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Mr. Chairman, Distinguished Members of the Health System Reform Task Force:

My name is Michael Tanner and I appreciate the invitation to appear today and the opportunity to share my perspective on the vital issue of reforming health care and what Utah can and cannot do to help resolve this issue.

For the past 15 years I have been director of health & welfare studies for the Cato Institute in Washington, DC. Before that I served as legislative director for the Georgia Public Policy Foundation and as legislative director for health & welfare with the American Legislative Exchange Council. In all, I have spent more than 20 years studying the American health care system and am the author of five books on health care reform, most recently Healthy Competition: What's Holding Back American Health Care and How to Free It..

During my time studying this issue, I have concluded that, in developing health policy it is vital to keep in mind one pertinent fact: for all its problems, the United States offers the highest quality health care in the world. Most of the world's top doctors, hospitals, and research facilities are located in the United States. Eighteen of the last 25 winners of the Nobel Prize in Medicine either are U.S. citizens or work in this country. ¹ U.S. companies have developed half of all the major new medicines introduced worldwide over the past 20 years.² In fact, Americans played a key role in 80 percent of the most important medical advances of the past 30 years.³ Nearly every type of advanced medical technology or procedure is more available in the United States than in any other country.⁴ By almost any measure, if you are diagnosed with a serious illness, the United States is the place you want to be. That is why tens of thousands of patients from around the world come to this country every year for treatment.

Of course, I'm aware that, as critics of American health care often point out, other countries have higher life expectancies and lower infant mortality rates, but those two indicators are not a good way to measure the quality of a nation's health care system. In the United States, very low-birth-weight infants have a much greater chance of being brought to term with the latest medical technologies. Some of those low-birth-weight babies die soon after birth, which boosts our infant mortality rate, but in many other Western countries, those high-risk, low-birth-weight infants are not included when infant mortality is calculated.

And life expectancies are affected by exogenous factors like violent crime, poverty, obesity, tobacco and drug use, and other issues unrelated to health care. In contrast, when you compare the outcome for specific diseases like cancer or heart disease, the United States clearly outperforms the rest of the world.⁵

It is important, therefore, that any reform of the health care system, either nationally or here in Utah, not destroy those things that make our health care system so effective-individual choice and free markets. In particular, you should avoid the temptation to increase government regulation and control over the state's health care system.

After all, the one common characteristic of all national health care systems is that they ration care. Sometimes they ration it explicitly, denying certain types of treatment altogether. More often, they ration more indirectly, imposing global budgets or other cost constraints that limit the availability of high-tech medical equipment or imposes long waits on patients seeking treatment. For example, 750,000 Britons are waiting for admission to National Health Service hospitals at any given time, and shortages force the NHS to cancel as many as 50,000 operations each year. Roughly 90,000 New Zealanders are facing similar waits. In Sweden, the wait for heart surgery can be as long as 25 weeks, while the average wait for hip replacement surgery is more than a year. And, in Canada more than 800,000 patients are currently on waiting lists for medical procedures⁶

Defenders of national health care have attempted to discount these waiting lists, suggesting that the waits are shorter than commonly portrayed or that most of those on the waiting list are seeking elective surgery. However, a look at specialties with especially long waits shows that while the longest waits are for procedures such as hip or knee replacement and cataract surgery which could arguably be considered elective, fields that could have significant impact on a patient's health such as neurosurgery also have significant waiting times.⁷ In some cases, the delays could be life threatening. A study in the Canadian Medical Association Journal found that at least 50 patients in Ontario alone have died while on the waiting list for cardiac catheterization.⁸ Data from the Joint Canada-United States Survey of Health (a project of Statistics Canada and the National Center for Health Statistics) revealed that "thirty-three percent of Canadians who say they have an unmet medical need reported being in pain that limits their daily activities."⁹ Canadian Supreme Court Chief Justice Beverly McLachlin wrote in the 2005 decision striking down part of Quebec's universal care law that it was undisputed that many Canadians waiting for treatment suffer chronic pain and that "patients die while on the waiting list."¹⁰

Still, there are clearly problems with the US and Utah health care systems that need to be addressed. For example, too many Utahns lack health insurance. More than 280,000 Utah citizens were uninsured for at least part of 2007, roughly 10.6 percent of the state's population.¹¹ While this is considerably less than the national uninsurance rate, it nonetheless represents a problem for the state for several reasons.

