Market-based Healthcare Reform: Good for Main Street & Good for Wall Street

By Governor Gary R. Herbert

Located on Main Street in my hometown of American Fork, Utah, is a car repair shop—World Class Auto Service. After the passage of the Patient Protection and Affordable Care Act (PPACA), insurance premiums for this earnest, small business doubled within one month and it was forced to drop health insurance for its ten mechanics. But after World Class Auto Service enrolled in the Utah Health Exchange, it restored health insurance and offered employees customized, individual options.

Affordable options, customer choice, and tailored solutions are all available because the State of Utah had the vision—long before health care reform was a gleam in President Obama’s eye—to pursue our market-oriented, private sector-based Utah Health Exchange known as Avenue H. Utah’s overarching philosophy in our approach to healthcare reform is this: The invisible hand of the private sector, operating in a free market—not the heavy hand of government—is the most effective way to reform healthcare.

In all health care analysis, the central challenge is cost. Incentives for providers and insurers simply fail to align with incentives for consumers. Consumers often lack a compelling incentive to seek more cost-effective solutions. Healthcare providers are paid for each service, rather than for each patient they keep well. When costs increase, there is no pressure to be more affordable than competitors.

Rising costs, misaligned incentives, and increasing numbers of uninsured Utahns prompted our pursuit of bold, innovative, state-based reform. We were driven to empower consumers.

Utah’s unique solution allowed a defined contribution, creating greater certainty for small businesses because they can project costs; removed insurance coverage mandates and enhanced flexibility; and allowed consumers to compare prices and value through a consumer-based portal.

However, Utah’s Avenue H is not yet as robust as we anticipated. We have suffered from arrested development, thanks to federal uncertainty.

Now, can the Utah Exchange operate in an ACA world? The law gives significant discretion to HHS, and Utah wants the flexibility to innovate. States are unique, and need unique healthcare solutions. Utah will work within federal law to ensure continued success of our exchange. However, there are some red lines we will not cross.

We will not enforce the individual mandate. Despite the Supreme Court’s ruling, it remains bad policy.

We will not administer Medicaid through Utah’s health exchange. There is a clear distinction between enrolling in private insurance and participating in welfare-based public programs. Those in need should receive assistance, but that determination should be separate.

Utah will not administer individual premium tax credit through our exchange. To ensure Utah’s exchange can continue to grow, Utah made a simple proposal this week to HHS Secretary Kathleen Sebelius: Let Utah to innovate and expand without federal micromanagement.

Utah will bifurcate the central functions of the Utah Health Exchange, continue to operate our small business exchange, and retain oversight of insurance markets. Utah will also retain control of our Medicaid eligibility system and make the final determination of who is eligible for Medicaid and CHIP using our existing system.

Meanwhile, HHS can assume responsibility for the individual exchange, including the website portal for individuals and families, the navigator grant program, and tax credit administration.

Further, we stipulate that HHS will not establish a small business exchange in Utah as long as the State operates a certified small business exchange.

In Utah, we recognize the best way to reduce cost, while improving quality, is through the solid bedrock of free market principles. Policy makers need the essential discipline, focus and restraint to allow those principles to work.

The fundamental position of my administration, and the State of Utah, is clear: With any product, with any service, if you want the highest quality for the most people at the lowest cost, then the private sector, free market system called capitalism has done that better than any institution or idea on this planet. Why would it be any different for healthcare?

The proof of a good solution is when it’s not only good for American Fork’s Main Street; it’s equally as good for New York’s Wall Street.