Problems with the American Health Care System

As many people do, I think the health care system in this country has serious problems. There are a number of potential solutions to this problem. We could move either to a free market system or to a single-payer plan, i.e., a government health care system. Our current system is neither of these systems, but rather a restricted market.

I consider our current health care system to be a restricted market. By this I mean that the insurance industry is a group of profit-seeking firms, but consumers do not have free choice to switch between the market alternatives. Many of the people who defend the current system claim that a free market is best. However our current system is not a free market. Many of the problems in our current health care system are a result of the restrictions in this market. Consumers cannot register their discontent with their insurance plans because it is difficult to switch plans. Because of this difficulty, plans can fail to provide quick resolution of claims, good information, or consistent policy because customers are tied in to their current plans through their employers and through the difficulty of switching plans.

Considering our current system of a restricted market, one of the simplest solutions to this problem would be to have a free market for health insurance, so that people could “vote with their feet.” Making our system a free market would require forbidding insurance companies to give discounts to employers, making it easier for the employers to buy insurance than for their employees to do so. Health insurance should thus count as a tax deductible expense, even for people who take the standard deduction. It should also be illegal for insurance companies to discriminate based on a pre-existing condition when a person is switching plans (unless the condition is not covered by the original plan). Employers should not be allowed to force employees to accept “their” plan. They should be able to set price based on age, sex, weight (as compared to height), smoking, and other “controllable” risk factors.

The government should require everyone to have insurance, and should give vouchers for the purchase of health insurance, good for a certain amount of money, which would be phased out with income. The government could also have a default plan into which people would be enrolled if they did not make any other choice. (National health insurance, however, seems to be politically unacceptable in this country, although it would probably be even better than any of the above solutions, although a very good free market system might be better than government health care.)

A remaining question is how to handle people who try to cheat the system by switching plans when they become sick. It would be reasonable to allow plans not to cover preexisting conditions when the previous plan did not cover the condition, at least in a sysem where the state provided vouchers for a basic amount of health insurance and a default plan if the people did nothing. Such a default plan should choose to cover various treatments based on cost-benefit analyses of those treatments. Based on these analyses, it might determine that it would only pay up to a certain amount for a given treatment.

- 1998 July 28

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(Back to Views, David Baron)