. It has to provide a funding mechanism that guarantees that all are covered. It has to address adverse selection (chronically ill people drive those who are well out of community rated pools if there is another choice for those who are well). It also has to deal with the fact that doctors and hospitals have strong economic incentives to offer more, higher-cost treatments than may be necessary for that patient. This proposal allows employers to remain in control. It doesn't adequately address funding. It only partially deals with adverse selection. It is silent on medical provider problems. It's a bandage, nothing more.