This committee has already heard quite a bit of testimony regarding the various possible factors behind the return of annual double‐digit percentage increases in health care spending and health insurance premiums. Some of those factors may remain outside the immediate reach of public policy, such as increased consumer demand for health services in an aging and relatively wealthier society. Other factors include a mix of both higher costs and even more highly valued benefits, such as more effective prescription drugs and innovative technological advances in medical diagnostics and treatment.
Indeed, our society may well decide to spend even higher and higher shares of our nation’s resources on health care in future years — as long as someone, somewhere can be found to foot the bills — but American consumers will receive more value for each dollar they spend only if the distorting effects of government’s multiple role as a regulator, purchaser, and subsidizer of health care are reduced. Our objective should be neither to artificially keep spending levels higher, nor lower, than their market‐determined costs, but instead to allow individual consumers to seek the best value that balances their spending preferences and priorities with the resources that they can command. I’ll discuss a little later how best to sort out the respective roles of efficient market‐based mechanisms for delivering health care and societal goals of safety net care, income security, and welfare assistance.
A number of the cost‐drivers behind higher health care bills are related in part, if not entirely, to current public policies that are outside the primary scope of my remarks today. Mandated health benefits and excessive health services regulation at the state and federal levels unquestionably boost health care costs — estimates might range from a conservative 10 percent to as much as 25 percent, on average — and they contribute significantly to the level of Americans who cannot afford to purchase private health insurance. Medical malpractice costs, including defensive medicine, cannot be eliminated but they can be made better or worse by particular government policies.
Although adoption and dissemination of advanced health care technologies is frequently blamed as the key culprit in the long‐term secular trend toward rising health care costs, that sort of oversimplified analysis often neglects to ask whether (1) our lives are better off, on balance, even after paying those higher costs, and (2) how the pattern and pace of such technological advancement might change if we relied less on third‐party payers to fund it and increased the share of health spending that is paid out‐of‐pocket by individual consumers.
Another related set of governmental and non‐governmental factors have combined to diminish the former role of managed care insurers in holding down the costs, if not improving the value, of private sector health care. The managed care backlash, in conjunction with provider pushback on prices, the pendulum swing of the insurance underwriting cycle, and employers’ competition for scarce labor, may have been inevitable to some degree — but public policy efforts to regulate, if not outlaw, many managed care practices and to encourage court challenges to third‐party restrictions on access to care certainly contributed to a loosening of referral and authorization rules, as well as more inclusive provider networks. As a result, today we have more choice and access to care in many health insurance plans, as long as we (or our employers) still can afford to pay the higher premiums.
Medical Savings Accounts & Cost‐Sharing Clones
In the current environment of rising health care costs, the fading away of managed care’s third‐party controls on the supply of health care, and (apparently) continued political resistance to even higher levels of government involvement in the regulation and financing of health care, more employers and their employees are turning to less comprehensive insurance coverage, greater individual cost‐sharing, and reduced “insured” benefits as the most promising and, until now, relatively less‐explored means to control health care costs.
Consumer‐driven health care ranges across a wide continuum of health financing vehicles — from modest increases in cost‐sharing under more conventional employer‐sponsored health plans (higher deductibles, multi‐tiered copayments for types of covered prescription drug purchases, higher out‐of‐network coinsurance percentages) to various types of two‐tiered, defined contribution health plans (combining a higher‐deductible group insurance policy with an individual health savings account) to the “real thing” — medical savings accounts (MSAs).
In a health care world where “nobody else” seems to managing either the cost or the quality of health care very effectively, MSAs and their cost‐sharing cousins are picking up the baton and leading employers and their workers toward a consumer‐driven model of health care purchasing.
Note that a recent Watson Wyatt Worldwide survey found that only 43 percent of workers were satisfied with the overall performance of their health plan. Less than half (48 percent) trust their employer to design a plan that will provide the coverage they need. Approximately the same percentage (47 percent) think that better health plans are available for the same cost. And almost four out of ten employees want their employer to contribute a fixed dollar amount toward the premium for any health plan — even if it means finding their own health plan.
The evidence is overwhelming that increased cost sharing reduces health insurance premiums substantially. For example, Jason Lee and Laura Tollen recently noted in a June 2002 article in Health Affairs that increasing cost sharing from a plan with $ 15 copays and no deductible to one with 20 percent coinsurance and a $ 250 deductible reduces premiums by about 22 percent; and a combination of 30 percent coinsurance and a $ 1000 deductible would reduce premiums by 44 percent. Offering less comprehensive insurance plans with greater enrollee financial responsibility is designed to encourage enrollees to be smarter consumers of health care services, limit demand for less beneficial “discretionary” care, seek out higher‐value options, and save money for more critical medical needs in the future.
