The Defined Contribution Route to Health Care Choice and Competition

Most Americans are in government-subsidized insurance arrangements that largely insulate them from the cost of insurance and care. Open-ended federal support for health insurance coverage through Medicare, Medicaid, and the tax exclusion for employer-sponsored insurance (ESI) plans is the major reason the federal budget today is in deep deficit, and why the long-term outlook is even more daunting. Medicare's incentives for rising volume, unlimited federal funding for state-run Medicaid plans, and a tax subsidy for employer plans that grows with the expense of the plan all point in the same direction: rapidly rising health care costs.

As part of the American Enterprise Institute project, Beyond "Repeal and Replace": Ideas for Real Health Reform, health policy analysts James C. Capretta and Thomas P. Miller observe that the recently enacted Patient Protection and Affordable Care Act does little, if anything, to break with these longstanding policy problems. Indeed, the real point of the new health law is not to change course at all but to ensure the uninsured are also enrolled in expansive and heavily subsidized third-party insurance arrangements.

The coauthors argue that a more sustainable, marketbased, and patient-centered version of health reform must instead convert existing defined benefit promises into "defined contributions" that individuals and their families then can use to enroll in coverage arrangements of their choice. Capretta and Miller recommend that Medicare subsidies should no longer hide the true cost of promised benefits but provide beneficiaries incentives to obtain the most value for them. They find that a move to replace both traditional Medicaid assistance and the tax preference for ESI with defined contribution payments would open up new possibilities for explicit and beneficial coordination between the Medicaid program and the coverage normally offered to working-age Americans.

The coauthors conclude that placing limits on what is provided through defined contribution payments, even with special provisions for additional help to low-income households, will set in motion a dynamic that will yield benefits across the entire health care system for all Americans.

Click here to read the full paper as an Adobe Acrobat PDF.

Thomas P. Miller is resident fellow at AEI. James C. Capretta is a fellow at the Ethics and Public Policy Center.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Thomas P.
Miller

 

James C.
Capretta

What's new on AEI

Holder will regret his refusal to obey the Constitution
image 'Flood Wall Street' climate protesters take aim at their corporate allies
image 3 opportunities for better US-India defense ties
image Is Nicolás Maduro Latin America's new man at the United Nations?
AEI on Facebook
Events Calendar
  • 29
    MON
  • 30
    TUE
  • 01
    WED
  • 02
    THU
  • 03
    FRI
Thursday, October 02, 2014 | 9:00 a.m. – 10:30 a.m.
Campbell Brown talks teacher tenure

We welcome you to join us as Brown shares her perspective on the role of the courts in seeking educational justice and advocating for continued reform.

Friday, October 03, 2014 | 12:00 p.m. – 1:00 p.m.
Harnessing the power of markets to tackle global poverty: A conversation with Jacqueline Novogratz

AEI welcomes you to this Philanthropic Freedom Project event, in which Novogratz will describe her work investing in early-stage enterprises, what she has learned at the helm of Acumen, and the role entrepreneurship can play in the fight against global poverty.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.