NCPA - National Center for Policy Analysis

HEALTH CARE NEEDS A DOSE OF COMPETITION

October 6, 2005

Hurricane Katrina has exposed the strengths and weaknesses of America's healthcare delivery system, says Michael Cannon, director of health policy studies at the Cato Institute. Millions of individual Americans, acting on their own initiative, rushed to meet the dire need Katrina created while the response of the government has been alarmingly slow.

Why the discrepancy? Cannon explains: entrepreneurs and private charities often respond much faster than the government because they are more agile and flexible. Just as important, they avoid wasting valuable resources, allowing help to go where it's needed most.

In many sectors of the economy, market competition improves quality while reducing costs but healthcare is an exception because market competition is not allowed to work. At every turn, government tax, spending and regulatory policies thwart the necessary conditions for market competition. For example:

  • Heavy government subsidies (through programs like Medicare and Medicaid) and tax penalties (for workers who do not let an employer purchase their health care) discourage patients from weighing costs against benefits.
  • As a result, Americans pay for more of their medical care through third parties (86 percent) than patients in 17 other advanced countries, including Canada.

Cannon says, to make high-quality care available to more Americans, we need reform that will allow markets to work in health care. Though not comprehensive, these reforms would go a long way toward improving the quality and access of healthcare:

  • More flexible health savings accounts to give workers ownership of all their health care dollars and decisions.
  • Inject choice, competition and ownership into Medicare by giving seniors greater choice of health plans and allowing workers to save their Medicare taxes in personal accounts for their health care needs in retirement.
  • Deregulating health insurance would tear down barriers that make health insurance too expensive for many, while provider deregulation would increase the availability of medical care, particularly for the poor.

Source: Michael Cannon, "Health Care Rx is a Stiff Dose of Competition," Investor's Business Daily, October 3, 2005.

For text:

http://www.cato.org/pub_display.php?pub_id=5070

 

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