Markets, Not Mandates

How medical markets would improve health care and reduce costs

Ronald Bailey | July 28, 2009

The New York Times calls it "possibly the most complex legislation in modern history." The health care "reform" currently being hammered out by the Democratic leadership of the House of Representatives already clocks in at $1 trillion and 1,000 pages—and it's nowhere near done. But one thing is clear: the legislation attempts to substitute top-down mandates from a centralized bureaucracy for the distributed decisions made by millions of consumers, physicians, and insurers acting in a marketplace. This will fail.

While congressional reform efforts screech and shudder along, let's take a moment to dream: What would real reform look like? It would be consumer driven, transparent, and competitive.

Right now consumers are locked into the health insurance and health care plans that their employers choose, thanks to previous government meddling with the health care system and the tax code. Consequently, most consumers simply don't have a clue what their health insurance costs. They have no way to reduce those costs, and no incentive to do so, even if they could.

Harvard University business professor Regina Herzlinger is stuck in exactly the same place as most Americans—her employer, in this case, the president of Harvard, buys her health insurance for her. "I wouldn't permit him to buy my house or my clothing or my food for me. Yet as my employer, he could take up to $15,000 of my sala­ry each year and buy my health insurance for me, without knowing anything about my preferences or needs. It's ridiculous." Indeed it is.

Third party payments are the main source of dysfunction in the American health system. "The devil systematically built our health insurance system," once suggested Princeton University health economist Uwe Reinhardt. As evidence, Reinhardt pointed out that it "has the feature that when you're down on your luck, you're unemployed, you lose your insurance. Only the devil could ever have invented such a system."

So the first step toward real reform is to give consumers responsibility for buying their own health insurance. The employer-based health insurance system must be dismantled, and the money spent by employers for insurance should be converted to additional income. This would immediately inject cost consciousness into health insurance decisions. READ THE REST @ REASON