Peter Ferrara - general counsel and chief economist, Americans for Tax Reform; senior fellow, Heritage Foundation, 1993-1994; associate deputy attorney general, U.S. Department of Justice, 1992-1993.

 The central issue in health policy is simply this. Who has the ultimate power and control over your health and its care, you or the government?

The entire debate is around that question. Who ultimately decides what health services and treatments you receive, what doctors you see, what hospitals provide you critical care? That's the central issue.

The disastrous Clinton health plan of 1993-1994 came down squarely on the side of government. The plan was centered on one of the classical big lies so typical of twentieth-century politics. What they promised was, "We're going to adopt this plan so we can expand health coverage and care to everyone."

But in reality, the plan was a massive government rationing scheme that would ultimately deny care and greatly depreciate the quality of care for the middle class in order to control costs.

They were trying to sell this plan as, "Here we are. We're going to expand health care and coverage to everybody. Isn't it going to be wonderful?" But at its core, the plan was based on denying health care to people in the middle class. That was its cost-control mechanism.

What was behind this?

The left supported this cost control as a way to obtain funds to expand health care for the low-income population. Essentially, they wanted to redistribute health care from the middle class to lower-income population groups and to the uninsured. It was a classic socialist redistribution scheme.

The mechanism they used to try to achieve this in the Clinton health plan was health-care rationing through a system that would ultimately force everyone into highly regulated Health Maintenance Organizations (HMOs). These HMOs would enjoy greatly enhanced, ultimate power to decide what health care patients would receive, and from whom, and who would then carry out the government's rationing policies.

They would force all of you into HMOs, and then they would have the power to decide the ultimate questions of what health care you get, when you get it and what doctors you can see.

So in hiding behind these government-controlled giant HMO corporations to perform this hideous rationing, the Clinton plan was, in its essence, classic European fascism. The government and its big corporate deputies would decide what health care you get and who lives and who dies and in what condition.

The idea was to use these big HMO corporations to carry out the essentially socialist redistribution policy of the government. And that is why the public ultimately rose up in such outrage and so overwhelmingly rejected the Clinton health plan. The middle class figured out that they were the ones who were going to lose out under this system. But the rejection didn't happen automatically.

This battle over the Clinton health plan was one of the great chapters in American political history and a watershed in the course of American politics. In the beginning, the country's entire political establishment supported it, from the President to his party-controlled Congress, to the national news media, to the establishment, to special interests.

You often hear that special interests killed the Clinton health plan. Well, it was just the opposite.

In the beginning, all the big special interests in Washington were trying to cut in on the Clinton health plan. They were trying to cut a deal for themselves, some favoritism. The whole game of the big Washington lobbyists and establishment was to cut a special deal for special interests in the Clinton health plan.

The only opponents were a small band of ideologues. You know the definition of an ideologue? An ideologue is someone who has ideals and principles and sticks by them. Of course, in Washington, that's a derogatory term.

But the ideologues took their case to the people through their talk radio, their town hall meetings, conservative publications, rallies, marches, even songs were written.

The Clinton plan was a Trojan horse for socialized medicine. As if it were a giant twenty-foot, carved, wooden Trojan horse which was dragged around from rally to rally across the country.

And as the truth came out, the tide turned. After the battle for public opinion was won, even the special interests joined the opposition. Our coalition meetings had started in little rooms around Washington. By the summer of 1994, we were having them in the Capitol. They were chaired by two U.S. senators.

The lobbyists from every major trade association in the country were there. They said, "Oh, yes, we're going to stop the Clinton health plan." Of course, by then, we ideologues had already won the battle.

In the end, the Clinton plan was defeated more decisively than any idea in American politics since slavery. The plan was never even brought to the floor for a vote in the Democrat-controlled Congress. Leading congressional sponsors of the plan went down to defeat in the 1994 elections. A California referendum on the ultimate ideal of government-controlled medicine was defeated by the public three-to-one, in 1994.

