Best of both worlds: Uniting universal coverage and personal choice in health care

Article Highlights

  • High-quality, fiscally sustainable health care for all is the best of both worlds.

    Tweet This

  • To achieve high-quality health care for all, we must unleash the power of free markets.

    Tweet This

Subscribe to AEI's health emails
Articles and events on health policy. Published approximately twice a month.

First Name:
Last Name:
Email:
Zip Code:

The US health care system suffers from three structural flaws. First, it artificially inflates health insurance premiums for the healthy in an attempt to lower premiums for the sick. This encourages healthy individuals to reduce their insurance coverage or even exit the market entirely, driving up costs for everyone. Mandates to purchase insurance and penalties for lack of insurance can serve as cosmetic solutions, but they cannot erase this fundamental problem. Second, by relying heavily on open-ended fee-for-service public insurance, the present system rewards costlier high-volume care rather than higher-quality care. Perhaps as a result of these incentives to do more, per capita health care spending in the United States is the highest in the world, while patient health outcomes rank much lower. Third, the poor are funneled into a Medicaid system with reimbursement levels well below those of private payers. This relegates the most vulnerable groups in America to a separate and unequal health care system with more limited access and worse outcomes. The current system professes to sacrifice some efficiency to protect the sick and the poor, but ultimately it fails to achieve either efficiency or equity.

We propose an approach to health insurance reform that promotes high-quality, fiscally sustainable health care for all. Our solution is a departure from both the current system and the Affordable Care Act reforms that begin in 2014. Our approach reorganizes US health insurance around four principles:

  • First, we allow and encourage insurance companies to charge individualized premiums to consumers that reflect their true health care costs. This moves away from the current approach of offering coarse and relatively uniform premiums to the wide range of individuals seeking insurance (through the use of group insurance or state-level community-rating mandates). This reform provides a firm foundation for a health insurance market that no longer motivates healthy individuals to opt out. Insurance offerings would be made available in an open market—for example, through insurance exchanges—with premium transparency.

  • Second, to ensure that offers of insurance are affordable, we propose government-financed premium supports. The poor, especially the sick poor, gain access to a basic insurance plan at no cost and to more generous plans at significantly reduced costs.

  • Third, we propose eliminating the practical and legal barriers to multiyear (long-term) health insurance contracts. Such contracts protect all Americans from increases in insurance rates that could accompany major illness.

  • Fourth, we propose to abolish the tax preference for employer-sponsored health insurance plans. This subsidy encourages excess utilization of both insurance and low-value health care services. It also costs the federal government nearly $300 billion in lost revenue—revenue that could be used to fund insurance for the sick and the poor. Finally, it forces an awkward bundling of health care and employment with adverse consequences for workers and firms alike.

Our plan achieves universal coverage by ensuring that all individuals have access to a no-cost “basic plan.” It protects the poor and sick by targeting government funds toward subsidies for these groups. Federal and state governments will be able to specify in a transparent fashion the level of spending they wish to incur now and in the future, ensuring fiscal viability. The use of private health insurers allows choice for consumers and exploits the incentives of private firms to encourage the efficient use and pricing of health care services.

In sum, our plan will allow the United States to eliminate the separate and unequal nature of the present health care system that limits the health care access of poor Medicaid beneficiaries because of low reimbursements. All of this is accomplished within a framework that allows the market to do what it does best—pricing risk and controlling cost growth—and the government to do what it does best—ensuring a distribution of health care resources that is just and fair. In addition, the federal and state governments are provided with more flexibility to specify the current and future levels of spending they wish to allocate to the provision of health care.