The recent revival of greater cost‐sharing and so‐called consumer‐driven health plan options may provide a partial transition vehicle for employers who are rethinking their health benefits strategies but remain ambivalent about relinquishing most of their role in structuring employees’ choices and monitoring health plan vendors.
The “full‐strength” version of consumer empowerment, of course, remains an MSA. MSAs provide a health care savings account in combination with a high‐deductible health insurance policy. The savings account is controlled by the insured person and used to pay routine health care expenses. The accompanying catastrophic insurance policy covers more substantial health care costs. Because the cost of such a policy is usually significantly less than the cost of a low‐deductible policy, the money saved may be used to increase contributions by an individual (or his employer) to an MSA administered by a designated trustee or custodian.
Unspent MSA funds, including any interest or investment earnings, accumulate from year to year, providing money to cover possible medical expenses in the future.
MSAs help control costs, improve access to health care, expand consumers’ choice in and control of health care, and increase savings.
By putting individuals back in control of more purchasing decisions, MSAs create incentives for individuals to purchase health care more prudently and reduce their overall health care spending in a given year.
Whereas out‐of‐pocket payments by individual consumers accounted for about 50 percent of total health care spending in 1960, the share of third‐party payments (by private health insurers, employers, and government agencies) for health care has grown to about 80 percent. Third‐party payment of health bills insulates individual consumers from the real cost of their health care decisions and treatment. Consumers have less reason to avoid unnecessary care, question costs, or shop around for the best treatment available at a reasonable price, but they have every incentive to demand more services.
Excessive third‐party coverage with low deductibles increases administrative costs, because every small bill must be submitted for review and checking for accuracy.
Instead of limiting the supply of desired medical services, MSAs lower the demand for those services by requiring individuals to pay directly and up front for their discretionary health care choices.
The RAND Health Insurance Experiment, conducted from 1974 to 1982, demonstrated that the more people had to pay for medical are without insurance reimbursement, the less they would spend on total medical care.
Because MSA plans are linked to high‐deductible insurance that covers health claims that are more catastrophic in nature, they make the cost of insurance coverage more affordable for most Americans. Less -comprehensive coverage will mean lower premiums for a larger fraction of people with low incomes. The majority of standardized insurance policies currently available are generous and expensive — making them unaffordable to low‐income people. On the other hand, catastrophic insurance for very large, less‐predictable health care expenses forces consumers to bear the full marginal costs of health care up to the point where their use of health care exceeds the deductible.
Under many third‐party health benefit arrangements, consumers have little incentive or ability to become more knowledgeable about health care. MSAs stimulate consumer demand for information about the quality and price of health care.
A number of studies have illustrated that MSAs improve health plan options not just for affluent and health individuals, but for all Americans.
In April 2000, RAND Corporation researchers examined the effects of making MSA options available to small businesses. RAND rejected the assumption that MSAs appeal most to the wealthiest and healthiest workers. It found that HMOs would remain more attractive to higher‐income workers, primarily for tax reasons, and exceptionally good health risks would be more likely to decline any insurance at all than to select the MSA option.
A 1996 study by National Bureau of Economic Research analysts concluded that most workers would end up retaining a substantial portion of the contributions they made to MSAs by the time they retired. Approximately 80 percent of employees would have retained over 50 percent of their MSA contributions by the time of retirement, and only 5 percent of workers would have saved less than 20 percent of their contributions. Although workers with high health care expenses in one year tend to have lower but still higher than average expenses in the next few years, the concentration of annual expenditures declines continuously as more and more years of expenditures are cumulated. High expenditure levels typically do not last for many years.
Another 1996 study of Ohio‐based firms that offered MSAs that did not qualify for tax advantages under the Health Insurance Portability and Accountability Act (HIPAA) determined that the employer’s total cost for family coverage under those MSA plans averaged 23 percent less than traditional family coverage, yet the average employee with family coverage also would be $ 1355 better off under the worst‐case (maximum out‐of‐pocket liability) scenario.