The momentum was so great that I believe it was the spearhead for the Republicans to take control of the Congress in 1994.

Socialized medicine was the fundamental question, to take the power away from the people and give it to the government. Government would ultimately decide what health care you receive and who controls your health care.

Medical savings accounts take exactly the opposite approach on the question of who controls your health and its care. Instead of shifting power and control over your health care to the government or some other third-party rationing institution, Medical Savings Accounts (MSAs) shift power and control away from the government and third-party insurers to the individual patients and consumers themselves.

Let me show exactly how this works.

Health policy analysts from all perspectives recognize that the fundamental problem in health care financing is that one party, the patient, usually with the advice of the doctor, decides what services and care are purchased. But another party, an insurance company or the government through Medicaid and Medicare, pays the bills.

If you have one party deciding what to buy and another party paying the bills, that's a prescription for economic disaster because the party deciding what to buy has no economic constraints. They will consume, to use more technical language, they will consume health care, any health care, where the benefits are greater than zero, regardless of the cost.

If they get one dollar of benefit out of it, but the cost is a million dollars, they will say, "Yeah, that's great because I don't have to pay anything for that. If it's a net one dollar benefit, I'll take it." That's how you get runaway health costs. The consumer has no incentive in that model to control costs, to question whether care is necessary, to look for the most efficient means.

Because the consumer has no incentive in that model, the providers are not competing to control costs, either. Why would the doctors and hospitals compete to control costs? The patients won't choose them on the basis of their being more cost effective. Somebody else is paying the bill.

So instead, the doctors and hospitals compete only to maximize quality, with no consideration of cost. The end result is runaway health costs. That fundamental problem leads the percentage of the national economy devoted to health care to rise consistently to higher and higher levels.

That fundamental economic problem can only be solved by uniting in one entity both the decision of what health care you receive and the ultimate responsibility for costs.

There are only two ways to go. Either you take the power to decide what to buy away from the patient and give it to the insurance company, or you take control over the funds away from the insurance company and give it back to the patient.

All the government financial health care schemes of socialized medicine take the power away from the patient to ultimately decide what health care to receive. They give that power to the government or to the third-party insurance company. This is also the HMO model. The ultimate power in the HMO model to decide the health care you receive is in the hands of the HMO. They solve this economic problem by saying, "We'll weigh the costs and the benefits. We experts in the HMO will weigh the costs and the benefits. We'll decide what health care you get after we decide what's a net benefit for you and what's not."

The idea behind medical savings accounts is to shift the power over the resources back to the consumer and unite the resources and the decision in the hands of the consumer, so the consumer is deciding, weighing costs and benefits and deciding what health care is worthwhile and what health care is not.

How do the medical savings accounts work?

With an MSA, instead of all the funds going to the insurance company, only a modest portion is paid to the insurer for catastrophic insurance covering all bills over a high deductible.

The rest is paid into an individual account for each worker. The worker can then use the funds in the account to pay medical bills below the deductible amount. Moreover, the workers can use the funds for any medical services or treatments they choose. Whatever account funds the worker doesn't spend on health care can then be withdrawn and used for any purpose. So if they don't spend the money in their savings account on health care, at the end of the year, they can withdraw it and use it for anything.

To give you an example, let's say you spend, on average, $5,000 for a typical family insurance policy. Then suppose that, instead of giving the whole $5,000 to the insurance company, you give $3,000 to the insurance company. They say, "We'll cover all expenses above $3,000." You have a $3,000 deductible.

You put $2,000 into the medical savings account, and you're responsible for the first $3,000 in expenses. Whatever you don't spend out of that savings account on health care is yours. You can keep it at the end of the year and use it as you choose.

You can see how this changes the incentives. Now you're effectively spending your own money for noncatastrophic health care. Now you, as the consumer, are concerned. You really ask "Is this treatment necessary?" And, "Where can I get this done for the lowest cost?"