We believe this plan can unite the country—young and old, sick and healthy, Democrat and Republican—in support of a simplified health care system that improves the nation’s well-being.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Tomas J.
Philipson
  • Tomas J. Philipson is a visiting scholar at AEI and the Daniel Levin Chair in the Irving B. Harris Graduate School of Public Policy as well as an associate member of the department of economics at the University of Chicago. He was a senior health care adviser to the 2008 presidential campaign of John McCain and served in the Bush administration as the senior economic adviser to the commissioner of the Food and Drug Administration from 2003 to 2004 and subsequently as the senior economic adviser to the administrator of the Centers for Medicare & Medicaid Services from 2004 to 2005. Mr. Philipson is an editor of Forum for Health Economics & Policy and is on the editorial board of Health Economics and The European Journal of Health Economics. He has twice been the recipient of the highest honor of his field, the Kenneth Arrow Award from the International Health Economics Association, in 2000 and 2006.  Mr. Philipson is the cofounder of Precision Health Economics, is an adviser to the Gerson Lehrman Group, and is a consultant for Compass-Lexecon and Analysis Group.
  • Email: t-philipson@uchicago.edu

 

Darius
Lakdawalla
  • Darius Lakdawalla is an associate professor in the School of Policy, Planning, and Development at the University of Southern California (USC) and the director of research at the USC Schaeffer Center for Health Policy and Economics. He is also a faculty research fellow at the National Bureau of Economic Research. Mr. Lakdawalla's research ranges from the economic impact of health risks to the organization of health care markets. In particular, he has published studies exploring the reasons behind the declining use of nursing homes by the elderly, the rising rates of obesity in America, the acceleration in the rate of new HIV infections, and the surprising growth in disability among younger Americans. While at AEI, he will be studying the use of private-sector data to better understand geographic variation in health care.
  • Phone: 2028625878
    Email: darius.lakdawalla@aei.org

 

Anupam B.
Jena
  • Anupam B. Jena, M.D., Ph.D. is an assistant professor of health care policy and medicine at Harvard Medical School and an assistant physician in the Department of Medicine at Massachusetts General Hospital, where he practices general inpatient medicine and teaches medical residents.


    Dr. Jena's research involves several areas of health economics and policy including medical malpractice, the economics of medical innovation and cost-effectiveness, geographic variation in medical care, and insurance benefit design. Using unique data from a nationwide professional liability insurer, Dr. Jena's work on malpractice has provided new estimates of medical malpractice risk according to physician specialty, the costs of defending malpractice claims, and outcomes of malpractice claims undergoing litigation.

  • Email: jena@hcp.med.harvard.edu

 

Michael
Chernew
  • Michael E. Chernew, Ph.D. is a Professor of Health Care Policy in the Department of Health Care Policy at Harvard Medical School. Dr. Chernew's research examines several areas related to controlling health care spending growth while maintaining or improving the quality of care. His work on consumer incentives focuses on Value Based Insurance Design (VBID), which aligns patient cost sharing with clinical value. His work on payment reform involves evaluation of bundled payment initiatives, including global payment models that include pay-for-performance components. Additional research explores the causes and consequences of rising health care spending and geographic variation in spending, spending growth, and quality.


    Chernew is Vice Chair of the Medicare Payment Advisory Commission (MedPAC), which is an independent agency established to advise the U.S. Congress on issues affecting the Medicare program. He is also a member of the Congressional Budget Office’s Panel of Health Advisors and The Commonwealth Foundation’s Commission on a High Performance Health Care System.

  • Email: chernew@hcp.med.harvard.edu

 

Dana
Goldman
  • Dana Goldman is a Professor and the Norman Topping Chair in Medicine and Public Policy at the University of Southern California. Until Fall 2009, he held RAND's Distinguished Chair in Health Economics and directed RAND's program in Economics, Finance, and Organization. He is also an Adjunct Professor of Health Services and Radiology at UCLA.


    Dr. Goldman is a nationally-recognized health economist influential in both academic and policy circles. He is the author of over 100 articles and book chapters, including articles in some of the most prestigious medical, economic, health policy, and statistics journals. He is a health policy advisor to the Congressional Budget Office, and is a frequent speaker on health care issues. He serves on several editorial boards including Health Affairs and the American Journal of Managed Care. He is also a founding editor of the Forum for Health Economics and Policy, an online journal devoted to health economics and health policy.

