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Subsidiarity and Health Care Reform

An employee of a large regional bank is concerned because the bank’s health insurance covers payment for abortions. She has no alternative source of insurance. Millions of others are in the same predicament, since most plans routinely fund the procedure.

Painful choices like the above are evolving out of a government/industry coalition that is rapidly but subtly concentrating power over the nation’s health care system. Notwithstanding the overwhelming political defeat of nationalized health care during the first term of the Clinton administration, policy “experts” are quietly socializing the system. The recent proposals to expand Medicare and child care are the latest examples of this strategy. As a result, each of us is losing control of our medical destiny and being drawn into an ethically immoral thicket.

Pope John Paul II spoke with firsthand experience and with chilling accuracy about the effects of socialism on the individual and the society. In his incandescent 1991 encyclical, Centesimus Annus, he reasons that “socialism considers the individual person simply as an element, a molecule within the social organism, so that the good of the individual is completely subordinated to the functioning of the socioeconomic mechanism. Socialism likewise maintains that the good of the individual can be realized without reference to his free choice, to the unique and exclusive responsibility which he exercises in the face of good or evil.” The pontiff goes on to say that “the concept of the person as the autonomous subject of moral decision disappears....”

Later on, he focuses on the crucial need to reduce decision-making to the most fundamental unit of society whenever possible. In articulating the traditional Roman Catholic social teaching on subsidiarity, he admonishes that “the social nature of man is not completely fulfilled in the state, but is realized in various intermediary groups, beginning with the family and including economic, social, political, and cultural groups which stem from human nature itself and have their own autonomy, always with a view to the common good.“

One final citation from this work brings the performance of the United States health care system into sharp relief. The pope warns prophetically that “where society is so organized as to reduce arbitrarily or even suppress the sphere in which freedom is legitimately exercised, the result is that the life of society becomes progressively disorganized and goes into decline.”

The Socializing of Medicine, The Anesthetizing of Health Care

How does this relate to the United State’s health care system, and why is it significant? Let’s answer this question by reviewing the “progress” we have made over the past thirty years. During this time, the exercise of freedom in making intimate, personal, health-care decisions has been suppressed by well-intentioned policy makers. Individuals have not been trusted to synthesize the complex and often bewildering array of options created by contemporary medical science. More and more, these decisions have been made by the government, large hospital chains, and huge health care insurers. Large corporations have pushed the system in this direction in their attempt to gain control over spiraling costs of health care.

The result has been increasing government intervention, skyrocketing costs, wrenching and dislocating price controls, and the approaching collapse of the very essence of quality health care–the patient/doctor relationship. With willing compliance to the cadence of government mandates, organized medicine has forced people of faith to support procedures fundamentally antithetical to their beliefs.

How did this system develop in the bastion of the free world? How did it become “progressively disorganized” and go into “decline”? Two trends are responsible for anesthetizing health care. First, Medicare legislation for seniors and Medicaid legislation for the indigent and uninsurable created the illusion of free health care. Second, employers, particularly large employers, began and continue to pay for all or most of employee health care insurance. Employees do pay for some of the insurance through a “co-pay” procedure; but they typically do not share in the decision-making process concerning coverage. Insurance coverage paid by the employer was (and is) not taxable income to the employee. Thus, there was little incentive to use the system prudently. Most consumers’ sense of medical costs atrophied.

Without an informed consumer, the costs of health care grew rapidly. In response, the government imposed price controls on Medicare and Medicaid. Many hospitals then “cost shifted” by raising prices for non-Medicare and Medicaid patients and began unbundling services.

Corporations turned to a bureaucracy called the “third party administrator” in an attempt to control the soaring costs. This zero-sum game added even more cost to the system. Many frustrated large corporations are now interested in socializing the health care system because it will transfer a great and growing cost burden onto other shoulders. Some aggressively lobbied for such a system during the first Clinton administration.

