Bringing a Little Market Competition to Health Care

Dean Baker

Bringing a Little Market Competition to Health Care

The United States pays more than twice as much per person for health care as other wealthy countries. Yet, it ranks at the bottom of the list in terms of health outcomes like life expectancy and infant mortality rate. Even worse, costs are rising far more rapidly in the United States than in other countries. This means that our health care situation will be considerably worse in the near future.

In fact, all the horror stories that are told about future budget deficits and the "entitlement problem" are really just stories about how rising care costs will eventually wreak havoc on the federal budget. Honest people point out that the projections of dangerous budget deficits in future decades show the need to fix the health care system. (Less honest people use these projections as an excuse to attack Social Security.)

It would not be hard to design a better health care system than ours - everyone else seems to have done it. The best model for the United States is probably a single payer system like Canada's, with per person costs that are approximately 60 percent as high as the U.S. system. But, getting from here to there can be difficult. Overhauling a sector with $2 trillion in annual expenditures is serious business.

This is where progressives can take a tip from conservatives - use the market. We already have the embryo of a single-payer system, the Medicare system that provides health insurance to people over age 65. Medicare has administrative costs that are less than 20 percent as high as those of private insurers. In addition, it is far more effective in limiting the cost of health care providers than private insurers.

The simplest route to a universal single-payer system is to allow everyone, both employers and individuals, to buy into the Medicare system. Medicare could charge age-adjusted fees that cover its costs. Medicare could almost certainly undercut the fees charged by private insurers. In addition, businesses and individuals would know that their rates would not be jacked up the following year due to a serious health care problem.

If everyone was given the option to join Medicare, the vast majority of the population would almost certainly be enrolled in the program in a relatively short period of time. (My think tank would be enrolled as quickly as we could fill out the forms.) This would effectively provide the country with a single-payer system that could reign in costs. To get to universal coverage, it would still be necessary to have a system of subsidies for low and moderate income workers. However, with health costs contained, this would be an affordable expense for the public sector.

The best thing about allowing a Medicare buy-in is that we could promote it with the right’s rhetoric. After all, the proposal does not take away anything from anyone. We would still allow people to enroll in whatever insurance plan they like. We would simply be giving them another option - people who choose to pay the fee could enroll in Medicare. We just have to ask our friends on the right, "what’s wrong with giving people a choice?"