Commentary

Romney’s New Rx

The struggle for free-market health care just took a step forward.

Former Massachusetts Gov. Mitt Romney had achieved national recognition for enacting health care reforms that dramatically increased government interference in Massachusetts’ health care system.

Now a leading candidate for the Republican presidential nomination, Romney last week unveiled a plan to reform the nation’s health care sector. Importantly, Romney’s new plan discards two of the most counter-productive components of his Massachusetts law.

Romney’s current plan still contains elements that would expand government interference in health care markets. Nevertheless, his abandonment of two major components of his Massachusetts law may signal the decline of big-government conservatism in health care.

Romney’s Massachusetts law is known for two main components.

The first is a requirement that all individuals purchase health insurance and that employers either offer coverage to their workers or pay a tax. Commonly referred to as an “individual mandate,” the former is an unprecedented expansion of government power. It represents the first time that Americans were required to purchase a particular product simply because they reside in a particular state.

The individual mandate was problematic for other reasons too. Once the Commonwealth decided what the meaning of “health insurance” is, some 200,000 residents learned that they would have to pay higher premiums for more coverage — even though they were happy with their existing coverage.

Finally, the individual mandate failed. The law also provided taxpayer subsidies to help residents afford the required coverage. But officials soon found they couldn’t come up with enough money and had to exempt one-fifth of the Commonwealth’s uninsured from the mandate.

The second component of Romney’s law is the “Commonwealth Connector.” This government bureaucracy was designed to act as an exchange workers and other individuals can choose from a number of state-approved health insurance products.

As an effort in government economic planning, the Connector bears striking similarities to the Clinton health plan that was championed by First Lady Hillary Clinton in 1993 and rejected by Congress in 1994. Everyone from my Cato Institute colleagues to the Washington Post to left-leaning columnists Jonathan Cohn and Joe Conason have noticed the resemblance.

After being roundly criticized on the campaign trail for advocating big-government approaches to health care reform, Romney fortunately appears to have abandoned these elements of his Massachusetts law, and traded them in for a far superior alternative.

The federal tax code’s preference for employer-controlled health insurance fuels rising health care costs and strips workers of control over their health care. Romney new plan includes tax reforms that would reduce those inefficiencies and give workers greater ownership of their health care dollars. Generally, he would make all out-of-pocket medical expenses tax-deductible, including health insurance premiums.

That proposal would not do as much as Rudy Giuliani’s proposed tax reforms to reduce inefficiency and increase individual ownership. Nevertheless, it is a dramatic improvement over Romney’s past use of government power to browbeat individuals into submission.

Unfortunately, Romney’s current plan does appear to retain some elements of his Massachusetts law.

Medicaid is the massive government program that provides health care to the poor by having taxpayers in the 50 states send money to Washington, D.C., so that Congress can send that money back to the states with perverse incentives and strings attached.

Romney reportedly wants to reform Medicaid the way Congress reformed welfare in 1996, by giving each state a lump-sum payment (rather than payments that increase in tandem with the state’s contribution) and greater flexibility to spend those funds.

Where welfare reform aimed to reduce dependence on government, however, Romney appears to want states to use the added flexibility to make more Americans dependent on government for their health care.

Romney also wants to use those federal payments as leverage to encourage states to deregulate health insurance. Deregulation is essential: state regulations increase the cost of health insurance by an estimated 15 percent.

But if a President Romney strong-arms the states into deregulating, what’s to stop the next president from strong-arming the states into increasing health insurance regulation? Or from regulating health insurance himself?

Health insurance deregulation has to happen at the state level. If national politicians want to help, they can give employers and consumers the right to purchase health insurance licensed by the state of their choice. That’s one free-market reform that neither Romney nor Giuliani has fully endorsed.

Hopefully, that will come in time, and Romney’s step in the right direction will signal the decline of big-government conservatism in health care.

Michael F. Cannon is director of health policy studies and coauthor of the forthcoming 2nd edition of Healthy Competition: What’s Holding Back Health Care and How to Free It.