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Solution Framework of Market Forces

Excerpts from:      Obama Doesn't Have the Only Prescription for Healthcare Reform  by Michael D. Tanner 

Michael D. Tanner is a senior fellow at the Cato Institute and coauthor of Healthy Competition: What's Holding Back Health Care and How to Free It.  Below is added to on July 6, 2009.   This article appeared in the Los Angeles Times on July 5, 2009.

A free-market approach would move away from employer-provided insurance and increase competition among both insurers and health providers.

President Obama is right when he says that the U.S. healthcare system needs reform. Although this country provides the finest care in the world, our healthcare system has serious problems. It costs too much. Too many people lack health insurance. And quality can be uneven.

There are two key components to any free-market healthcare reform. First, we need to move away from a system dominated by employer-provided health insurance and instead make health insurance personal and portable, controlled by the individual rather than government or an employer.

Employment-based insurance hides much of the true cost of healthcare to consumers, thereby encouraging overconsumption. It also limits consumer choice, because employers get the final say in what type of insurance a worker will receive. It means that people who don't receive insurance through work are put at a significant and costly disadvantage. And, of course, it means that if you lose your job, you are likely to end up uninsured.

The other part of effective healthcare reform involves increasing competition among both insurers and health providers. Current regulations establish monopolies and cartels in both industries. Today, for example, people can't purchase health insurance across state lines. And because different states have very different regulations and mandates, costs can vary widely depending on where you live.

With millions of American consumers balancing costs and risks, states would be forced to evaluate whether their regulations offered true value or simply reflected the influence of special interests. Rep. John Shadegg (R-Ariz.) has a bill in Congress that would allow consumers to purchase their insurance in other states.

We also need to rethink medical licensing laws to encourage greater competition among providers. Nurse practitioners, physician assistants, midwives and other non-physician practitioners should have far greater ability to treat patients. We also should be encouraging such innovations in delivery as medical clinics in retail outlets.

The choice facing us now is not between Obama's plan for healthcare micromanaged by the government or doing nothing. Rather, it is a choice between government control, regulation and rationing on one hand, and free markets, choice and competition on the other.

That is the real healthcare debate.


Other Comments from Tanner:

One study by MIT's Amy Finkelstein suggests that the prevalence of insurance itself has roughly doubled the cost of health care. So, if Obama succeeds in expanding insurance coverage, it's very likely to increase the cost of care.

Ultimately, controlling costs requires someone to say "no," whether the government (as in single-payer systems with global budgets), insurers (managed care) or health-care consumers themselves (by desire or ability to pay). No matter, someone's bound to be unhappy.  Or, how will Obama follow through on his pledge to prevent insurance companies from discriminating against people with pre-existing conditions?

The two most commonly suggested reforms here - laws to mandate "guaranteed issue" (requiring insurers to accept all comers, regardless of their health) and "community rating" (forbidding insurers from basing premiums on risk factors, such as health or age) - would undoubtedly make it easier for some people to get coverage.  But each would also raise insurance costs for the young and healthy, making it more likely that they'd go without coverage.

New York, for example, imposed community rating in 1993 - and the next year roughly 500,000 people canceled their insurance, according to a study by the actuarial firm of Milliman & Robertson. So Obama's attempts to cover more people could end up increasing the ranks of the uninsured.

Finally, consider the question of quality. Many reformers, including Obama, talk of having an independent government panel study the comparative effectiveness of various treatments and establish standards of practice for providers. Yet history suggests that there is no way to insulate such a body from politics: Oregon tried to devise a scientific list of effective treatments for its Medicaid program in the 1980s - but the proposal collapsed within weeks under an assault by politicians and special-interest lobbyists.