Advocates of market incentives in health care should focus their energy on two reforms that would make a real difference by making it easier for consumers to identify and obtain high-value, low-cost care. These reforms do not require deregulation of the insurance market or elimination of subsidies intended to ensure a level of access to care for lower income households.
First, the federal government should proceed with an aggressive price transparency initiative. The Trump administration has issued rules that point in the right direction but are too tepid and piecemeal to push the market where it needs to go. The initiative should begin with development of a robust and mandatory pricing list comprised of common medical procedures. All providers of medical care engaged in providing services on the list should be required to cooperate with other clinicians and facilities in the posting of all-in pricing information. …
… The second major reform should be adoption of defined contribution payments when subsidizing enrollment into health insurance. This reform — sometimes called “premium support” — would create strong incentives for enrollment in insurance plans that can effectively manage the costs of patient care because the government’s contributions would not increase with the expenses of the plans chosen by consumers. Individuals would be free to select high-cost plans but would be required to pay for the added premiums (above an average) themselves. Premium support can be applied to the Medicare program, and to employer-provided insurance through reform of the federal tax subsidy.
There are many other reforms that would be beneficial to the health sector, but these two stand out because they would facilitate a powerful role for the consumer — a role that is almost entirely nonexistent today.