 Because you're the consumer, you have this cost concern. You now get the doctors and providers to start to compete. It's now in their interest to say to consumers, "Come to us. We'll show you how we can give you quality health care, but at the best price, at the most efficient cost." You start to stimulate a healthy cost competition among doctors and hospitals.

This is why medical savings accounts are a stake in the heart of socialized medicine. They do exactly the opposite of what the socialists want to do.

The socialists want to take the power and control regarding health care decisions away from individuals and shift them into the hands of government. In part, this is for them an economic solution, but in part, this also is an ideological solution, because in their view, the government bureaucrats are wise in matters of health care.

People in Washington tell me, "You know, once you get outside the Beltway, people don't know what they're doing in regard to health care. You know, all the wisdom on health care resides in Washington. Here, we know what health care people should be receiving. Out there, they don't know." This is a matter of ideology; the Left thinks this way. They believe the bureaucrats not only are wise, but, you see, individual people are selfish and narrow. "The bureaucrats serve in the public interest. So we want to take the power away from the people and give it to the bureaucrats."

That's their ideology.

This is why medical savings accounts are so dangerous to them, because MSAs do exactly the opposite. MSAs take the power away from the bureaucrats and give it back to the "ignorant and selfish" individual people.

Even before legislation was adopted, medical savings accounts were already sweeping across the country. There are now insurance brokerage firms which have been specializing for years in selling only medical savings account-type plans. As a result, over 3,000 companies in the U.S. already have medical savings accounts for their workers. It's rapidly increasing all the time. Their experience confirms the analysis I just gave you. Medical savings accounts consistently reduce health costs by 30 percent or more.

A medical savings account with these typical kinds of deductibles, let's say a $3,000 deductible, would subject 50 percent or more of total potential health expenses to the full market incentives and competition I was discussing.

When you have medical savings accounts, even costs above the deductible are reduced, because people try to stay below the deductible. People who would otherwise spend more than the $3,000 a year will end up spending much less because they're trying to save some of their medical savings account funds. There are studies which suggest you could reduce health costs nationwide by 30 percent just by an adoption of this medical savings account concept.

The Left's argument on the medical savings accounts has been, "Well, this is only good for the healthy and the wealthy; sick people and poor people wouldn't want this."

This argument is a complete sham, because the exact opposite is true. Medical savings accounts are better for sick people and they're better for low-income people.

If you look at a typical medical savings account plan such as I described, you have a $3,000 deductible and put $2,000 in the savings account each year. First of all, with that plan, you've got first dollar coverage. If you're a low-income person and you need to get an annual checkup or need to get a cancer screening or need some basic drugs, you have the money in your medical savings account from the first dollar. You can use it. The first $2,000 is available for all those things.

In a typical health insurance plan, you have a $500 deductible, plus a 20 percent co-insurance. Those basic things are never covered. In fact, a lot of basic things are not covered even above the deductible because they won't cover your medical checkups. But you can use the money in your medical savings account for any medical service you choose. So if you=re a low-income person, you would rather have that first dollar coverage.

Moreover, with the medical savings accounts, you only have exposure of a thousand dollars under this plan. The most you could pay out-of-pocket each year is a thousand dollars.

With a typical, standard fee-for-service plan, you have a $500 deductible and a 20 percent co-payment of the next $5,000. Typically, you can be liable for $1,500 a year or more.

So you have less exposure, you have more control over the funds, and you have first-dollar coverage with a medical savings account. Both low-income people and sicker people would prefer medical savings accounts for that reason. And that has been the experience where this is tried. Where workers are given a choice of medical savings accounts, over 90 percent of workers choose the medical savings accounts. There's no tendency for lower-income people or sicker people not to choose the medical savings accounts. Also with medical savings accounts, you are in ultimate control over what those funds are spent on.