Subsidiarity Applied to Health Care

But socializing the system is not the answer. Health care is daunting and complex but understandable and manageable. If given enough control and information, most consumers will make far better decisions, the system will become more flexible and responsive, health-care-cost growth will approach the inflationary trend of the larger economy, and, most important, individuals will “do business” with doctors, hospitals, and insurers that conform to their moral principles in the practice and financing of medicine.

There is hope that such a system could actually develop. The principle of subsidiarity articulated in Centesimus Annus could very well be the philosophical fulcrum on which the health care system is reformed. In 1996, new federal legislation created an experimental tax-deferred savings vehicle called the Medical Savings Account (msa). This new instrument is similar in some respects to the popular Individual Retirement Accounts (iras).

The Health Insurance Portability Act of 1996 did not easily become law. Senator Ted Kennedy and other supporters of big government social and health care programs held up the legislation for several months and threatened to filibuster it into oblivion. The resulting compromise is limited to 750,000 participant accounts. Only the self-employed and companies with fifty or fewer employees can participate. Once an msa is established participants receive a lifetime entitlement to make tax-deductible deposits yearly. If successful, it is hoped that the concept will be extended to all citizens, just like iras.

Mechanically, the system works like an Individual Retirement Account; but the focus is entirely upon health care. The self-employed or small-company employee sets up, or is enrolled in, a high deductible major medical insurance policy with a maximum lifetime benefit of $2 million. A Medical Savings Account is then set up with a bank or insurance company. Pre-tax dollars are deposited annually. This money can be withdrawn tax-free, as needed, for covered medical expenses during the year. Once all the money in the account is depleted, the consumer pays for further medical expenses until the deductible has been reached. Then the major medical policy takes over and pays 100 percent of subsequent covered expenses for that year.

Any funds not used during the year, are invested. Interest income and capital appreciation accumulate untaxed until withdrawn, thus creating a major compounding opportunity. Funds withdrawn for nonmedical reasons before age sixty-five, are taxed at the marginal income tax rate plus a 15 percent penalty. This penalty is similar to iras. When withdrawn at age sixty-five, funds are taxed at the marginal tax rate.

Let’s see how this works in practice. Assume that a couple at twenty-five years of age purchase a major medical insurance plan with a $3000 deductible (the minimum deductible for a family). They invest the maximum–75 percent of the deductible, or $2,250 annually–in an msa. They withdraw $1,250 tax-free per year for payment of medical expenses. (This is $250 below the current national average, but reasonable, because individuals will make better and more optimal decisions about their own health care and its costs). The resulting savings of $1000 per year, invested at a tax-free compounded rate of 6 percent, produces a nest egg of $164,500 at age 65. This is in addition to other savings or retirement programs the couple may have already established.

With such a system in place, the balance of power shifts decisively. The consumer can now choose an insurer that provides adoption services, family counseling services, and other such programs. ValuSure Corporation, for example, markets a pro-life, pro-family major medical insurance plan with an msa feature. Coverage for abortion, contraception, and sterilization are avoided, thus funneling money away from “culture of death” procedures, against which Pope John Paul II speaks so eloquently in his 1995 encyclical, Evangelium Vitae. The patient, once again, is responsible for choosing the doctor (including specialists) and agreeing on the price for medical services directly with the doctor or hospital.

Money spent on health insurance premiums–even when paid by employers or generated by tax relief–now belongs to consumers. They choose only those services they actually need and, thus, will have financial incentives to lead healthier lives. The significant savings then compounds tax-free toward retirement health care or other expenses. As these “nest eggs” grow, pressure on the Medicare system will be relieved as more people are able to handle medical expenses later in life.

Greater discrimination and direct vigilance by consumers results in lower costs for the whole system. Much of this savings will accrue to the corporations that sponsor these programs. Doctors, knowing that their patients have a meaningful financial stake in the cost of their medical care, will be more thoughtful in dispensing medical care.

