The American health care system has been shaped and molded by unwise government policies. Most of the problems of our health care system – including the rising costs and the increasing number of uninsured people – are direct results of those policies. Solving America's health care crisis requires a new policy agenda – one designed to assure that we can purchase high-quality health care for a reasonable price.

To Encourage Uninsured Individuals to Purchase Health Insurance: Employees of large companies usually have health insurance exempt from costly state regulations and encouraged by generous provisions of the federal tax law. Individuals who purchase health insurance on their own, however, receive no tax encouragement and face premiums inflated by costly regulations. Public policy should be neutral with respect to the way in which health insurance is purchased. We recommend the following:

  • Allow insurers to sell no-frills, catastrophic health insurance, not subject to state government regulations and taxes.

  • Allow individuals a tax credit for a portion of their health insurance premiums, so that individuals receive the same tax advantages available to employer- provided health insurance.

  • Make tax credits refundable for low-income families.

To Encourage Health Insurance for Employees: Because of federal employee benefits law, health benefits are individualized, but the costs are collectivized – a situation in which encourages waste and discourages cost control. Small employers are further victimized by costly state regulations and federal laws which force them to create one-size-fits-all health insurance plans for their employees. These policies are encouraging large employers to limit coverage for employee dependents and encouraging small employers to drop health insurance benefits altogether. We recommend the following:

  • Allow insurers to sell no-frills, catastrophic group insurance, not subject to costly state government regulations and taxes.

  • Make health insurance benefits part of the gross wage of employees and aliow tax credits for premiums on individual tax returns, so that employees (rather than employers) bear the cost of waste and reap the benefits of prudence.

  • Allow each employee to choose a health insurance policy tailored to individual and family needs.

To Eliminate Waste and Control Rising Health Cares Costs: The tax law contains generous encouragement for wasteful, first-dollar health insurance coverage under employer health care plans. There is no tax encouragement for individual self-insurance, allowing people can pay small medical bills with their own funds. Waste also occurs because most hospitals refuse to do for individual patients what they often do for government and large insurers – quote a single package price prior to admission. Patients cannot be prudent buyers in the hospital marketplace if they cannot compare prices. Medical costs are also rising because of an inefficient tort system. We recommend the following:

  • Limit favorable tax treatment for health insurance to catastrophic policies.

  • Allow each employee to choose between wages and health insurance coverage, so that employees who choose less expensive coverage will have more take-home pay.

  • Create tax credits for deposits to individual Medisave accounts, from which people would use their own money to pay small medical expenses.

  • Require hospitals which accept government funds to negotiate a preadmission package price with patients.

  • Allow patients to avoid the costly effects of the tort system through voluntary contract.

To Encourage Saving for Postretirement Health Care: Although the tax law encourages virtually unlimited employer-provided health insurance coverage for current medical expenses, it provides little encouragement for employers and no encouragement for individuals to save for postretirement medical needs. In both the public and private sectors, we are following a chain-letter approach to funding health care expenses for the elderly – an approach that will create an unbearable burden for future generations of workers. We recommend the following:

  • Create tax incentives for individuals and employers to save for postretirement medical expenses.

  • Allow tax credits for individual or employer contributions to Medical IRA accounts, designed to supplement and eventually replace coverage under Medicare.

To Limit Waste in Medicare and Encourage Catastrophic Health Insurance for the Elderly: Medicare pays too many small medical bills for the elderly while leaving them exposed to large, catastrophic medical expenses. Yet all attempts to resolve the problem through a one-size-fits-all health care plan have failed. We recommend the following:

  • Allow private insurers to repackage Medicare benefits and create diverse policies tailored to the different needs of Medicare beneficiaries.

  • Give the elderly tax incentives to self-insure through Medisave accounts for small medical bills rather than rely on wasteful, third-party insurance coverage.

To Avoid Health Care Rationing in the Medicare and Medicaid Programs: Medicare (for the elderly) and Medicaid (for the poor) are becoming price-fixing schemes, administered by large, impersonal bureaucracies. Rather than empower patients in the medical marketplace, these programs increasingly limit access to medical care by regulating the terms and conditions under which medical services can be delivered. We recommend the following:

  • Medicaid patients should have the right to draw on an account, negotiate prices and add their own money if necessary, in order to purchase certain types of medical services – particularly prenatal care.

  • For those categories of illness where it is apparent that Medicare is paying much less than the market price for reasonable care, Medicare patients should have the right to negotiate prices and supplement Medicare's payment with their own money or with private health insurance funds.