First, while we should be careful about equating insurance coverage with access to health care and access to better health, we should be concerned about whether uninsured Utahns are receiving the health care they need. The academic evidence is quite mixed about whether being uninsured results in poorer health outcomes. However, there appears to be some evidence that those without health insurance may delay receiving treatment or receive less preventive care. Certainly, you have all encountered anecdotal evidence of hardships encountered by the uninsured. These hardships should not be discounted.>

In addition, we should understand that when an individual without health insurance becomes sick or injured, he or she still receives medical treatment. In fact hospitals have a legal requirement to provide care regardless of ability to pay. Physicians do not face the same legal requirement, but few are willing to deny treatment because a patient lacks insurance. However, such treatment is not free. The cost is simply shifted to others, those with insurance, or more often, taxpayers. Thus, to a large degree individuals without health insurance are "free-riding" on the rest of us. We should not, however, overstate these costs. Nationally, the cost of uncompensated care amounts to 2-4 percent of total health care spending.¹² This is a problem, to be sure, but not a crisis.

We should also be aware that those most likely to go without health insurance are the young and relatively healthy. For example, although 18 to 24 year olds are only 10 percent of the U.S. population, they are 21 percent of the long-term uninsured.^{13 For these young, healthy individuals, going without health insurance is often a logical decision.}

What, then, can Utah do to improve its health care system? The unfortunate reality is that the state's options are limited because the real villains and solutions to America's health care ills lie in Washington, and specifically with the federal tax code, beyond the reach of state lawmakers. However, there are some important steps that this state can take that will reduce the cost of health care and increase the number of people who are insured, while preserving-and even improving-the quality of the current system.

First and foremost, this Task Force should follow the Hippocratic Oath: "First, do no harm." Utah should avoid the temptation to mandate coverage, increase subsidies, or increase insurance regulation..

Individual Mandates

One of the most talked about approaches to universal coverage is an individual health insurance mandate, a legal requirement that every American obtain adequate private health insurance coverage. Those who don't receive such coverage through their employer or some other group would be required to purchase individual coverage on their own. Those who fail to do so would be subject to fines or other penalties.¹⁴ This was the centerpiece of the Massachusetts health care reform passed in 2005.

An individual mandate represents an unprecedented expansion of government power and intrusion into the American health care system. On a practical level, such a mandate is likely to prove unenforceable. More importantly, an individual mandate will almost certainly lead to a cascading series of additional mandates and regulations resulting, ultimately, in ever-greater government control of the health care system.

Advocates of a mandate argue that if government can mandate automobile insurance in order to protect society from the costs imposed by uninsured drivers, it should be able to do the same for health insurance. This analogy is imperfect, however. First, driving has long been recognized as a privilege, subject to all manner of regulatory requirements. If one does not like the regulations, including an insurance mandate, one can choose not to drive health insurance mandate would not generally give people such a choice. Second, the reason states mandate auto insurance is for the protection of others rather than the driver. Most states do not mandate that drivers carry insurance for their own injury or repair costs.

Mandated automobile insurance does, however, show how difficult enforcement of such mandates is. For example, 47 states have laws mandating that drivers purchase automobile liability insurance. Yet roughly 14.5 percent of drivers in those states are uninsured. By comparison, in the three states without mandatory auto insurance, roughly 15 percent of drivers are uninsured.¹⁵ Thus, despite penalties that can run from loss of license to fines as high as $5,000 or even the impounding of vehicles, millions of American drivers appear to have chosen to ignore the mandate.¹⁶ In fact, millions of Americans purchase "uninsured motorist" coverage to protect themselves from an accident where the other driver is uninsured. Interestingly, the percentage of drivers uninsured despite a mandate is roughly the same as the percentage of Americans without health insurance.¹⁷ Here in Utah, 9 percent of drivers are uninsured, much better than the national average, but not significantly better than the percentage of Utahns without health insurance.

One need look no further than Massachusetts to see the failure of an individual mandate to achieve its promise of universal coverage. Slightly less than half of Massachusetts' uninsured population actually complied with the mandate. True, the number of people without health insurance was reduced from 13 percent of the state's population to 7 percent, but the vast majority of those who are signing up are low-income individuals, whose coverage is fully or partially subsidized, proving once again that if you give something away for free people will take it. It certainly appears that it is the expensive and generous Massachusetts subsidies (up to 300% of the poverty level), not the unprecedented individual mandate that is responsible for much of the increased coverage. Not surprisingly, adverse selection remains a big problem, with the young and healthy failing to comply with the mandate.