Because they reduce costs so much, MSAs make fee-for-service coverage for catastrophic insurance more affordable, as opposed to being forced into an HMO. If you're a sick person, you don't want to be in an HMO because they control your health care. If you're a sick person, you want an MSA because then you control your health care. That's been the experience.

Legislatively, the goal is to provide medical savings accounts the same taxes and treatment that applies to other forms of employer-provided insurance.

Employer payments into a medical savings account should be deductible to the employer and not included in the employee's income, just as with standard, employer-provided health insurance. That's what we're trying to do by enacting the law, just equalize the tax treatment.

Late in the 104th session of Congress, the Medical Savings Account Bill was finally enacted into law, but it is a very flawed bill. The people who fought for it, such as Congressman Bill Archer, should be commended for fighting for it. They compromised in the end to get something, but the result is not a very good bill. The enacted legislation would allow medical savings accounts to only the first 750,000 workers who are either in small businesses of less than 50 workers or who are self-employed.

I don't understand, constitutionally, how these people think they're going to have a tax provision which says the first 750,000 people get the tax break and that after that, you don't get it.

 It seems fundamentally to violate something called the equal protection of the laws. Also it's administratively unworkable.

It's also going to hamper the development of the medical savings account market. Companies are not going to want to develop medical savings accounts and offer them if the market is limited and they can't sell it broadly to the general public. Also, the provision sunsets in four years, which is another reason why a lot of companies are not going to want to bother with this in the first place.

Medical savings account supporters need to introduce a new bill in the next session of Congress that provides for real and vigorous medical savings accounts.

Now let me just say a word here about Medicare and how it relates to medical savings accounts. Those who did not enjoy the recent debate over Medicare should consider this. The fun has just begun. Because until Medicare is fixed, this issue is going to be with us for a generation, only bigger and bigger.

People have not heard how broke the Medicare system is, how really broke it is. It's not just that it runs out of money in five or six years. At best, over the long run, by the time today's young people retire, the current sources of financing for Medicare will only finance a third of the projected benefits. It'll probably be worse than that because that's under the government's intermediate projections, which are over-optimistic.

Currently, a 2.9 percent payroll tax funds part of Medicare. By the time today's young workers retire, that will have to be tripled to almost nine percent, unless the system is changed. Just the Medicare tax would have to be at nine percent.

You would have to quadruple premiums relative to income and, still, the remaining deficit in the Medicare system would be larger than the entire federal deficit today.

This is a tremendous challenge for Republicans. How are you going to deal with this system without leading to a massive tax burden on the American people, both in terms of income taxes and in terms of payroll taxes?

Medical savings accounts hold the key to this problem. If they can reduce costs by 30 percent, there would be a huge reduction in that long-term financial gap.

Moreover, elderly people could get better benefits from a medical savings account, instead of Medicare.

We did a study at the National Center for Policy Analysis. We had the best actuaries in the country look at this, and they said that with the money spent each year on Medicare by the federal government, you could finance a medical savings account for each elderly person with a $3,000 deductible and $1,500 to put in the account each year.

The elderly cost more, on average, for health expenses, so that's how it would work out: $3,000 deductible, $1,500 into the medical savings account each year.

This would be better than Medicare in at least four or five big ways.

First of all, it offers unlimited catastrophic coverage. The medical savings account pays for everything over $3,000. Medicare does not. It imposes many limitations. It runs out after a certain period of time. That's why we had this big fight over catastrophic coverage for Medicare in the late 1980s.

You may remember, they tried to extend it and then they imposed a tax on the elderly. But then they came back and had to repeal it. You can solve that problem with medical savings accounts, because MSAs give complete catastrophic coverage.

With medical savings accounts, you have a cap on out-of-pocket expenses. The most an elderly person could pay each year with a medical savings account is $1,500 under this plan. With Medicare's deductibles, co-payments and other limitations, there is no limit on out-of-pocket expenses. You can be liable for tens of thousands of dollars a year just in categories supposed to be covered by Medicare. That is why 70 percent of the elderly buy Medigap insurance, to cover those gaps, at an average cost per person of $1,200 per year for Medigap coverage.