So, if MSAs are so great, why don’t we see more of them in the marketplace? Primarily because the federal MSA program authorized under HIPAA in 1996 has been unnecessarily handicapped, if not permanently crippled, by unreasonable restrictions on what still remains a “demonstration project.” Congress still needs to permanently authorize federally qualified MSAs; lift the enrollment cap and allow an unlimited number of people to have MSAs; expand MSA eligibility to include employees in businesses of all sizes, as well as employees without employer‐sponsored insurance; allow MSA plans to offer a much wider range of deductibles; allow MSA holders to fund fully their MSAs each year, up to 100 percent of the insurance policy deductible; allow employers and employees to combine their contributions to MSAs at any time within a given year; and either preempt first‐dollar state‐mandated benefits or provide the flexibility for MSA plans to adjust to comply with those conflicting mandates.
In the case of MSAs, most of the problems have been caused at the federal policy making level. Aside from making equivalent state income tax benefits available to MSA owners and avoiding or eliminating restrictions on high‐deductible insurance policies subject to state regulation, state policy makers should continue to press Congress to make MSAs universally available. They also might consider offering MSA‐like health plan options to state employees as part of their benefits package, in order to boost demand in this currently thin market.
Remove Barriers to Growth of Defined Contribution Health Plans
Despite the potential benefits of two‐tiered defined contribution (DC) health plans, as well as the recent tax guidance issued by the Internal Revenue Service clarifying how accumulated balances in an individual employee’s health reimbursement accounts may be treated when rolled over at the end of a year, several regulatory barriers to the future growth of DC plans still need to be removed.
First, “pure” DC plans for fully insured employer groups, in which an employer distributes defined health benefits contributions to each eligible employee and allows them to purchase their own individual or non‐employer‐group insurance coverage, run the risk of being regulated inconsistently. They might be treated both as employee welfare benefit “group” plans and as “individual” health plans under state law.
To clarify the regulatory treatment of any plan or fund under which medical care is offered to employees by an employer solely through provision of a monetary payment or contribution to a participant or beneficiary and that is used exclusively to purchase individual health insurance coverage, state policy makers and other interested parties should press CMS and members of Congress to clarify that such plans or funds should not be considered an “employee welfare benefit plan” for regulatory purposes under the Employee Retirement Income Security Act (ERISA). However, such plans or funds would retain their “group” tax exclusion benefits under the Internal Revenue Code. Such hybrid treatment (group for tax purposes, individual for regulatory purposes) would be premised on the conditions that (1) only the employer, rather than individual employees, may decide to provide health benefits through defined contribution payments, and (2) such defined contributions must be provided to all employees or all members of a class of employees based on work‐related distinctions.
Second, the defined contributions employers make to individual employees in pure DC plans, to be used to purchase individual health insurance coverage, should be allowed to vary on the basis of health status in the event the employer uses an approved risk‐adjustment mechanism. That is, employers would be allowed to make larger contributions to workers with poorer health status to offset the higher premiums they would face when they seek to purchase individual coverage. State insurance regulators would need to approve this exemption from HIPAA non‐discrimination rules for “group” plans, or press CMS to update and revise its past regulatory interpretations of this provision.
Lower Costs Trump Insurance Subsidies
To achieve better health outcomes, we need to provide individual health care consumers with stronger incentives to be cost‐conscious in using scarce medical resources. Making the market‐based cost of care more transparent to all parties involved in health spending decisions will encourage its more efficient consumption and delivery. Reducing the long‐term rate of growth in the cost of health care remains more important than (and, beyond a certain point, operates at cross‐purposes to) expanding the scope and scale of subsidized health insurance coverage. Health insurance subsidies increase medical costs and the demand for health insurance, creating net welfare losses estimated at 20 percent to 30 percent of total insurance spending. In the opposite direction, access to “free” care dampens the demand for private health insurance. In striking the necessary balance, the effects of comprehensive third‐party insurance on raising costs and limiting access to health care substantially outweigh any disincentives to obtain insurance protection that may be caused by direct provision of charity care. When rising health care expenditures outpace wage increases, their strongest effect is to reduce health insurance coverage for low‐income workers. Hence, at the margin, increasing incentives to purchase less‐comprehensive health insurance and filling in urgent gaps in direct delivery of health care through safety net mechanisms may produce more affordable and accessible health care.
Market‐Driven Deregulation via Competitive Federalism
Empowering consumers with a greater diversity of affordable health benefits choices will require exposing exclusive state health care regulation based on geography to competition from market‐friendly regulation across state lines.
