Written by Stephen Hyde
This is Part 2 of Stephen Hyde's series on The Proper Role of Government in Health Care Reform.
I wrote in Part 1 that medical care is an economic good. More specifically, it is a consumer good delivered directly to patients, primarily in the form of services. Experience has taught us that the most effective, efficient, and fair way to create and distribute consumer goods and services is through open consumer markets that allow each customer to determine a product's value before deciding whether to purchase it with her limited available funds. Such value assessments require consumers to consider the answers to two fundamental questions:
In (slightly) technical terms, value equals quality divided by price, meaning that the higher the quality and/or the lower the price, the higher the resulting value. The challenge in getting higher quality, lower priced health care, therefore, lies in creating a consumer market for it. Actually, it means creating two markets, one for health insurance and one for medical services. But if we do the insurance market right, the second will naturally follow.
How do we do this? We start by redefining health insurance so that it must cover only health care that is both medically necessary and normally unaffordable. We don't expect car insurance to pay for oil changes, so we shouldn't require health insurance to cover $4 prescriptions, $65 doctor visits, or $90 massage therapy sessions. Such coverage would still be allowed, but most people wouldn't find it worth the higher premiums. That's because we have just created a consumer market for normally-affordable medical services in which providers compete for consumers' dollars the old-fashioned way: by delivering better, more appropriate care for ever lower prices.
Now we have to create an insurance market that overcomes the fundamental market failure (see Part 1) that prevents so many people from having open access to affordable health insurance. To do that, we need national regulatory reform to create a set of rules under which such a market would emerge and operate. Here are the rules:
Under this health reform package, the consumer will reign supreme. The government's roles would be appropriately limited to those of rule maker, fair referee, enforcer, and safety net of last resort-not insurer or regulator of prices or of benefits (beyond minimum benefit requirements).
If there is a fundamental problem with this approach, it is not technical, actuarial, or financial-it is political. Although we know markets work in practice, too many influential politicians and policy wonks don't believe they work in theory-at least not for health care. The difficult task will be to transcend that way of thinking.
In Part 3, I'll talk about how and why these changes will actually fix our broken health care system.
Stephen S. Hyde has been a public company CEO and chairman and board member of numerous health care companies. A successful health care entrepreneur, consultant, actuary, insurance expert, medical group CEO, and federal government managed care regulator, he has nearly 40 years of experience in virtually every major aspect of health regulation, insurance, and care delivery.