With the medical savings account, they could skip Medigap entirely and add that $1,200 to the $1,500 medical savings account. Then they'd have almost the entire $3,000 covered each year.

And of course, if they don't spend it this year, it rolls over; next year, it's still their money. Or they can use it for something else important to them.

You're free to use the funds in an MSA on whatever health services you choose, not just those things covered by Medicare. Many elderly people have to take certain prescription drugs, and that may cost $500 or more a year. They may not see a doctor the entire year, but they have to take pills every day.

Many of them write to their members of Congress and say, "I just can't afford that."

But the prescription drugs are not covered by Medicare. If they chose the medical savings account, they could use part of that $1,500 each year to buy the prescription drugs or, again, to pay for anything else they want. Again, an MSA is a better solution, a better program than Medicare.

You also have more freedom of choice and control with the medical savings account. With Medicare, the government promises people all this free medical care, but then the government's public policy is not to pay the doctors for it. That's effectively what our policy is becoming. They are restricting more and more what Medicare will pay for.

As a result, many doctors are choosing not to serve Medicare patients any more. Many facilities are choosing not to serve them, or doctors won't give them the best treatments or the most advanced care or the best pacemakers or whatever. This results from the limitations on reimbursement.

Those limitations would not apply with the medical savings account, with which you are free to see any doctor in the marketplace and get any service or treatment offered. So medical savings accounts will provide the elderly with better benefits while going a long way to solving the cost-control problem. That's why this is so appealing. You can shift power out of Washington into the hands of people. This is a very positive way to approach the Medicare problem.

Of course, sick people would prefer the MSAs over Medicare for all these reasons as well.

If you're sick, in particular, you want no cap on catastrophic coverage. You want unlimited catastrophic coverage. You want a cap on out-of-pocket expenses. You want to be able to go to any doctor and get any treatment. You want to have control so you can use the funds for whatever health service you want, even things not covered by Medicare. So for all those reasons, a sick person is going to choose an MSA, not Medicare.

We must focus on this, the heart of Medicare reform. The way to do this is to say to the elderly that each will have the freedom to take their share of funds out of Medicare and buy anything they want in the private sector. They won't have to limit it to medical savings accounts. I'm confident, though, that when that's open to them, the majority will choose the medical savings account option.

Finally and to close, I want to say a word about the current, great political predicament. To me, it seems that the Republicans hit a wall at the time of the budget fight last year and still haven't regained the offensive.

What I want to say here is there is only one way to get out of this current political predicament and regain the offensive. The only way to win over the long run is to frame the agenda, to focus the debate on our popular ideas.

Let's forget all this talk about the focus groups and appearing this way or in that style. To create fundamental political power over the long run, we need to go back to our basic agenda, to focus less on the focus groups and more on talking to the American people about what's right and what's wrong. 

QUESTION: This may be a really dumb question, Peter. But I read an article in the Wall Street Journal that tried to list the problems with MSAs. I read it over about three times, and I still couldn't figure out if there is a good argument against them. Is there something that I'm overlooking or some argument that really does make sense against MSAs that we can't answer well?

 MR. FERRARA: Well, the argument that the Left makes is they're only for the healthy and the wealthy. Of course, the Left talks only in rhymes these days. I explained why that's completely wrong. It's better for low-income people, and it's better for sick people.

I was testifying before Congress. They have a professor at Johns Hopkins University. She's one of the grand ladies of socialized medicine. The Democrats trot her out to testify all the time when they have hearings on health care. She always shows up with eight million charts and graphs, etc., which all lead to the inevitable conclusion that the government must take everything over because the people cannot possibly handle this. She argued, "Well, it's terrible for sick people. It's terrible for low-income people."

