Patrick B. McGuigan | September 1, 2008
Mandates or Markets?
Patrick B. McGuigan
Earlier this year, the Oklahoma Comprehensive Health Independence Plan, or O-CHIP, was introduced into the intensifying debate over what direction our state will take on arguably the most immediate of many pressing economic challenges.
If state leaders move Oklahoma's insurance policy dynamic in the directions envisioned in O-CHIP, the state could position itself anew as business-friendly and determined to enhance our competitive advantages. This would help retain small business as the engine of job creation, economic growth, and dynamism.
As was said at the plan's unveiling by OCPA, O-CHIP assumes a system "driven by market forces instead of more government regulations, price controls, mandates and quotas." Largely the work of Tom Daxon, O-CHIP challenges "government knows best" assumptions in that it would remove a lot of regulation and empower consumers and businesses with broadened healthcare choices.
In a recent interview, Daxon argued the state needs to consider dramatic steps to reposition Oklahoma in terms of business and health care. "If an Oklahoma company has lower health-related costs than a competitor in another state, the Oklahoma company has a big advantage," he said. "It can hire more people and pay them more. It can better weather economic downturns and exploit good times. It is more likely to be an acquirer than an acquiree. And, it is more likely to stay in Oklahoma."
"Most employers want to do good things for their employees," he continued. "It is in their interest to do so." We all know that's true, both for business and human reasons.
O-CHIP would deregulate insurance markets and trigger creation of more value-added insurance products, giving insurers incentives to cover under-covered and under-served populations. It would combine dramatic deregulation with assistance to those who need help getting insurance, ending the folly of "one-size-fits all" regulation.
As Daxon explained, "If I am going to expect someone to provide me with superior service, the service provider has to have a hope of someday making some money. The health care provider and the insurance provider are no different."
The problem is that "today's health insurance system doesn't pool risk, it pools cost. They are not the same thing." To address cost issues, O-CHIP would reward those who get insurance and penalize those who don't. It would empower those who address health, wellness, and lifestyle issues, and withhold support from those who abuse their bodies and ignore health needs.
A glimpse of what this means in practical terms is found in charts in the O-CHIP study, documenting that presently "about 15 percent of our employed population accounts for about 85 percent of our health care expenditures."
Under O-CHIP, Daxon predicted, "We will see major changes in the way employers provide health benefits. If we fail to anticipate those changes, a lot of people who play by the rules are going to get hurt."
O-CHIP would allow one-time election for retention of existing coverage, an important protection for workers. Thus, no one employee's health insurance premiums would increase as a result of O-CHIP's reforms. But worker choices, and employer choices, would broaden.
Without a rational and transparent free-market shift along the lines of O-CHIP, we will see more and more stories of people who stay in a certain job or who stall out, career-wise, because of fear they won't be able to retain strong insurance in a different job.
As Daxon says, "The ability to get health insurance shouldn't be the primary determinant of someone's career path. Too often, it is. Our situation is bad for workers, bad for employers, and bad for our economy in general."
O-CHIP would help people who have pre-existing conditions. As Daxon comments, "If we free the market from existing underwriting regulations, we will witness the development of new and very useful insurance products. The insurance companies will be every bit as creative and effective in serving currently under-served markets as the energy companies are at extracting hard to reach oil and natural gas."
O-CHIP incorporates "different-ness" by reference and without discrimination. "Most of those without health insurance are either both young and healthy or they are sick," Daxon says. "The young and healthy realize that, for them, the cost of health insurance isn't worth it. The insurance provider realizes they will lose money if they insure the sick person for the same premium as everyone else."
So, why not allow business plans to insure workers with different health needs with differential premiums, including higher co-pays and deductibles? To be clear, Daxon says, "If people need help paying for their health care, we should give it to them. But, needs differ. It makes no sense to give the same amount of help to everyone."
Under the current system's rules and incentives, many transformational changes along these lines are already taking place, but without the transparency and honesty of a functioning market.
The health care market is telling us we need affordable rates, and that the formula for success lies in greater diversity of coverage and deductibles. Looking at this with a bit of emotion, it seems to me that higher co-pays and higher deductibles are better than no co-pay and no deductible because there's no insurance available.
Despite having one of the freest economies in the world and abundant entrepreneurial creativity, America continues to suffer through a modern era of government by anecdote. In the absence of a policy initiative like O-CHIP, Oklahoma, a comparatively poor state in an unquestionably rich nation, may drive business and workers away with a mix of mandates and regulation. O-CHIP would help us avoid this calamity.
In terms of health care policy, it's as simple, and as difficult, as this: Oklahoma stands at the brink of a major decision, a fundamental choice between mandates and markets.
Edwin Meese III has called conservative think tanks like OCPA "the philosophical consciences" of the states. Without a doubt, the American system is unique in allowing the 50 states to function, as Justice Louis Brandeis said, as "laboratories of democracy." Oklahoma leaders should consider making our state a laboratory for freedom, rather than for the folly of mandates.
On one side stands the power and emotion of tragic stories, mounting pressures to require general coverage for more and more conditions regardless of cost. In the end, further mandates will bring less choice, escalated health care expenses, and raised insurance costs, leading to reduced coverage and thousands more uninsured workers. And, it must be added, a less-competitive state business sector in an increasingly competitive world.
On the other side, there is the power and discipline of markets, which always work better than mandates, and always send more accurate economic messages than subsidies and emotion. In the end, a reasonably regulated market will bring more choice, reduced health care costs, and lowered insurance premiums, leading to broader access to coverage and thousands more insured workers. And: a more competitive state business sector in an increasingly competitive world.
While other approaches may have merit, O-CHIP best captures the market, and the compelling human need. This debate really is that simple.
OCPA research fellow Patrick B. McGuigan (M.A. in history, Oklahoma State University) is an editor at The City Sentinel, a weekly newspaper in Oklahoma City, and a former Oklahoma deputy commissioner of labor.
Patrick B. McGuigan
A member of the Oklahoma Journalism Hall of Fame, Patrick B. McGuigan is founder of CapitolBeatOK, an online news service, and editor of The City Sentinel, an independent newspaper. He is the author of three books and editor of seven, and has written extensively on education and other public policy issues.