As the Democrats and GOP leaders prepare to meet with the President at the February 25 health summit, the Republicans have a big problem. They don’t have a plan. While demanding a clean-slate do-over from the Democrats, all they have to offer in return is a grab-bag of simplistic, ineffective remedies that won’t fix the problems of our unsustainable health care system. They lack the vision thing. They need to recognize the market failure at the root of the system’s dysfunction and to propose the following actions to fix it. (Note: Hyperlinks provide additional discussion for those wanting to delve further.)

First, let’s agree on our ultimate goals. Neither party has done this. Here they are:
1.    Access to affordable health insurance for all Americans
2.    Sustainable medical care affordability and value
3.    Free-rider prevention that allows universally available insurance to work
4.    Voluntary participation with no individual or employer mandates
5.    Financial protection against unaffordable, medically necessary care
6.    Individual choice of insurers, providers, and treatments
7.    Portability of coverage regardless of employment or government assistance
8.    Effective prevention of chronic diseases that now consume 75% of total medical costs

Second, we don’t need a clean slate. The Democratic health plan has a core feature that can form the basis for achieving these goals: the individual health insurance exchange.

Third, here are the necessary changes to the Democratic proposals:

1.    Open the insurance exchange(s) to everyone. Employers, FEHBP, Medicare, Medicaid, and CHIP will allow their constituents to opt out of their current health plans and to receive equivalent funds to enable them to buy their own portable health insurance from a plethora of private insurers through the exchange.

2.   Create Super HSAs. Improve affordability and provide tax equity by allowing everyone to open health funding accounts (HFAs) that permit tax-exempt contributions by individuals, employers, and government programs sufficient to pay for individual insurance premiums and out-of-pocket costs. Replace any Cadillac-tax or fixed-dollar-tax-rebate proposals with uniform tax-exemption limits on HFA contributions.

3.    Reform Medicare and safety-net programs. Replace current proposals for middle-class welfare subsidies with safety-net reforms in which Medicare, Medicaid, CHIP, and other programs will provide defined-contribution HFA funds for those who cannot otherwise afford to buy adequate health insurance and medical care.

4.    Redefine health insurance. Minimum benefit requirements will assure financial protection against the unaffordable costs of medically necessary care. Any other benefits that increase premiums will not be required. Consumers will decide whether to buy additional insurance coverage for normally affordable, regularly consumed medical services or to buy them directly from providers. Individuals will be encouraged to choose the highest out-of-pocket deductibles, coinsurance, and copayments they can reasonably afford, thus reducing unnecessary insurance premiums and incentivizing consumers to focus on provider quality, price, and value. Insurers will be allowed to offer negative copayments and other consumer incentives to seek high-value medical care.

5.    Get Medicare out of the medical price-fixing business. Allow providers to set their own prices in a competitive market in which consumers, assisted by insurers, have the money and the clout to demand value, convenience, and customer service.

6.   Allow voluntary insurance purchases, but with strong controls to prevent free-riders. Replace mandates with voluntary participation and stringent controls to prevent people from gaming the system by waiting until they get sick to buy bargain insurance.

7.    Require insurers to use modified community rating. Premiums based on individual health status and history will not be allowed. Premiums may vary only by a person’s age, gender, residence location, occupational risk, and the degree to which the person effectively controls health risk factors that are amenable to personal control (e.g., smoking, obesity, alcohol abuse). Likewise, employers and government programs will be allowed to vary their contributions to their constituents based on these factors, with appropriate adjustments to incentivize personal control of individual health risks.

8.    Optimize participating insurer regulation. Eliminate any public option proposals, and instead allow participation by any licensed insurer that self-certifies compliance with the exchange’s requirements for minimum benefits, enrollment eligibility, and premiums. Rely on audits, complaints, penalties, and corrective orders to assure compliance. Maintain current state regulation of insurer financial health. Encourage development of community-based health plans.

9.    Allow the states to experiment within the above parameters. Give them the flexibility to iteratively develop optimal solutions to be copied by others. Avoid one-fix-fits-all solutions.

The above modifications to the Democrats’ proposed health reform plan will empower America’s consumers to demand the answers to two fundamental questions: (1) Which are the best, most appropriate insurers and medical providers for my needs?  (2) Which of these are the least expensive? This deceptively simple value proposition is the same one that has powered America’s unparalleled economic success and generated the widespread affordability of high-quality, infinitely varied food, clothing, housing, transportation, and recreation. The same dynamic will work for health care. Under this proposed health reform package, the consumer will reign supreme. The government’s roles will be appropriately limited to those of rule maker, fair referee, enforcer, and safety net of last resort—not insurer or regulator of actual prices or benefits (beyond the above requirements).

Properly implemented, this program will produce massive benefits that achieve all eight of our long-term health care goals.

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  1. Randy Dipner says:

    One comment specifically on HFAs, or as they are currently instituted, HSAs.

    Currently HSA funding is limited to the deductible level of the high deductible insurance policy underlying the HSA. This limitation must be removed. The insurance policy deductible does not define the potential health cost outlay for a year. Many individuals also have costs associated with dentistry and optometry that are outside the regular health care coverage. The HSA, or future HFA, should allow sufficient contribution to allow an individual to fund all potential health care costs. In fact, why should we impose a limit at all?

