January 27 , 2006 | By Nathaniel Ward

Gov. Romney’s health care proposal

Gov. Mitt Romney (R-MA) explains his proposal for consumer-based health care Thursday at The Heritage Foundation.

Massachusetts will be a testing-ground for a new health program that combines a market-based approach with substantially expanded coverage, Gov. Mitt Romney (R-MA) said yesterday in Heritage’s Allison Auditorium.

Right now, the governor said, his state faces two important but connected problems:

• The cost of health care is rising dramatically, making it much more expensive for individuals to purchase care on their own—and individuals spend after-tax money while businesses use pre-tax funds
• 460,000 Massachusetts citizens lack any sort of health care, and many more lack adequate coverage

“If you can get everybody insured, that has a very positive effect on the cost of health care,” he said. “Part of your insurance premium is paying for the people who don’t have insurance.”

America should work to solve these problems, Heritage Foundation President Edwin Feulner said. While the establishment of Health Savings Accounts in 2003 was a victory for consumer-driven health care, he explained, “there is much work that needs to be done.”

Gov. Romney’s plan, developed in collaboration with Heritage Foundation health analysts Bob Moffit and Ed Haislmaier, includes a three-pronged solution that goes a long way towards solving the problem:

• Ensuring that all those eligible for Medicaid are covered, which substantially reduces the costs of providing care to the uninsured
• Encouraging those who are uninsured by choice to sign up, by using incentives like lower co-pays and premiums along a sliding scale
• Creating an affordable product, designed by private insurance companies and coordinated by an “insurance exchange” to make insurance available to all workers, who pay for coverage before taxes

Expanding government health care to cover the uninsured wouldn’t work, Gov. Romney said. “Medicaid wasn’t built as a broad-based all-citizen insurance program,” he elaborated. “Growing Medicaid and adding new, optional populations to Medicaid is very expensive.” Instead, the state turned to the private health industry to develop solutions.

The insurance exchange is an attempt to bring market forces to bear on health care, Heritage’s Ed Haislmaier wrote on National Review Online. “The basic insight behind a state health-insurance exchange is that markets sometimes work more efficiently and effectively with a single administrative structure to facilitate diverse economic activity. That’s exactly what stock exchanges do for the buying and selling of securities. Like a stock or commodity exchange, Romney’s health-insurance exchange would be a clearinghouse but never a product regulator.”

To fund this health care reform agenda, the governor announced a $200 million reserve fund during last week’s State of the State address.

This plan also makes creative use of Medicaid’s Section 1115 waivers, which allow states to use federal funds in non-standard programs.

In 2003, former Heritage health care analyst James Frogue looked at how such waivers could spur just this sort of state innovation. The waivers will allow states to “start creating a system of patient-centered and consumer-directed care in the form of defined contributions for needed services,” he wrote.

Waivers, Frogue explained, have the potential of considerable long-term savings “by creating the proper incentives for appropriate use of care and engaging Medicaid beneficiaries in their own health care decisions.” The use of waivers “puts market forces in play in an arena where they have never before existed.”

Nathaniel Ward is the Editor of MyHeritage.org—a website for members and supporters of The Heritage Foundation.

More resources

• Watch a video of Gov. Romney’s presentation
• Read more about the event