Thud, Part II

In an email, Stuart Butler of the Heritage Foundation took issue with my characterization of his proposal (which has now been introduced as federal legislation) to foster health policy experimentation among the states. So I thought I might elaborate. (Readers can get the particulars of the proposal in Stuart’s paper.)

The system Stuart proposes seems predisposed to increase government health care spending and to produce little or no free-market reform.

Under his proposal, states would petition Congress for the funding or flexibility to experiment with different reforms within their borders. If the past is any guide, states would be more likely to request more federal money than either deregulation or less federal money. For example, we could count on states to ask Congress to fund expansions of government programs or the creation of state-chartered “purchasing pools.” It is less likely that states would request market-based reforms, such as capping and block granting federal Medicaid spending. Proposals to expand health savings accounts or eliminate the exclusion for employer-sponsored insurance in certain states would never get off the ground, for they would run afoul of the Constitution’s requirement that “all Duties, Imposts and Excises shall be uniform throughout the United States.” (Stuart argues that “other site-specific programs involving federal tax changes, such as enterprise zones, have passed muster.” But even if we could have the feds devise different tax rules for different states, would we want them to?)

Even if some free-market reforms could get approved, they would be less likely to survive than big-government reforms. To qualify for reauthorization, reforms would have to meet “clear and measurable goals, including coverage increases and quality improvements.” Yet new government programs would always have an advantage at “increasing coverage” because the state could always claim “you’ve got Medicaid!” even if you can’t get a doctor’s appointment. Free-market reforms – by definition – do not force coverage on people. With regard to quality, government programs whose funding is in the balance could force delivery of whatever the feds label “quality” health care, even if some patients get hurt. Meanwhile, if patients’ preferences deviate from the quality measures, market-based reforms lose because markets actually try to satisfy those diverse preferences. Finally, government-expanding reforms generally bestow benefits on concentrated interests, while market-based reforms (e.g., HSAs) produce benefits that are more diffuse. Thus big-government reforms would have a leg up in the political process that sets and evaluates compliance with performance measures. In short, free-market advocates don’t exactly dominate health policy, and would not dominate this process. The proposal thus ignores the lesson of O’Sullivan’s First Law.

It’s not that this is designed to be a big-government proposal. But it is not designed to be a limited-government proposal, which makes it almost certain that it would be hijacked by the forces of big government. That is why my initial impression boiled down to: Congress creates a commission, gives more money to the states.

But hey, I might be wrong. I’d like to hear Stuart’s thoughts.