Lower‐income workers in small firms bear the brunt of excessive state health insurance regulation, because their employers generally are unable to self‐insure and, thereby, gain ERISA protection from state benefit mandates, restrictions on rating and underwriting, and other regulatory burdens. In general, increased state regulation has raised the cost of health insurance and limited the range of benefits package design. A wide assortment of small‐group regulatory measures imposed by many states during the 1990s failed to improve levels of insurance coverage and, in some cases, priced low‐risk consumers out of the small‐group market. Various state government regulatory attempts to force low‐risk insureds to subsidize high‐cost insureds through devices like modified community rating and guaranteed issue often were counterproductive, because they triggered premium spirals that drove younger, healthier, and lower‐income workers out of the voluntary insurance market. In other words, state health insurance regulation has been part of the problem, not part of the solution.
Rather than try to solve state‐based regulatory failure with a new round of heavy‐handed federal rule making or preemption, the better route to restoring a market‐friendly, consumer‐empowering environment at the state level is to facilitate competitive federalism‐revitalized state competition in health insurance regulation that reaches across geographic boundary lines. (The closest successful model for such competitive federalism involves corporate law and the business of corporate charters, in which Delaware has specialized and excelled by consistently producing benefits to its “customers”-investors.) Such regulatory competition would limit the excesses of geographically based monopoly regulation. Currently, insurance consumers (at least in the non‐self‐insured market) are subject to a single state government’s “brand” of insurance product regulation. Solely by virtue of where they live, they are stuck with the entire bundle of their home state’s rules. Short of physically moving to another state, they are unable to choose ex ante the type of health insurance regulatory regime they might prefer and need as part of the insurance package they purchase.
Competitive federalism could facilitate diversity and experimentation in health insurance regulatory approaches. It would discipline the tendency of insurance regulation to promote inefficient wealth transfers and promote individual choice over collective decisions driven by interest group politics. In short, it would improve the quality of health insurance regulation, thereby enhancing the availability and affordability of health insurance products.
Insurers facing market competition across state lines would have strong incentives to disclose and adhere to policies that encouraged consumers to deal with them. Employers and individuals purchasing insurance would migrate to state regulatory regimes that did not impose unwanted mandates but, instead, fit the needs of their consumers. State lawmakers would become more sensitive to the potential for insurer exit. At a minimum, interstate regulatory competition would provide an escape valve from arbitrary or discriminatory regulatory policies imposed at either state or federal levels.
Key design requirements for regulatory competition in health insurance would include:
- Only one sovereign has jurisdiction over a particular set of health insurance transactions, and its law controls the primary regulatory components of the regime governing them. Other states provide regulatory reciprocity (also known as the “principle of mutual recognition” in the European Union), by respecting and enforcing that state’s insurance charter and its accompanying rules. Such reciprocity works through private arbitrage of jurisdictional competition, rather than politically mandated harmonization that suppresses competition.
- Health insurers can choose their statutory domicile, or otherwise determine the applicable forum and applicable law, and make it part of the purchasing option they present to consumers. Insurers and their consumers can exercise the right of free exit: they can vote with their feet and their pocketbooks. Insurers can choose their domiciles, the markets where they prefer to operate, and the bundle of laws and regulations attached to the products they sell. They can relocate to alternate jurisdictions at relatively low cost. Consumers may choose not only the state in which they live but also the legal rules attached to the insurance products they buy.
- States must receive some benefits, such as tax revenues, from competing in the production of specific laws and regulations that reduce insurers’ business costs and increase the value of insurance products. Conversely, states also must feel within their own borders a sufficient number of any negative consequences of the regulatory regimes they choose to adopt and “export” to consumers in other states.
- Competition for the marginally informed consumer must operate to protect other consumers who are not aware or informed of the particular regulatory regime.
- Rather than present a single set of contract terms on an all‐or‐nothing basis, insurers can offer consumers a menu of alternative policies that are priced to reflect different regulatory approaches.
- Solvency regulation should remain decentralized and kept at the state level, to avoid federal domination over other regulation in the name of protecting consumers and taxpayers. Regulatory competition for insurance product design, pricing, and pooling could be accommodated within the current state‐based guaranty fund system in a manner that limits an individual state’s opportunities to impose costs on other jurisdictions.
Several mechanisms or paths could lead to vigorous interstate competition in health insurance regulation. A more indirect, but sustainable, approach would involve strategic use of choice of forum clauses, and perhaps choice of law clauses, in health insurance contracts. Insurers would condition sales of a particular policy on a consumer’s consent to the designated litigation forum. That forum would be matched to the state whose regulatory law was selected. This choice of forum would need to be adequately disclosed and executed at the beginning of the contractual period, not just at the time of litigation. Insurers could increase the likelihood that the agreement would be enforced and regulatory competition enhanced by linking the designated forum to their company’s domicile‐rather than to the site of the sales transaction.