  • Email: dpgoldma@usc.edu

 

Jay
Bhattacharya
  • Jay Bhattacharya is an associate professor of medicine and a CHP/PCOR core faculty member at Stanford University. His research focuses on the constraints that vulnerable populations face in making decisions that affect their health status, as well as the effects of government programs designed to benefit vulnerable populations. He has published empirical economics and health services research on the elderly, adolescents, HIV/AIDS and managed care. Most recently, he has researched the regulation of the viatical-settlements market (a secondary life-insurance market that often targets HIV patients) and summer/winter differences in nutritional outcomes for low-income American families. He is also working on a project examining the labor-market conditions that help determine why some U.S. employers do not provide health insurance.


    He worked for three years as an economist at the RAND Corporation in Santa Monica, Calif., where he also taught health economics as a visiting assistant professor at the University of California-Los Angeles.

  • Email: jay@stanford.edu

 

Amitabh
Chandra
  • Amitabh Chandra is an economist, a Professor of Public Policy, and Director of Health Policy Research at the Harvard Kennedy School of Government. His research focuses on productivity and cost-growth in healthcare and racial disparities in healthcare. His research has been supported by the National Institute of Aging, the National Institute of Child Health and Development, the Robert Wood Johnson Foundation, and has been published in the American Economic Review, the Journal of Political Economy, the New England Journal of Medicine, and Health Affairs. He is an editor of the Review of Economics and Statistics, Economics Letters, and the American Economic Journal, and was previously an editor at the Journal of Human Resources.


    He is the recipient of an Outstanding Teacher Award, the first-prize recipient of the Upjohn Institute's International Dissertation Research Award, the Kenneth Arrow Award for best paper in health economics, and the Eugene Garfield Award for the impact of medical research. In 2012, he was awarded American Society of Health Economists (ASHE) medal. The ASHE Medal is awarded biennially to the economist age 40 or under who has made the most significant contributions to the field of health economics.

  • Email: Amitabh_Chandra@harvard.edu

 

Anup
Malani
  • Anup Malani is the Lee and Brena Freeman Professor of Law at the University of Chicago. He is also a Professor at the University of Chicago Pritzker School of Medicine, a University Fellow at Resources for the Future, Washington, D.C.; a Faculty Research Fellow at the National Bureau of Economic Research and an editor of the Journal of Law and Economics and the Forum for Health Economics and Policy.


    Mr. Malani teaches Law & Economics, Health Law, Federal Budget Policy, Food and Drug Law, Insurance Law, Bankruptcy, and Contracts and Corporations. His research interests include law and economics (torts, contracts and welfare evaluation of legal rules), health economics and policy (control of infectious disease, medical malpractice and pharmaceutical products liability, conflicts of interest in medical research, valuing innovation, placebo effects, and drug regulation), and corporate law and finance (the role of nonprofit firms and corporate philanthropy).

  • Email: amalani@uchicago.edu

What's new on AEI

image The Census Bureau and Obamacare: Dumb decision? Yes. Conspiracy? No.
image A 'three-state solution' for Middle East peace
image Give the CBO long-range tools
image The coming collapse of India's communists
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Wednesday, April 23, 2014 | 12:00 p.m. – 1:30 p.m.
Graduation day: How dads’ involvement impacts higher education success

Join a diverse group of panelists — including sociologists, education experts, and students — for a discussion of how public policy and culture can help families lay a firmer foundation for their children’s educational success, and of how the effects of paternal involvement vary by socioeconomic background.

Thursday, April 24, 2014 | 12:00 p.m. – 1:30 p.m.
Getting it right: A better strategy to defeat al Qaeda

This event will coincide with the release of a new report by AEI’s Mary Habeck, which analyzes why current national security policy is failing to stop the advancement of al Qaeda and its affiliates and what the US can do to develop a successful strategy to defeat this enemy.

Friday, April 25, 2014 | 9:15 a.m. – 1:15 p.m.
Obamacare’s rocky start and uncertain future

During this event, experts with many different views on the ACA will offer their predictions for the future.   

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