NCPA - National Center for Policy Analysis

Choice and Competition in Health Care

October 24, 2002

Some health policy analysts see greater competition between insurance plans as the route to cost containment. As an example, they cite the role competition from imported cars -- such as Hondas and Toyotas -- played in shaping up Detroit's auto industry several decades ago.

  • Most people get their health insurance through company plans -- and it is in the structure of these plans, analysts argue, that the market has gone awry.
  • The employers of 77 percent of insured employees do not offer a choice of carrier, and even so-called choices between plans all use mostly the same doctors.
  • What employers need is competition among alternative delivery systems -- each with a carrier-partner that shares their commitment to passing on its lower cost to customers.
  • To reduce administrative costs, employers could create shared health-insurance exchanges that bring together several or many risk-bearing health insurers -- and several or many employment groups for the purpose of arranging multiple choice of carriers on the part of individual employees.

The federal government and several states have exchanges for public employees. If private sector employers don't follow suit, the federal government might create incentives for them to do so -- such as exemption of participating carriers from state benefit mandates.

There is evidence that with the proper incentives health consumers can reduce costs. Specifically, the RAND Health Insurance Experiment found in the 1970s and 1980s that the Group Health Cooperative of Puget Sound provided high quality care for 28 percent less than the traditional fee-for-service sector in Seattle.

Source: Alain C. Enthoven (Stanford University), "Where Are Health Care's 'Hondas'?" Wall Street Journal, October 24, 2002.

For WSJ text (requires subscription)


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