Let's Talk Health Reform, Mr. President

Originally appeared in the Wall Street Journal of August 1, 1994

President Clinton is scheduled to be in Jersey City today to meet his health care bus caravan and to campaign for government-directed health reform. As the city's mayor, I would like to invite him to talk with me about a different approach. We are about to provide our municipal employees with Medical Savings Accounts, which will ensure comprehensive coverage without tax increases and without the ultimate threat of rationing. If he likes what he sees here, Mr. Clinton could support the Medical Savings A ccounts, or MSA, provisions that are in several bills on the national level.

In the past, like most municipalities in New Jersey, Jersey City has covered its employees through the State Health Benefits plan. The state plan provides good coverage and allows employees to choose their own doctors, but it is enormously expensive and the premiums just keep rising. Family coverage costs $6,800 annually, despite a $200 front-end deductible and a 20% copayment requirement - which means an additional $400 in out-of-pocket expenses per family member. Making matters worse (and this could only happen in government), if two members of the same family work for the city, the city must pay the full premiums for both.

We are now becoming one of the first cities in the country to move to an MSA plan. Under the policy we are negotiating with the Golden Rule Insurance Company, family coverage for our 2,500 municipal employees will cost approximately $4,700 for a catastrophic insurance policy that covers 100% of costs above a $2,000 deductible. The city will then place an additional $2,000 into a Medical Savings Account in the employee's name.

The first $2,000 of family medical expenses will be paid out of the MSA. Above $2,000 of family medical expenses, the insurance policy will kick in and cover 100% of costs. Added together, this means that employees will no longer have any health care deductibles or out-of-pocket expenses for covered procedures. The most innovative aspect of the plan is that if the employee's total health care costs for a year fall below $2,000, and there is money left in the savings account, that money will be returned to the employee at year's end.

Because the money deposited in the MSA qualifies as taxable income, employees with low medical expenses in a given year will only net the after-tax amount. Even so, at no level of medical expenses will the employee ever be worse off under the MSA plan th an under the current state plan, and in most cases the employee will do significantly better. The MSA policy will cover 100% of the same procedures as the state plan, and at the same level of coverage or better.

The city benefits, too. We get happier and healthier employees, some immediate cost savings and the prospect for significant premium reductions in the future.

The typical employee is happier because under most scenarios the employee not only eliminates out-of-pocket expenses, but even stands to gain a fairly sizable cash payout on Dec. 31.

The employee is healthier because a major disincentive to getting preventative care, such as check-ups, is removed. The state plan, like most standard health insurance products, does not cover check-ups; they have to be paid for out-of-pocket. In contra st, the funds deposited in the MSA can be used to pay for check-ups with no up-front cost, which removes the disincentive.

To top it all off, the city saves money both immediately and in the future. In the first year, we save through the elimination of the state plan's double billing for two-employee families. In the future, we will save on premiums for several reasons:

• Our workers will be healthier, thanks to preventative care.
• Administrative costs will be lower, since the insurance company does not really have to review medical bills very carefully until the total submitted in a single year exceeds the $2,000 deductible.
• There will be no incentives for fraud and cost-shifting. Employees don't make fraudulent claims when they know that MSA dollars not spent will be returned to them in cash, and doctors are less likely to shift costs onto patients when they know those patients will be personally affected by a padded bill.

With a federal MSA system, all Americans with an income would use their tax credits to buy health insurance from any group provider they choose - such as a church or a bowling league, not just an employer. Those without sufficient income to fully benefit from tax credits would receive a federally funded health insurance voucher to make up the difference.

This is a simple plan. It would get us as close to universal coverage for basic health care as anything the president is proposing. It would reduce the total cost of health care. And it would have several additional benefits: It would eliminate the "job-lock" of our current system, which sometimes forces employees to continue working at a company just to receive health benefits. It would remove the single greatest disincentive for people to get off welfare - the threat that a welfare recipient's Medicaid coverage will not be replaced by private insurance in a low-level job. And it would eliminate the risk of government rationing of health care.

The benefits of MSAs have been recognized on Capital Hill. They are the centerpiece of the Dole health care bill. They are part of the House Ways and Means Committee bill. They are encouraged even in the bills shepherded by Sen. Edward Kennedy and Rep. Dick Gephardt. Alas, because this is a plan that keeps the power in the hands of real people, instead of shifting power to government bureaucrats, the president will probably never go for it. But you never know. Amazing things have been known to happen in Jersey City.