I sat there with these charts to show that, in fact, lower-income people and sicker people would be better off for the reasons I talked about. The benefits are more attractive for them. No response. She could not answer. Nobody there wanted to touch this. They've got their party line, and they figure, "Hey, this guy Ferrara's not going to be on the evening news. Who cares? Who cares what he says?"

The analysis I gave you shows why there's a lot of furious opposition to MSAs.

First of all, it goes to the heart of the left. It does the opposite of what they want to do. But also there's a big commercial interest now developed in HMO. They don't want to see medical savings accounts. They're the opposite of what they're trying to do. They're trying to sell it to the average person:Give it to us. We're the experts. We'll take care of it for you. We'll tell you when it's time for you to die and what health care you get.

Since I have a libertarian background, I want people to be free to choose HMOs. I don't want to make them illegal.

Libertarians believe that people should have the freedom to make mistakes. If you want to make a mistake and choose an HMO, that's your business. I'm not in favor of proposed laws by which a lot of people want to shut HMOs down.

Let HMOs compete in the marketplace, and let people choose what they want. I'm sure, over the long run, people will choose to have control themselves.

But now there=s this commercial interest uniting with the Left to try and squelch medical savings accounts. That's the real source of the attack. A lot of HMO lobbyists run around Washington. A lot of Republican lobbyists are bought up by HMOs and spend their time going around talking to AARP and people in Congress about how wonderful HMOs are, and all the rest. They disparage MSAs.

Republicans were very strong last year on the welfare plan. I was in a number of fights over there with the Medicare plan, with the HMOs. On every one of them, Republicans stiffed the HMO folks, who were waving lots of money around. They went with the free-market ideologues on one issue after another.

We just want a level playing field. People can choose what they want, HMOs or medical savings accounts. The language in the bill at the end said precisely that.

But one problem with the Republicans is that, every time you ask them, "What's your Medicare plan?" they start talking about HMOs. You may have seen that on TV a lot. And do you know why that is? Because these HMO lobbyists are camped out in their offices all the time, waving around lots of money. That's all they hear about, so that's what comes to mind.

A lot of them are unfamiliar, uncomfortable talking about medical savings accounts. I think a big, fundamental mistake was that we didn't present that plan well to the public. 

QUESTION: I think you may have answered my question already, which was why any Republicans should be against MSAs. But let me just follow up and ask you, are there sufficient special interests in favor of MSAs? Or is this one of these great causes of truth that simply isn't going to be heard because the resources aren't there?

MR. FERRARA: Well, MSAs are just like school choice and a lot of other issues such as tax issues like tax cuts, tax reform or the flat tax. It's the broad public interest against the special interest. The people in general prefer having control over their own lives and their own resources and the fruits of their own labor. But we don't have a commercial interest nearly as strong as the other side.

The biggest contributor to MSA causes has been Golden Rule Company. A very funny thing has developed. The Left is now out to get Golden Rule. A theme developed in the liberal press is, "Medical savings accounts and Peter Ferrara and John Goodman and the National Center for Policy Analysis and the Cato Institute and all these MSA people are just fronts for Golden Rule.

"They're puppets of Pat Rooney. This is just a scheme to make Golden Rule rich. And we can prove this because Pat Rooney makes contributions to NCPA, Americans for Tax Reform and Cato Institute.

"That proves these people are just puppets for a scam to help the healthy and wealthy, all for the greater glorification of Golden Rule." People who know the truth know that this was an ideological, free-market-philosopher idea that developed out of the think tanks, Cato and the NCPA, in the early 1980s. The idea went from there out to the country. We were the ones who went to Pat Rooney of Golden Rule and said, "Here's a great idea." He had the foresight actually to start selling medical savings accounts, without asking the government's permission. And the idea succeeded in practice.

The Republicans are strong supporters of MSAs. Don't say they're not supporters. They fought for them when they had very little special-interest help on it. Many special interests were fighting them.

