NCPA - National Center for Policy Analysis

The U.S. Health Care System Can Be Fixed Without ObamaCare

August 12, 2013

The U.S. health care system suffers from three structural flaws. First, it artificially inflates health insurance premiums for the healthy in an attempt to lower premiums for the sick. This encourages healthy individuals to reduce their insurance coverage or even exit the market entirely, driving up costs for everyone. Mandates to purchase insurance and penalties for lack of insurance can serve as cosmetic solutions, but they cannot erase this fundamental problem. Second, by relying heavily on open-ended fee-for-service public insurance, the present system rewards costlier high-volume care rather than higher-quality care. Third, the poor are funneled into a Medicaid system with reimbursement levels well below those of private payers. This relegates the most vulnerable groups in America to a separate and unequal health care system with more limited access and worse outcomes, say Tomas J. Philipson, a visiting scholar at the American Enterprise Institute, and his coauthors.

Philipson and his coauthors propose an approach to health insurance reform that promotes high quality, fiscally sustainable health care for all. Their solution is a departure from both the current system and the Affordable Care Act reforms that begin in 2014. The approach reorganizes U.S. health insurance around four principles:

  • First, allow and encourage insurance companies to charge individualized premiums to consumers that reflect their true health care costs. This moves away from the current approach of offering coarse and relatively uniform premiums to the wide range of individuals seeking insurance (through the use of group insurance or state-level community rating mandates).
  • Second, to ensure that offers of insurance are affordable, there should be government-financed premium supports. The poor, especially the sick poor, gain access to a basic insurance plan at no cost and to more generous plans at significantly reduced costs.
  • Third, eliminate the practical and legal barriers to multiyear (long-term) health insurance contracts.
  • Fourth, abolish the tax preference for employer-sponsored health insurance plans. This subsidy encourages excess utilization of both insurance and low-value health care services.

In sum, the plan will allow the United States to eliminate the separate and unequal nature of the present health care system that limits the health care access of poor Medicaid beneficiaries because of low reimbursements. All of this is accomplished within a framework that allows the market to do what it does best (pricing risk and controlling cost growth) and the government to do what it does best: ensuring a distribution of health care resources that is just and fair.

Source: Tomas J. Philipson et al., "Best of Both Worlds: Uniting Universal Coverage and Personal Choice in Health Care," American Enterprise Institute, August 6, 2013.


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