While an individual mandate is unlikely to achieve universal coverage or significantly reduce health care costs, the mandate crosses an important line, accepting the principle that it is the government's responsibility to assure that every American has health insurance. In doing so, it opens the door to further widespread regulation of the health care industry and political interference in personal health care decisions. The result will be a slow but steady spiral downward toward a government-run health care system.

For example, to implement an insurance mandate legislators and administrators will have to define what sort of insurance fulfills that mandate. Public choice dynamics are such that providers (who would make money from the increased demand for their services) and disease constituencies (whose members naturally have an urgent desire for coverage of their illness or condition) will always have a strong incentive to lobby lawmakers for inclusion under any minimum benefits package. The public at large will likely be unaware of the debate or see resisting the small premium increase caused by any particular additional benefit as unworthy of a similar effort. It is a simple case of concentrated benefits and diffuse costs.

As more benefits are added, the cost of the mandate would increase. This will place legislators in a very difficult position. If they increase subsidies to keep pace with the rising cost of the mandate, the cost of the program will explode. On the other hand, if they hold subsidies steady, the increased cost will be borne by consumers, who would have no choice but to continue purchasing the ever more expensive insurance. Since the consumers would have little or no leverage over insurers (they can no longer refuse to buy their products), they can eventually be expected to turn to the government for relief.

Attempts to scale back benefits would certainly meet political opposition from powerful constituencies and complaints about "cuts." The only other alternative would be for the government to intervene directly by capping premiums. Insurers unable to charge more for an increasingly expensive product can be expected to trim costs by cutting back on their reimbursement rates to hospitals and physicians. The result will ultimately be rationing, the lack of available health care goods and services.

An individual mandate, therefore, should not be seen in a vacuum. It is more akin to the first in a series of dominoes. "If you want to go down the road of an individual mandate, it's necessary to reform the entire health insurance system to make sure healthy people can get affordable coverage and sick people are not priced out of the market," says Gail Shearer of Consumers Union.¹⁸ By distorting the health care marketplace, an individual mandate sets in place a cascading series of additional mandates and regulations resulting, ultimately, in a government-run health care system.

Employer Mandates

A second approach being considered by many states is to impose a mandate on employers. Under most designs, such an approach would require all employers over a certain size to either provide their workers with health insurance or pay taxes to a government program that will insure those workers. Attempts to impose such employer mandates have generally run afoul of ERISSA and been struck down by the courts. But that has not prevented states from continuing to try.

The drawbacks of an employer mandate are obvious. The amount of compensation each worker receives is a function of his or her productivity. The employer is indifferent to the makeup of that compensation between wages, taxes, insurance premiums, or other costs associated with that worker's employment. Mandating an increase in a worker's compensation (through the provision of health insurance) increases the worker's operating costs without increasing the worker's productivity. Employers must therefore find ways to offset the added costs imposed by the mandate. Options include raising prices (which is unlikely in a competitive market), lowering wages, reducing wage increases, reducing other health costs (such as drug coverage or retiree health benefits), reducing other benefits (such as pensions), instituting layoffs, replacing workers with automation, reducing hiring, hiring ineligible workers including undocumented aliens, out-sourcing work overseas, or even moving their operations out of state or out of the country. In almost all these cases, the net result will be to hurt the workers that the mandate was designed to help.

Increased Subsidies

Currently, through the Utah Premium Partnership for Health Insurance (UPP) and Medicaid, Utah subsidizes health insurance for families with incomes up to 150 percent of the poverty level, and Utah children in families with incomes up to 200 percent of poverty are eligible for SCHIP. Inevitably there will be pressure to increase these subsidies. Those pressures should be resisted.

Subsidies are liable to squeeze out unsubsidized coverage, encouraging businesses to cease offering employer provided plans, shifting the cost of insurance to taxpayers. This crowding-out phenomenon has been readily apparent with both the traditional Medicaid and SCHIP programs. A Robert Wood Johnson Foundation survey of 22 studies of the relationship between government insurance programs and private coverage concluded that substitution of government for private coverage "seems inevitable."¹⁹ Other studies have shown that when government programs are cut back, private coverage increases.²⁰

Even Medicaid reforms that are otherwise appealing should be approached cautiously. For example, vouchers and health savings accounts may actually make Medicaid more attractive compared to private insurance, increasing the likelihood that employers and individuals will abandon traditional insurance for the program, especially if Medicaid eligibility is extended up the income range as part of the reform.

