The Case for Real Health Reform: Five Key Principles

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Media inquiries: Véronique Rodman

202.862.4870 ([email protected])


President Obama has made it clear that one of his top priorities is health care reform. Major reform proposals are being developed by two key Democratic senators: Edward Kennedy, chairman of the Senate Committee of Health, Education, Labor and Pensions; and Max Baucus, chairman of the Senate Committee on Finance; as well as by Democratic leaders in the House.

In a new AEI study, AEI scholar Joseph Antos writes that proposals now under consideration in Congress would further centralize a market already dominated by government decision-making. The "new vision" for American health care advanced by major reform proposals is actually an old one backed up by new regulations and restrictions. Rather than follow the pattern set by Washington's takeover of the auto industry, Antos proposes a real reform that will provide new opportunities and incentives for patients, providers, researchers, and employers to shape a health system that is effective, fair, and sustainable well into the future. Such reform would recognize core American values by strengthening entrepreneurship and competition in health care and reducing individual and corporate dependency on government largesse.

Key Points

The current health system is untenable, Antos writes:

  • Americans spent $2.2 trillion—16.2 percent of GDP—for health care in 2007. By 2035, health spending could exceed 30 percent of GDP.
  • Despite the high cost, 45 million people are uninsured and our health care dollars are not being put to good use.

Major Democratic proposals are flawed, Antos warns, and will not work as advertised. They include:

  • Mandates. Requiring families to buy coverage "as good as your congressman's" would require massive federal subsidies and establish a new entitlement program that would be paid for by successive generations. Requiring employers to cover their workers will mean lower wages and fewer jobs.
  • Tight insurance regulation. An overregulated insurance market will drive up premiums, making insurance a poor value for millions of people. Requiring insurers to offer generous benefits to everyone, regardless of their health condition, might help those in poor health gain coverage but would force others into insurance plans that do not meet their needs. Insurers would lose the incentive and ability to develop innovative products to provide more efficient coverage.
  • Public plan. A new insurance plan created by Congress would not operate under the same rules as private insurers, despite claims to the contrary. Sooner or later, Congress would grant the public plan special authority to keep its costs under control, possibly by piggy-backing on Medicare payment formulas. Use of political power would drive private plans out of the market.
  • Health insurance exchange. Better consumer information through a one-stop comparison of health plans would allow families to buy the coverage they need at a price they can afford. A health insurance exchange could offer these services, but it could also become a vehicle through which the federal government imposes unnecessary and burdensome controls on the market.

Antos stresses five principles for real health reform:

  • Support those who need the help. Congress should focus on those with the greatest need. Redirect existing subsidies to provide more help to those who cannot buy coverage because of poor health or low income. Cap or eliminate the tax exclusion for employer-sponsored insurance, and use the revenue to fund risk-adjusted tax credits, state high-risk pools, community health centers, and other ways to deliver care to disadvantaged areas.
  • Promote effective competition. Insurers could be permitted to offer coverage in any state to lessen the impact of state regulatory barriers on competition. The Federal Trade Commission should increase antitrust enforcement in the health sector and scrutinize mergers and acquisitions more closely. Competition could be promoted in Medicare through the use of bidding methods instead of formula-based pricing. Medicare Advantage plans and fee-for-service Medicare should bid against each other on an equal basis in a reformed bidding process.
  • Promote informed choice. Consumer-friendly information on health plan choices is needed to promote comparison shopping and help consumers select the plan that best meets their needs. We should make better use of the information generated when patients receive treatment. Barriers to the collection and exchange of patient data must be addressed, making it possible to develop useful information to guide (but not dictate) treatment decisions.
  • Create appropriate financial incentives. Restructure federal subsidies to promote price awareness and more efficient use of services. Limit the tax exclusion to give employers and insurers the incentive to offer better-value coverage. Restructure the Medicare program to promote efficiency by replacing the virtually unlimited subsidy for services with a generous defined contribution. Introduce targeted incentives in Medicare to promote the use of more effective services and better patient adherence to the treatment regimen.
  • Look beyond the confines of medical care. Universal coverage is one means to the ultimate policy objective of helping Americans lead healthier, more productive lives. Medical care can help, but individuals must also take responsibility for taking actions that can help prevent the onset of disease. Benefit programs at the employer and federal levels should promote disease awareness and healthier lifestyles.

Neither a market-based reform nor a highly regulatory approach to reform will produce an instant cure for the problems facing the health system. Real health reform:

  • Strengthens effective competition, rewards initiative, promotes innovation, and permits failure when poor business decisions are made.
  • Levels with the American people about what is possible and necessary and gives them the tools and support to do their part.
  • Lays the foundation for an efficient health care system that is sustainable in the years to come.

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at AEI. He is also a commissioner of the Maryland Health Services Cost Review Commission, a health adviser to the Congressional Budget Office, and an adjunct professor at the Gillings School of Global Public Health at the University of North Carolina at Chapel Hill. Before joining AEI, Mr. Antos was assistant director for health and human resources at the Congressional Budget Office.

Mr. Antos is available for interviews and can be reached at [email protected] or 202.862.5938. Please copy [email protected] (202.828-6037). For other media inquiries, please contact Veronique Rodman at [email protected] or 202.862.4870.


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