What Is the Free-Market Approach to Health Care Reform?

President Obama is right when he says that the U.S. health care system needs reform. Although this country provides the finest care in the world, our health care system has serious problems. It costs too much. Too many people lack health insurance. And quality can be uneven.

But a government takeover of the health care system, as proposed by the president and some in Congress, would be a step in the wrong direction. Instead, we should pursue a uniquely American solution, one that builds on free markets, competition and choice.

1.    Let individuals control their health care dollars, and free them to choose from a wide variety of health plans and providers.

2.    Move away from a health care system dominated by employer-provided health insurance. Health insurance should be personal and portable, controlled by individuals themselves rather than government or an employer. Employment-based insurance hides much of the true cost of health care to consumers, thereby encouraging over-consumption. It also limits consumer choice, since employers get final say over what type of insurance a worker will receive. It means people who don’t receive insurance through work are put at a significant and costly disadvantage. And, of course, it means that if you lose your job, you are likely to end up uninsured as well. 

3.    Changing from employer to individual insurance requires changing the tax treatment of health insurance. The current system excludes the value of employer-provided insurance from a worker’s taxable income. However, a worker purchasing health insurance on their own must do so with after-tax dollars. This provides a significant tilt towards employer-provided insurance, which should be reversed. Workers should receive a standard deduction, a tax credit, or, better still, large Health Savings Accounts (HSAs)  for the purchase of health insurance, regardless of whether they receive it through their job or purchase it on their own.

4.    We need to increase competition among both insurers and health providers. People should be allowed to purchase health insurance across state lines. One study estimated this adjustment alone could cover 17 million uninsured Americans without costing taxpayers a dime.

5.    We also need to rethink medical licensing laws to encourage greater competition among providers. Nurse practitioners, physician assistants, midwives, and other non-physician practitioners should have far greater ability to treat patients. Doctors and other health professionals should be able to take their licenses from state to state.   We should also be encouraging innovations in delivery such as medical clinics in retail outlets. 

6.    Congress should give Medicare enrollees a voucher, let them choose any health plan on the market, and let them keep the savings if they choose an economical plan. Medicare could even give larger vouchers to the poor and sick to ensure they could afford coverage.

7.    The expansion of “health status insurance” would protect many of those with preexisting conditions. States may also wish to experiment with high risk pools to ensure coverage for those with high cost medical conditions.

Curtesy Cato Institute