Medical Savings Accounts will be portable. When people leave or change jobs, they will take the coverage with them. This will significantly reduce the number of the uninsured in our society. Individuals and employees of small companies that do not have health insurance plans will no longer be discriminated against by the tax code. Currently, large companies make tax-deductible insurance contributions to the health care plans of their employees. Federal and state tax codes provide nearly $100 billion of tax relief to employees of these companies. Those forced to buy their own insurance must pay with after-tax dollars. This difference, created merely by one’s mode of employment, is a clear tax inequity. The tax-deferred msa would be available to every American tax payer.

But will this experiment work? Existing experience suggests that it will. Medical Savings Accounts are not new; they have been used by enlightened employers for several years. What is new is the experimental tax-advantage feature. The following story illustrates msa’s popularity with employees, even without tax deferral.

Jersey City mayor, Bret Schundler, did not wait for tax-advantaged msas. In 1995, Jersey City offered its 210 managers a medical savings account scheme. The program saved the city $22,000 in its first year of operation after half of those eligible enrolled. So far, union contracts have excluded the vast majority of the city’s nearly three thousand workers, although many have expressed interest in participating. In the first year, 25 percent of participants used the full amount of the city’s $1,800 per person contribution for health care expenses and more than half received 75 percent of the contribution as a taxable refund. 1996 was even better.

Is this concept too good to be true? Those who criticize it, generally think government should exercise control of the process in order to insure equality of access to the system. They tend to believe participants in such plans may not use the system for preventive health care or might fail to see doctors, when ill, in an attempt to build up principle in their account. This potential should be diminished by the tax penalty imposed if withdrawals are used for other than medical care. And will not the vast majority of citizens act in their own medical self-interest? This seems axiomatic.

Detractors also believe that tough medical underwriting by the insurers will tend to keep higher risk patients and uninsurable patients out of msas. There may be some truth to this, but if the concept is made universally available, the people falling into the high-risk pool will surely be much less costly to the government–and the taxpayer–than the nearly $290 billion now being spent annually on Medicare and Medicaid. Those in the msa programs would encourage financial discipline within the system and, thus, save everyone money.

Perhaps, critics argue, universal implementation of this concept would have major negative implications for tax revenues. For Americans now forced to work, on average, into the second week of May every year to pay all their taxes, this news just might come as welcome relief. Many public policy “think tanks,” including The National Center for Policy Analysis, contend that the savings squeezed from the system by responsible, consumer health care spending would more than offset lost tax revenues.

So, here we have a glimmer of hope for reordering the health care universe. It comes without a moment to spare. For, as we have seen, there are troubling philosophical and moral questions deeply embedded in this debate.

Medical Care and Moral Systems

Speaking of the collapse of atheistic communism in Centesimus Annus, Pope John Paul II emphasizes the responsibility of democracy to defend and venerate certain individual rights. These rights include, “the right to life, an integral part of which is the right of the child to develop in the mother’s womb from the moment of conception; the right to live in a united family and in a moral environment conducive to the growth of the child’s personality; the right to develop one’s intelligence and freedom in seeking and knowing the truth; the right to share in the work which makes wise use of earth’s material resources, and to derive from that work the means to support oneself and one’s dependents; and the right freely to establish a family, to have and to rear children through the responsible exercise of one’s sexuality. In a certain sense, the source and synthesis of these rights is religious freedom, understood as the right to live in the truth of one’s faith and in conformity with one’s transcendent dignity as a person.”

Many of these rights, including the expression of religious freedom, are being quietly eroded, as it turns out, by the socialization of medicine. Let us pray that Americans come to understand the enormity of the stakes–stakes that loom far more important than the economics of the system. Let them reassert control over health care and, in so doing, ever deepen their faith and live in conformity with their transcendent dignity by reestablishing a commitment to fundamental goodness in the conduct of their country’s medical care.