Personal Freedom Called Key to Coverage


Tom Miller, the director of health policy studies at the Cato Institute, says choice matters more than antiquated systems.

Tom Miller is director of health policy studies at the Cato Institute, a conservative, nonpartisan public policy research foundation founded in 1977 and based in Washington, D.C. The institute is named for Cato’s Letters, libertarian pamphlets published by John Trenchard and Thomas Gordon in the 1700s that helped lay the philosophical foundation for the American Revolution. “When we talk about the relationship between a citizen and the government, we start from the premises of individual liberty, limited government, and opportunity to choose,” Miller says.

Miller directs a research program that emphasizes expanded health care financing and purchasing options, with a focus on restoring individual choice, control, and responsibility to the U.S. health care system. Specific areas of study include defined contribution alternatives for individuals covered by employer-sponsored health plans, medical savings accounts, restructuring Medicare to increase private insurance options, and realizing the potential of e-commerce in the health marketplace.

Before joining Cato, Miller spent 14 years at the Competitive Enterprise Institute as director of economic policy studies and as a senior policy analyst. He previously was a trial lawyer, a broadcaster, and a journalist. Miller holds a bachelor’s degree in political science from New York University and a law degree from Duke University.

MANAGED CARE: Congress is debating patient-rights legislation, although some dispute the accuracy of that term. What’s your take on these initiatives?

TOM MILLER: The accurate term would probably be provider rights and lawyer rights. We’re sorting out what was an imperfect approach to what might have been market-based health care. What’s been neglected over at least the last decade is that this has been very much a top-down, third-party set of arrangements that did not resonate well with the folks who were the ultimate would-be beneficiaries. So people got frustrated and conflicted about whether they were getting what they thought they were promised or entitled to. Managed care was imposed upon many people without them necessarily buying into the idea. Employers were being squeezed by rising benefit costs and didn’t see many other alternatives. Their priority was to get their overall compensation structure in better balance. So they weren’t necessarily as tuned into what delivered the best value in health care as to what would drive down costs. Managed care promised to do that, no questions asked. “We won’t say how we’re doing it, but don’t worry, total premiums will be lower than the alternative.” People recognized that the deal involved tradeoffs, that they wouldn’t necessarily get a promise of across-the-board unlimited comprehensive care if they were also going to control the cost of that care. But the restrictions and limitations were not disclosed clearly to beneficiaries. If you’re selling a product that you can’t explain or disclose to your ultimate customers, then you shouldn’t be selling it. You’ve got to be willing to have faith in the product you’re offering and be able to explain the rationale for it. It would be a better world and the only politically sustainable world for health plans to more openly acknowledge to their customers what’s being done and the rationale for limitations on care. These are the folks who write their representatives and say, “I need to be able to sue my health plan cause it reneged on the deal.” Well, the deal hasn’t been openly disclosed and fully laid out to people.

MC: How does the Patients’ Bill of Rights debate change the situation?

MILLER: The more aggressive versions of patient- rights bills would lead us back to the older professional paradigm of health care, that said providers must offer any care that might be marginally beneficial in some way once in a while. That’s very hard to control. It’s often lumped under the elastic term medical necessity, but it puts almost no boundaries on the potential care that can be provided. I’m not sure our economic system can sustain that over a long period of time, but we may be about to run that experiment for a while.

MC: The presence of third parties raises the wider question of whether it makes sense to have an employer-sponsored health benefit system.

MILLER: It should be an option, but not the dominant option. Tax and regulatory policy have put a definite bias in favor of employer-sponsored arrangements. On the surface, the employer-sponsored system, which goes back more than 50 years, provides the cheapest benefits. But that’s only because we haven’t allowed the marketplace to evolve naturally. If we had, we might see a wider and deeper individual insurance market or other ways to organize people into groups that they choose to join. Today’s rules say that you have to be out of your mind not to want to join a group plan. When health care could do less and cost less, it didn’t matter as much that we had this bias in policy, but as the cost of a comprehensive health insurance policy grew, the gap got to be too wide between getting most of what you wanted in employer-group health insurance and what it would cost to get it if you customized it yourself.

MC: How would you fix that?

MILLER: You can fix the tax differential in one of two ways. Of course, changing tax policy is a necessary but not sufficient condition for reform. Individual consumers must control the dollars they’ve earned that they decide to devote to health care. The pure alternative would be to simplify the overall tax system in the direction of a consumption tax or a flat tax that didn’t have a particular subsidy for health insurance purchases. Then people would buy health insurance and health care the way they buy other goods and services and it would be a level field. That’s considered politically unrealistic at the moment. The second option is to equalize the tax subsidy so it no longer tilts the scales in the direction of employer-sponsored arrangements. You would equalize the tax subsidy regardless of how you purchase health care, where you work, and what kind of insurance you want to buy. You do that through tax credits and, to a limited degree, by expanding deductibility. Over the last couple of years, employers have looked more carefully at defined-contribution health insurance plans in which employers still offer some benefit options but get out of the business of picking particular insurance plans for employees. Ultimately, insurance and health benefits are simply another form of compensation for workers. If the worker earned it he should be able to determine where it’s spent.

MC: One cautionary note I’ve heard regarding a defined-contribution approach is that people will buy the minimum insurance that they think they’ll need, which will undermine the concept of insurance, shared risk. People won’t participate in an insurance pool.

