State Health Care Reform: Key Questions and Answers

Health | Policy Reports

No. 311
Monday, April 21, 2008
by Linda Gorman and R. Allan Jensen


One of the biggest problems in health care reform is that parties with different viewpoints do not agree on basic facts.  Some view the private sector as the source of U.S. health care woes and an expansion of government control as the solution.  Others believe that ill-considered government interference is the main source of the problem.  Simple logic dictates that it is nearly impossible to agree on a workable reform plan without agreement on a set of basic facts about what needs to be reformed.  Many state reforms fail this test.  This study poses some key questions the many state initiatives have failed to adequately address and makes some recommendations for successful evidence-based reforms.

"The key elements of sound health care reform are competition, consumer control and deregulation."

There are three main components of successful reform.  First, the central focus of any serious reform effort should be a vibrant and competitive free market for private health care, with a wide choice of physicians and treatments and a variety of ways to pay for them.  There should also be a competitive market for private health insurance, one that offers a wide choice of health plans.

By contrast, excessive government regulation — especially requiring guaranteed issue and community rating — cripples markets for individual health insurance, increases health insurance costs for large numbers of people, expands dependence on government programs, and retards innovation in health care delivery and coverage.  The Massachusetts decision to impose guaranteed issue and community rating in the early 1990s put its individual insurance market on life-support and ultimately led to the adoption of the 2006 reform legislation.  Similar regulations had comparable effects in other states, with the result that individuals in New Jersey, Maine, Tennessee, Kentucky, New York and Vermont were denied choice in their health insurance.  [See Appendix A for some specific questions about health care reform.]

Second, consumer-directed health care initiatives, under which individuals manage some of their own health care dollars through Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs), are superior to first-dollar coverage, especially under insurance programs designed and controlled by government.  There is considerable evidence that consumer-directed programs reduce costs.  When the cost of health care drops, health insurance premiums drop, and paying cash for care becomes easier.  Paying cash further reduces costs by eliminating the overhead costs of third-party payment, with the result that more people can receive better health care for the same money.  However, there is no evidence that expansion of government health programs decreases costs.  In fact, there is evidence that such programs actually increase costs.

Third, in view of the compelling evidence that government control of medical practice can degrade care and increase costs, any successful health care policy reform should:  1) substantively reform government programs, 2) introduce incentives to eliminate waste, and 3) reduce costly and unneeded administrative and regulatory burdens.  These are the source of the largest cost problems in the current health care delivery system.

Read Article as PDF