NCPA - National Center for Policy Analysis

Health Care Choice and Competition

December 29, 2010

Most Americans are in government-subsidized insurance arrangements that largely insulate them from the cost of insurance and care.  Open-ended federal support for health insurance coverage through Medicare, Medicaid and the tax exclusion for employer-sponsored insurance (ESI) plans is the major reason the federal budget today is in deep deficit, and why the long-term outlook is even more daunting.  The recently enacted Patient Protection and Affordable Care Act does little, if anything, to break these longstanding policy problems, according to James C. Capretta, a fellow at the Ethics and Public Policy Center, and Thomas P. Miller, a resident fellow at the American Enterprise Institute.

According to Capretta and Miller:

  • A more sustainable, market-based and patient-centered version of health reform must instead convert existing defined benefit promises into "defined contributions" that individuals and their families then can use to enroll in coverage arrangements of their choice.
  • Medicare subsidies should no longer hide the true cost of promised benefits, but instead provide beneficiaries incentives to obtain the most value for them.

Placing limits on what is provided through defined contribution payments, even with special provisions for additional help to low-income households, will set in motion a dynamic that will yield benefits across the entire health care system for all Americans.

Source: "The Defined Contribution Route to Health Care Choice and Competition," American Enterprise Institute, December 7, 2010.

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