MILLER: Sharing of risk should be voluntary. The experts have decided that it’s a wonderful idea that people should share their money with someone else and not necessarily get any benefit. In making their own choices, people have decided that that idea doesn’t pay off for them. That tells you something’s wrong with the idea. There’s a trial-and-error learning process with this. Over time people will learn that some decisions are more sustainable over the long term than short-term opportunistic decisions. People today drop in and out of the insurance market or buy a cheaper policy if they have a choice, rather than a more comprehensive policy. It’s better to have the person who is directly affected by those insurance arrangements determine what works for him. The idea that some all-knowing elite knows better than you exactly what type of insurance you should have to fit your lifestyle and the competing priorities in your life is arrogant.

MC: The Internet is starting to make the flexibility you’re talking about available. A few benefits companies let you go online and choose a provider panel and level of coverage with much more flexibility than exists under a typical plan. What’s your take on how fast that might grow and how it might change the landscape?

MILLER: The effects will be very positive. There will be some fits and starts because the early excitement sometimes takes a while to find the capital and the customers to go with it. The explosion of information is wonderful. It tells physicians that they’re no longer in a world where they, in their grand wisdom, dictate to patients exactly what’s going to happen and patients never question it. Doctors need to decide who their customers and their boss will be. If they’re wise, they’ll link themselves to the individual patient as the customer controlling the dollar, and not look on employers, or insurers, or the government as their boss. The explosion of knowledge creates the opportunity to make consumer empowerment a reality. What used to hold us back in the political discourse was the idea that information was asymmetrical. Only those who had all the science and the background could possibly make choices in terms of care. Obviously, there’s still a gap between someone who’s had a full load of medical training as opposed to someone who’s gone on the Internet, but it allows people to make more informed choices. That’s true not only in terms of knowledge of your condition, but of the health care choices available. Insurance arrangements will become more transparent. You could choose among different types of insurance if they spell out what the contractual provisions cover.

MC: What do you do for those people who don’t have any insurance?

MILLER: The number of chronically uninsured has dropped in recent years. Some of that’s an effect of economic growth. There are a couple of different approaches that deal with the core of the problem. Some folks have the resources to buy insurance, but the current system makes it difficult. We need to allow them to capture their compensation dollars through a better tax system so they could purchase the insurance they want. We can make insurance less expensive through deregulatory measures and develop voluntary pooling arrangements that might give them more choices than are available now in the employer-based system. On the welfare side of the uninsured problem, the question is, “What’s the best way to deliver health care to individuals if they need it?” We have a patchwork combination of Medicaid, emergency room mandated care, and other publicly provided health care. We should address welfare as an income issue rather than be simply trying to target delivery of health care to folks apart from their need for income to deal with all their daily needs. As a backup measure, if there’s going to be residual delivery of care, we’re better off directly delivering it through neighborhood clinics or public hospitals. As a society, we would simply say, “This is not as good as the health care you’re going to get if you hold down a full time job and earn more income.” Our system works that way for everything else: The more you earn, the better off you are. We may need some minimum level of care. Obviously our society doesn’t want individuals dying in the streets or not treated for life-threatening illnesses. But going the other route, to promise everybody an automatic entitlement to comprehensive care, tends to be an illusory promise that ends up delivering a shoddy product. We give lip service to that promise politically, but the reality is that the Medicaid program is pretty severely underfunded and you can’t get doctors to participate in it. We should focus on raising more people up to the level at which they are self-sustaining and part of the income-earning work force. We should not try to carve out some type of dedicated entitlement to a certain amount of health care.

MC: What should happen with Medicare?

MILLER: The first requirement with Medicare is not to think of it in a budgetary sense but to think of it in a structural sense. We’ve got to rebuild the structure of the program so that it’s much more open and welcoming to private delivery alternatives. Otherwise, the focus continues to be on tightening price controls that degrade the quality of care, due to an inability to come to terms politically with its cost relative to the resources available. The Medicare+Choice effort of 1997 set us back rather than moved us forward. We need a common payment structure, whether someone chooses to stay in traditional Medicare or goes into some type of private alternative. If you can get to the stage where you begin to rebuild competing private alternatives, you can move to the second stage.

MC: Over the decades, successive administrations have used Medicare as a lever to try to impose overall health policy changes. You’d like to see that end?

MILLER: There’s a fundamental struggle over whether our health care system will be more like Medicare or more like the current private system for the working population, with all its limitations. The two can’t continue to operate in parallel universes. Medicare is a big part of the overall health care dollar, and will become an even larger one because of demographics over the next couple of decades. The old Medicare system is breaking down, and it doesn’t deliver modernized comprehensive benefits. It doesn’t apply a lot of what we’ve learned in the rest of the health care system. There will be a collision of expectations as more and more baby boomers who are used to a modernized approach to health care confront traditional Medicare and its limited choices. We’re seeing a small version of that in the debate over prescription drug coverage. We have a system that was designed in 1965 for 1965 medicine. It’s very hard for it to adapt to and incorporate today’s health care. The great danger is that when you throw additional benefits into the traditional Medicare structure, you can’t make the cost/benefit tradeoffs and value enhancements that a private health insurance arrangement might make. So you get this worry that the drug benefit will cause runaway costs without any offsetting gains. This would be easier if I were talking about 1997 or 1998, when it seemed we were about to open up these new doors. A lot of damage was done through a combination of flawed payment and regulatory policies that reduced the availability of these private competitive alternatives. By trying to save money while expanding choices, we ended up with a complex payment methodology that underpaid private plans. It was somewhat of a rough guesstimate. So they end up saying, “Oops, it turns out we cut back a hundred billion more than we expected.” In a world of administered pricing you’re always just trying to squeeze something arbitrarily. You need to make this more of a direct payment to a beneficiary. We need a beneficiary-centered world as opposed to a provider world where the government tries to administer every price.

MC: Thank you.