It should be remembered that health care subsidies to the low-income are essentially a form of welfare. In fact, Medicaid provides average benefits twice as valuable as those available under federal cash assistance programs. Unsurprisingly, studies have found that Medicaid increases dependence and discourages self-reliance in the same way that other welfare programs do.²¹ Therefore, in reforming Medicaid, states should apply many of the lessons of welfare reform, imposing eligibility restrictions, work requirements, and other welfare-reform-style barriers to discourage people from becoming dependent on the program.

Increased Regulation

Regulation adds substantially to the cost of both insurance and health care more generally. While you should be attempting to reduce Utah's health care regulation, as I will discuss shortly, at the very least you should avoid any expansion of regulation.

Notably, you should avoid any attempt to impose community rating or to extend guaranteed issue to the individual market.

In this regard, I have some concerns about the proposed "Portal." As I understand it, the Portal would function as a clearinghouse, a sort of wholesaler or middleman, matching customers with providers and products. If that is all it did, the Portal would be modestly useful tool. And, HB 133 does contain important language prohibiting the portal from becoming an insurance regulator the way the Connector has in Massachusetts.

However, proposals, such as the one submitted to the Task Force by Mr. Garlitz would de facto give the Portal such regulatory powers by allowing it to pick and choose which plans to offer, and would ultimately impose community rating and guaranteed issue.²² Any such effort to expand the Portal's authority should be strenuously resisted.

What Utah Should Do

First, Utah should do what it can to reduce the cost of health insurance. After all, the number one reason that people give for not purchasing insurance is that they cannot afford it.²³ This is particularly true for young and healthy individuals, precisely the people who we should be encouraging to enter the insurance market before they become older and sicker. Yet, current state regulations drive up the cost of health insurance and make it a reasonably logical decision for these young healthy individuals to remain uninsured.

For example, Utah currently has some 23 mandated benefits. These include mandates that all insurance policies sold in the state include coverage for alcoholism, breast reconstruction, cleft palate, diabetic supplies, drug abuse treatment, HPV vaccine, maternity stay, mental health-including a requirement for mental health parity, well-child care, massage therapists, and psychologists.²⁴

These mandates add significantly to the cost of insurance. The requirement for mental health parity alone adds as much as 10 percent to the cost of an insurance policy. Many of the other mandates add 1-3 percent each to insurance costs.²⁵ Clearly, people should be able to purchase coverage for such conditions and providers if they desire it. But just as clearly, those who wish to purchase a less inclusive but also less expensive policy should be able to do so. Repealing such mandates would be one of the most effective steps that Utah could take to reduce the cost of health insurance and thereby increase the number of people with insurance.

Of course repealing such mandates will encounter fierce resistance from special interests and may prove politically difficult. There is therefore a potentially easier step that Utah could take to achieve similar, indeed possibly more comprehensive, results. The state could amend its insurance laws to allow the sale of any health insurance plan approved for sale by any state.

Currently health insurance purchasers are essentially stuck with the regulatory regime of the state in which they reside. Utah businesses and individuals are held hostage by Utah insurance regulation. But if free to purchase health insurance regulated by states other than their own, customers could avoid regulations that added unwanted costs. They could, in effect, "purchase" another state's set of regulations by purchasing insurance from an insurer chartered in that state.

Not only would such a simple change to your state's insurance laws benefit consumers, reduce costs, and increase the number of people with insurance, but the same competitive process that drives producers to improve quality and reduce costs in other products could help produce higher quality regulations. Utah would have to compete for the best regulatory environment in the same way it currently competes with other states for a better tax environment.

Secondly, the state should institute a thorough review of how it can reduce the cost of providing health care. In particular it should look at such issues as expanding the scope of practice for nonphysician professionals, and removing barriers to hospital competition.

Third, the state should remove roadblocks to association health plans and other mechanisms for allowing small businesses to band together for the purposes of insurance pooling.

And fourth, the state should continue to do all it can to expand the use of consumer-oriented health plans such as Health Savings Accounts.