Federal law could provide some shortcuts‐such as a statute mandating enforcement of choice of forum contracts under the commerce or full faith and credit clauses of the Constitution. Congress also could provide uniform disclosure requirements for choice‐of‐forum and the insurer’s domicile in insurance contracts.
A more direct federal statutory approach might set an “insurer domicile” rule, in place of a “site of transaction” rule, for determining applicable state law and regulatory authority‐at least as a default rule for multi‐state transactions where the respective parties do not otherwise designate operative law. For example, Rep. Ernest Fletcher (R-KY) recently introduced the “State Cooperative Health Care Access Plan Act of 2002” (H.R. 4170), which would authorize a health insurer offering an insurance policy in one primary state (the primary location for the insurer’s business) to offer the same policy type in another secondary state. The product, rate, and form filing laws of the primary state would apply to the same health insurance policy offered in the secondary state.
Another route to interstate competition in insurance regulation might be built on decisions by individual states to grant regulatory “due deference” to determinations by out‐of‐state insurance regulators that a particular insurance company is qualified to conduct such business. Once an insurer submitted evidence of good standing in its domestic jurisdiction and (if different) in the jurisdiction where it conducts the largest share of its health insurance business, it would qualify for licensure in the state granting such regulatory deference. Regulators in secondary states would be most likely to treat proof of licensure and good standing in the primary state as prima facie evidence of qualification for licensure in the secondary state, while still requiring additional routine documents and fees and compliance of the primary states’ insurance department with broadly accepted accreditation standards, such as those maintained by the NAIC. Initially, an individual state’s decision to grant regulatory due deference would be similar to a declaration of unilateral free trade in health insurance products. The state would be eliminating or reducing its own regulatory restrictions on out‐of‐state insurance to benefit its citizens and to provide a model for other states to emulate.
A Real Safety Net for the Medically Uninsurable
Medically uninsurable individuals represent a small percentage of the uninsured population (roughly no more than 1 percent to 2 percent of the uninsured have ever been denied health coverage for medical reasons). But they present the strongest case for public assistance. To some degree or another, at least 29 states currently operate high‐risk pools that make insurance coverage available to the uninsured and subsidize their premiums. States with well‐structured and adequately financed high‐risk pools are more successful in keeping their individual health insurance markets competitive and insurance rates affordable. Such pools allow the individual insurance market to operate efficiently, while carving out for special treatment high‐cost individuals who are beyond the capacity of the individual market to handle on an unsubsidized basis.
However, not all state high‐risk pools are adequately financed (ideally, the funding should come from general revenues rather than through taxes on insurers within the state), and many states do not provide such subsidized coverage at all. Using the rationale that the “medically uninsurable” (at least to the extent that the unsubsidized price to insure them privately far outstrips their ability to pay) should be considered “medically needy,” mandatory Medicaid coverage and matching federal assistance should be extended to this class of beneficiaries, provided that the federal funds are channeled through state‐operated high‐risk pool programs that meet certain minimum criteria (for example, premium ceilings, waiting periods, rejection by at least one insurer, catastrophic conditions allowing automatic pool acceptance without prior carrier rejection) already in practice, but not “new” ones. The scope and scale of this Medicaid‐financed high‐risk pool coverage for the medically uninsurable would be capped at an upper ceiling that equals the higher amount of all individuals in a state facing private insurance premiums that are at least 200 percent of standard rates (plus those who cannot obtain any coverage at all, for medical reasons) or 2 percent of all people covered in a state’s individual insurance market.
Citizens’ Appropriations for Charity Care
To bolster financing for charitable safety net care and ensure that it is delivered with private‐sector efficiency, a new 100 percent, dollar‐for‐dollar federal income tax credit (above the line) should be provided for certain charitable contributions to provide health care services to the low‐income uninsured. These “citizen appropriations” would be modeled in part on the Arizona tax credit for education “scholarships.” The maximum individual credit amount allowed would be no greater than 10 percent of an individual’s federal income tax liability in a given tax year. Eligible donations would have to be made to approved organizations that provide health insurance coverage, health care services, or payment of medical bills to uninsured individuals who are not eligible for optional federal health tax credits or Medicaid assistance. Organizations eligible to receive the donations must either be a non‐profit, in accordance with section 501(c)(3) of the Internal Revenue Code, or, in the case of health care providers and that who wish to receive direct donations, they must create a separate non‐profit subsidiary to receive and distribute such funding. Eligible organizations could spend only as much of their donations as they could document were directed toward paying the health care expenses of qualified uninsured individuals. Taxpayers could designate the institution to which their donation would be directed, but they could not pinpoint the individual beneficiary.
