NCPA - National Center for Policy Analysis


July 6, 2009

What exactly would a free-market approach to health care reform look like?  Quite simply, it relies on those time-tested building blocks of marketplace efficiency: competition and choice, says Michael Tanner, a senior fellow with the Cato Institute.

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, says Tanner:

  • Employment-based insurance hides much of the true cost of health care 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 health care reform involves increasing competition among both insurers and health providers, says Tanner:

  • 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.

New Jersey, for example, requires insurers to cover a wide range of procedures and types of care, including in-vitro fertilization, contraceptives, chiropodists and coverage of children until they reach age 25.  Those mandated benefits aren't cheap, says Tanner:

  • According to a 2007 analysis by the National Center for Policy Analysis, the cost of a standard health insurance policy for a healthy 25-year-old man averaged $5,580 in the state.
  • A standard policy in Kentucky, which has far fewer mandates, would cost the same man only $960 per year.

Unfortunately, consumers are more or less held prisoner by their state's regulatory regime.  It is illegal for that hypothetical New Jersey resident to buy the cheaper health insurance in Kentucky.  On the other hand, if consumers were free to purchase insurance in other states, they could in effect "purchase" the regulations of that other state.  A consumer in New Jersey could avoid the state's regulatory costs and choose, say, Kentucky, if that state's regulations aligned more closely with his or her preferences, says Tanner.

Source: Michael Tanner, "Obama doesn't have the only prescription for health care reform," Los Angeles Times, July 5, 2009.


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