  2. Dr. Bob Browne says:

    Steve, I agree with your conceptual construct, but am disturbed by the fact that you state: “The Democratic health plan has a core feature that can form the basis for achieving these goals: the individual health insurance exchange.” and don’t go on to address the myriad of toxic features in the house and senate bills. It leaves the impression to the first time reader that there is much positive and little negative in that legislation. I know you have addressed pieces of this earlier but it bears repeating. It would be worthwhile directly addressing these bills in terms of your “Ultimate goals”. Bob

  3. Charlie Crowder says:

    We need to get the employer out of the health plan selection process. Employers are constantly making benefit plan selection decisions based on their own bias, needs, or financial situation. All too often that selection does not fit what their employees need or want. Even employers who make a conscious effort to select the most appropriate plan for their employees can’t select a plan that will meet the needs of all their employees. It is not possible. No health care plan will work until we get the consumer (the patient) and the provider closer together. Adding another government layer of insulation will only make the situation worse.

  4. John Sweeney says:

    How about this proposal from the representative from Wisconsin, whathisname?

  5. John Sweeney says:

    Say, Stephen, what do you think of Phillip Longman’s claims in “Best Care Anywhere…”?

  6. Stephen Hyde says:

    Steve replies: Wow! I touched some nerves with this one. My responses:

    Re the question about why limit HFA contributions at all, tax policy would be the only reason.Without limits on tax exempt contributions, HFAs would become an unlimited, much-abused tax shelter.

    Bob is correct that both the House and Senate versions of the proposed health insurance exchange are over-regulated, paternalistic nightmares that would only bend the cost curve further upward. While the changes I propose will fix these problems, the necessary brevity of my blog precludes the detailed explanation provided in my book (thanks, Bob, for the opportunity to blatantly plug it).

    I agree with the comments about getting employers out of the insurance selection business. The same holds true for Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).

    The question about Phillip Longman’s “Best Care Anywhere” apparently refers to a 2005 article that lauded the dramatic turnaround of the VA medical system from one of the worst to one of the best. While the casualties of two wars have more recently caused some fraying around the edges, the VA experience does suggest that a single payer system might actually work (1) at times, and (2) if the American people are willing to shelve their untidy individual preferences and accept a military model of medical care. The biggest problem with VA-like systems is that they can only be as good as their leadership at any point in time. The neat thing about consumer markets is that, while they are essentially leaderless, they have always outperformed top-down systems over time.

    Re Rep. Paul Ryan, his proposal (co-sponsored with Coburn, Burr, and Nunes)meets five of our eight goals, but falls too far short on free-rider prevention, sustainable affordability, and prevention effectiveness to provide a complete solution. See my blog that rated it against several other approaches (including my own)at

  7. Dr. Bob Browne says:

    Steve, while the “quality” of the VA system is widely quoted, as someone who was trained, practiced, and taught in it for over 10 years I can attest that the positives of the system are overblown and the many blemishes in it are covered up. And I was in large university VA systems where the faculty and care was the best. Still, the system constantly got in the way of optimal care. My exposure to more “satellite” VAs not directly associated with university medical centers was even worse. I can state unequivocally that if one of my relatives was in a VA with anything worse than a bunion I would pay out of pocket to get them out! It is said that in the land of midgets a short man is king. While the alternative to VA care for many veterans is no care, we need to recognize the recent problems in the VA and military care system for what they are, a health care system burdened by the same bureaucratic morass as the rest of government. Bob

    Steve responds:
    I don’t know, Bob. Bunion surgery can be pretty serious. Many thanks for the closer perspective. My experience in serving my country was limited to fighting forest fires in Idaho for the U.S. Forest Service.

  8. Scott Brassfield, MD says:


    While agreeing with the need to harness market forces and to incentivize individuals to maintain their own health, I fear your plan goes far enough towards increasing health insurance coverage.

    One of your goals is:

    1. Access to affordable health insurance for all Americans.

    Since you oppose mandates, “affordable” will be interpreted by each individual and interpreted differently depending on individual circumstances. The young, healthy, and financially struggling will be likely to declare health insurance unaffordable. Older Americans struggling to pay bills may opt out if their health is currently good and they are feeling lucky. Universal coverage won’t be achieved and the insureds will tend to be relatively ill and, therefore, expensive. Decades of insurance rates rising faster than incomes have encouraged individuals who are healthy to opt out of insurance coverage leaving the insured pool increasingly ill; this high risk insured pool has lead to recent premium increases of 20% or more exacerbating the flight of the currently healthy from health insurance.

    Why does the US so uniquely among rich nations not mandate universal coverage to assure that the currently healthy are insured? This would not require single payer coverage. Germany has less government involvement in health care than the US in that its insurance companies, its providers, and its hospitals are all private. They don’t have an equivalent to our huge “socialized” Medicare, Medicaid, and VA. But, they mandate that private insurance is bought by everyone with the fee split by employee and employer via payroll deductions. The government helps out during periods of unemployment.

    Our government already does its fair share of mandating. We mandate that everyone gets some education and it’s available in a public form, we mandate availability of legal representation, we mandate auto insurance, we mandate universal sufferage but, unlike all our peers, health insurance is optional. As premiums rapidly rise and are increasingly considered unaffordable we run the risk of totally wrecking our health care system. Why not mandate universal nealth insurance in a healthcare system made more efficient by the Medicare reforms, HFA’s, preventive medicine, and health insurance redefinitions that you propose?


  9. Scott Brassfield, MD says:

    Typo: in my first paragraph, I meant to say “I fear your plan doesn’t go far enough towards increasing health insurance coverage.”

  10. Daniel says:

    If the Republicans had been sincere about negotiating and wanting to make things better instead of making a political calculation to just shut down anything the Democrats tried to do (especially health care reform), they could have made the final bill better.
    I’m glad someone has pointed out that the GOP’s alternative proposals were nothing more than window dressing. If they had proposed something serious then there might have been some successful negotiations.

  11. Daniel says:

    Addendum: I’d like to see more policy written by policy experts and not by politicians on either side of the aisle. It’s unfortunate that our political system has descended into policy based on dealmaking and sound bites (again, on both sides of the aisle) instead of what works.

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