States could play a role in jump‐starting this process, by providing their own state income tax credits along similar lines for such “citizen appropriations,” even in the absence of federal policy action.
“Getting Over” Adverse Selection
Despite hypothetical concerns about adverse selection and risk segmentation in a more competitive, market‐based private health insurance system, there actually is little evidence that individuals and families can identify and anticipate most of their future medical expenses in ways their potential insurers cannot. A recent study by Cardon and Hendel in The Rand Journal of Economics finds little empirical evidence of information asymmetries, market failure, and adverse selection in health insurance markets. Differences in health expenditures between the insured and uninsured are mostly due to observable differences in demographics (age, gender) and price sensitivities (higher‐income workers capture more tax subsidies for insurance coverage), rather than unobservable factors related to health status.
Long, Marquis, and Rodgers also find little support for the hypothesis that people anticipate changes in their insurance status and arrange their health care consumption accordingly. The authors also find no evidence that people choose to purchase or drop insurance coverage in anticipation of change in their overall health care needs and conclude that insurer selection is an unlikely explanation for this failure to find quantitatively important transitory demand. However, they observe that recent state reforms aimed at eliminating or limiting some insurer restrictions on coverage of pre‐existing conditions ironically might increase the ability of patients to adjust their treatment patterns for chronic conditions in anticipation of insurance changes.
Private insurers don’t need to remain helpless and clueless regarding potential adverse selection problems. In competitive markets, they may use a number of tools: set periodic limits on plan switching, vary premiums according to the amount of insurance purchased, underwrite and rate based on risk categories, create more homogeneous risk pools, or rely on the law of large numbers to diversify risks in large pools. Consumer inertia and individual differences in aversion to risk further limit the applicability of adverse selection theory to the real world.
Many difficulties we observe in health care insurance markets are due to government intervention rather than adverse selection or other market failures. If insurers are not allowed to charge different premiums to different risks, price predicted risk appropriately, and match their policy configurations to market demands, they will be more likely to resort to higher uniform prices, less savory practices like excluding or discouraging coverage of high risks, and, ultimately, market exit. Cream skimming (selecting only the best risks) becomes the insurers’ mirror image of adverse selection by insurance customers. Political interventions don’t alleviate underlying differences in risk across customers or eliminate insurers’ knowledge of such differences. They only force insurance companies to cope in inefficient ways and create new problems.
It is preferable to allow private insurers to do what they do best‐evaluate risk and price it accordingly‐and then deal with remaining outlier problems (for example, the medically uninsurable) through explicit, transparent public subsidies rather than more camouflaged regulatory cross‐subsidies. We should separate support for societal objectives of income redistribution and protection against prohibitively expensive, but predictable, health risks from the competitive operations of commercial insurance markets.
Health status information is most likely to be asymmetric when it is scarce and costly. While government mechanisms prefer to ignore, hide, or shift those information costs, markets create proper incentives to discover efficient ways to signal relevant private information and put it to use.
Deregulating insurance choices and providing greater tax parity for all insurance purchasers can fill the real gaps in private insurance coverage, by providing breathing room for further market innovations, such as new forms of voluntary risk pooling and long‐term insurance contracts. The growing availability of online health information and insurance products further strengthens the case for empowered consumers.
Market mechanisms can’t eliminate every unfortunate human experience in health care access, affordability, and quality. Private charity and a backup safety net of transparent, direct subsidies have necessary roles to play. Unlike centralized government “solutions,” markets don’t promise perfect outcomes, just better ones.
The current climate of annual double‐digit percentage increases in health care costs, dissatisfaction with the mature version of managed care, and remaining political resistance to centralized command‐and‐control mechanisms points to greater acceptance of the last remaining, relatively unexplored health care reform option‐putting choices back in the hands of individual consumers and competitive free markets.
In a more market‐based health care system, you would, to a large degree, get what you pay for, unless someone else wanted to pay for it voluntarily on your behalf. Income redistribution issues should be debated separately and resolved in the larger political arena, while we finally allow health insurance markets to operate more efficiently for the purposes for which they are best suited.