Missing the point of replacing Obamacare

Veronique de Rugy explains in a Reason column why the proposed American Health Care Act represents a misfire.

[A]t the heart of the Republicans’ inability to reform health care is their commitment to this notion that the provision of health insurance is the goal rather than the provision of health care or, more fundamentally, the production of health itself. Though insurance companies love it because it guarantees overinflated profits for their industry, this idea goes a long way toward explaining why the supply of health care remains so expensive.

As my colleague Robert Graboyes rightfully points out in his work, by focusing exclusively on the provision of health insurance coverage, Republicans have been asking the wrong question: “How do we find a way for Americans to consume health care at no cost to them?” Unfortunately, it has produced a series of policy decisions that have removed all incentives for health care consumers to be careful about how they spend money.

According to a Congressional Budget Office report in July, consumers pay for only 11 percent of their health care costs. Everything else is paid for by third parties, whether it’s the government or private insurance. That’s a problem, because when people’s consumption is paid for by someone else, it jacks up demand and drives up the prices and inefficiencies of the subsidized good or service. Why should you consume health care carefully if you don’t pay for it? And of course, health care providers have little incentive to keep their prices low to retain their customers (patients) because these consumers aren’t paying the full tab.

Graboyes notes that this laser focus on the provision of health insurance coverage has distracted us from a more important health care goal: producing better health for more people at lower cost, year after year. The solution here is innovation. Nothing would affect prices and quality of health care as radically as revolutionary innovation, which we’ve seen in other fields, such as information technology. To encourage such innovation, we have to free the health care supply from the many constraints imposed by federal and state governments (both blue and red) and the special interests they serve.

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