I regret that I have not been able to come here and offer a silver bullet to fix the problems with Utah's health system. Indeed, some may be disappointed that so much of my advice is in the form of what not to do. That is because I believe that in pursuing health care reform, legislators should be guided by the Hippocratic admonition "First do no harm."

It is understandable that Utahns are frustrated by the inability of Congress to address the undeniable need for health care reform. Yet it is sadly true that the keys to health care reform lie in federal, not state, legislation. There are limited steps that Utah can take to make the situation better. But, in the end, you should be extremely careful to make sure that impatience does not push you into taking steps that will ultimately make the problem far worse, hurting Utah taxpayers, businesses, health care providers, and perhaps most importantly patients.

I thank you once again for your time and consideration. I would be happy to answer any questions.

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¹"Nobel Prize in Physiology or Medicine Winners 2006–1901,” The Nobel Prize Internet Archive, http://almaz.com/nobel/medicine/medicine.html.

²Pharmaceutical Manufacturers Association, "Facts about the U.S. Pharmaceutical Industry," 2002.

³Economic Report of the President (Washington: Government Printing Office, 2004), p. 192

⁴Gerard Anderson et al., "It’s the Prices Stupid: Why the United States Is So Different from Other Countries," Health Affairs 22, no. 3 (May/June 2003): 99.

⁵" Miranda Mugford, "A Comparison of Reported Differences in Definitions of Vital Events and Statistics,"World Health Statistics Quarterly36 (1983), cited in Nicholas Eberstadt,The Tyrany of Numbers: Measurements & Misrule(Washington: American Enterprise Institute press, 1995), p. 50

⁶See Michael Cannon and Michael Tanner, Healthy Competition: What’s Holding Back Health Care and How to Free It (Washington: Cato Institute: 2005), pp. 36–37

⁷Nadeem Esmail, Michael Walker,and Dominika Wrona "Waiting Our Turn, 16th Edition: Hospital Waiting Lists in Canada", Fraser Institute, 2006

⁸Madhu Natarajan et al., The Risks of Waiting for Cardiac Catheterization: a Prospective Study, Canadian Medical Association JournalNovember 26, 2002.

⁹Cited in June O’Neill and David O’Neill, "Health Status, Health Care and Inequality: Canada vs. the U.S" National Bureau of Economic Research Working paper no. 13429, September 2007.

¹⁰Chaoulli v. Quebec (Attorney General) 2005 SCC.

¹¹Utah Health Status Update, Utah Department of Health, May 2008 (pdf).

¹² Greg Scandlen, "The Pitfalls of Mandating Health Insurance,"Council for Affordable Health Insurance’s Issues & Answersno. 135 (April 2006).

¹³ Rob Stewart and Jeffrey Rhoades,"The Long-Term Uninsured," Research Note, U.S. Census Bureau (pdf)

¹⁴See Michael Tanner, "Individual Mandates for Health Insurance: Slippery Slope to National Health Care,"Cato Institute Policy Analysis no. 565, April 5, 2006

¹⁵Greg Kelly, "Can Government Force People to Buy Insurance?" (pdf)Council for Affordable Health Insurance’s Issues & Answers, no. 123 (March 2004), citing data from the Insurance Research Council,

¹⁶Ibid.

¹⁷Ibid.

¹⁸Quoted in Julie Appleby, "Mass. Gov. Romney's Health Care Plan Says Everyone Pays," USA Today, July 4, 2005.

¹⁹Getsur Davidson et al., "Public Program Crowd-Out of Private Coverage: What Are The Issues?" Robert Woods Johnson Foundation Research Synthesis Report no. 5, June 2004.

²⁰George Borjas, "Welfare Reform, Labor Supply, and Health Insurance in the Immigrant Population," Journal of Health Economics.22 (2003): 956-957.

²¹See, for example, Aaron Yelowitz, "Evaluating the Effects of Medicaid on Welfare and Work: Evidence from the Past Decade," Employment Policies Institute, December 2000.

²²Don Garlitz, "Defiined Contribution Health Plans: A Road Map to Utah Medical Insurance Reform," Statement to the Task Force on Health Systems Reform. September 5, 2008.

²³"The Uninsured: A Primer, Key Facts About Americans Without Health Insurance," Kaiser Family Foundation,, December 2003

²⁴Victoria Craig Bunce and JP Wieske, "Health Insurance Mandates in the States, 2008", Council for Affordable Health Insurance, February 2008.

²⁵Ibid.