A better way to reform health care

Despite the claims of some partisans to the contrary, the president's plan is failing because it does not speak to the concerns of the majority of Americans. Instead of addressing the high and rising costs of care, it proposes mandates, invasive regulation, and unaffordable new entitlements. This will not bring health care costs down -- it will only make this problem worse. Therefore, President Obama should scrap his health care plan and start over, say John F. Cogan, a senior fellow at Stanford University's Hoover Institution; Glenn Hubbard, dean of Columbia Business School; and Daniel Kessler, a professor of business and law at Stanford University and a senior fellow at the Hoover Institution.

The plan's key elements -- mandates, heavy-handed insurance regulation and entitlement-based, middle-income subsidies -- must go. None of them address health care's fundamental problem: high and rising costs. Instead, the various versions of health reform put forth by the president and his party are based on expanding health-insurance coverage. The inevitable consequence will be to exacerbate the cost problem. And the American public knows it, say Cogan, Hubbard and Kessler.

To bring down costs, we need to change the incentives that govern spending:

  • Right now, $5 out of every $6 of health-care spending is paid for by someone other than the person receiving care -- insurance companies, employers, or the government.
  • Individuals are insulated from the reality of what their decisions cost.
  • This breeds overutilisation of low-value health care and runaway spending.

    To reduce the growth of costs, individuals must take greater responsibility for their health care, and health insurers and health care providers must face the competitive forces of the market. Three policy changes will go a long way to achieving these objectives, say Cogan, Hubbard and Kessler:
  • Eliminate the tax code's bias that favours health insurance over out-of-pocket spending.
  • Remove state-government barriers to purchasing and providing health services.
  • Reform medical malpractice laws.

    According to Cogan, Hubbard and Kessler, these three changes will reduce health care costs by over $100 billion per year and permanently reduce the number of uninsured by up to 13 million.

    Source: John F. Cogan, Glenn Hubbard and Daniel Kessler, A Better Way to Reform Health Care, Wall Street Journal, February 25, 2010.

    For text: http://online.wsj.com/article/SB10001424052748704804204575069133264585068.html

    For more on Health Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=16

    First published by the National Center for Policy Analysis, Dallas and Washington, USA

    FMF Policy Bulletin/ 20 July 2010
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