It's just that the special interests control the Democrats. The Left and the HMOs, they're over there, targeting their money around. That creates the burden. They buy actuaries to produce studies, to tell falsehoods about MSAs.

All this ugly stuff is happening here, just as on other issues where there's a special-interest coalition against only the broad public interest, as on school choice and all these other questions.

But I think we're going to win the medical savings account fight, because it's too obvious to people. I was on a liberal radio talk show. I described medical savings accounts. The host said, "Gee, this is great. You found a way to screw both the government and the insurance companies. I really like this."

So I don't think they're going to be able to stop us. 

QUESTION: Is there a clearinghouse for horror stories on HMOs and the socialized medicine business? I'm motivated to ask the question in part because I notice that there's political gain possible by ensuring that new moms didn't have to go home after a day. I don't want to be on the wrong side of that argument. I have eight grandchildren and know well that they're running new moms out of the hospital sooner.

But I'm even more appalled by what happened to a friend of mine who very recently had vertebra replaced. She was kicked out of the door of the hospital within 24 hours, and her doctor went duck hunting. It just seems to me that if you can get that kind of a message out, with specific cases, that the American people can bring the pressure to bear to set this issue right.

MR. FERRARA: Well, this is an interesting, dynamic issue because the Left has actually come to hate HMOs now also, at least the grassroots Left.

I spoke to a nurses' association in Washington, a left-wing group. It was very much an anti-HMO rally. I got massive standing ovations, although everyone else who spoke was a socialist.

I called the HMOs the greatest example of corporate fascism we've ever had in America. They went wild. All over America, employers are forcing their workers into HMOs, and the workers don't want to be there.

Where were the supposed great exponents of the working people, the Democrats, on this issue?

Some of them want to start raising this issue.

We shouldn't be defensive. I don't want to defend what the HMOs do. I think the incentives they have aren=t right. I don't want to make them illegal. I don't want the government to tell them what to do. If people want to choose them, let them choose them. But I don't want to have a system where people are forced into HMOs. That's what we're against. That was the essence of the Clinton plan, and that's what employers are doing across the country.

Stan Evans is a good clearinghouse on this. Stan Evans has been carrying on a crusade on this issue. And when this issue arises, when and if the Left starts to pick up on it, let's ride the wave. Let's say, "Yes, the solution is medical savings accounts, not socialized medicine." 

QUESTION: I want to know your plans for getting the tax benefits granted to self-employed people and people who currently are allowed to deduct only a fraction of their health insurance premiums. The current system is not fair.

We know that if you do that, there will be a reduction in revenue because it'll increase tax deductibility of benefits. What kind of arguments are you prepared to put forth there? There's where I think you could get a real big grassroots constituency to join behind you with your program.

MR. FERRARA: I've been writing papers for years to say, "Here's the free-market agenda." The free-market agenda includes expanding the deductibility of health insurance to individuals and the self-employed. The Republicans included that in their agenda and they tried to enact that a number of times.

If you look at the papers produced by Cato and the NCPA and the things I've written, we've been talking about exactly that. A lot of Republican bills have included that. I think legislation passed last year had some provision on that.

Now keep this in mind. There's more than one way to skin this animal. You want to put all these things on a level playing field. If you adopt a flat tax like, say, Dick Armey has proposed, you don't need a special provision for MSAs. You'd end the tax exemption for corporate health benefits and have everybody subject to the same rules. Everything would be like an MSA. A flat tax would end overtaxation of capital, so either you'd have an IRA automatically or you'd have some other way of handling it.

Just adopt a flat tax. Then you don't need a special legal provision for MSAs. You could establish your MSAs. They would work fine. Or you could say, "Well, let's extend this exemption to everybody who currently applies." You just want to make the playing field level.

What's fascinating is the medical savings account idea started taking off even before they leveled the playing field. The cost benefits and the freedom of control of MSAs were so appealing that thousands of companies went out and started them even though they have a tax-disadvantage status.