Free Market Healthcare in America: How Do We Get There?


Almost everyone agrees that healthcare in the U.S. is way too expensive but how do we change to a better system?  Douglas Holtz-Eakin and Avik Roy have laid out a roadmap to do this: “The future of free-market healthcare”.  Here is the essence of their plan: 1) start with what we will soon have under Obamacare: subsidized health-insurance exchanges; 2) limit subsidies in the exchanges to incomes up to 300% of the federal poverty level as in Massachusetts and also limit the growth of subsidies to the overall growth rate of the economy; 3) use the exchanges for Medicare reform by raising the eligibility age for Medicare by 3 months each year.  Retirees would then gradually migrate into the defined contribution system of the exchanges; 4) gradually shift Medicaid enrollees into the exchanges.  The exchanges would allow them to move up the income ladder while maintaining their health insurance.
Eventually all low income and retired  Americans would become part of a unified health-insurance system based on the exchanges which would provide subsidies as needed.  I would add one additional feature to this system:  remove the tax exemption from employer provided insurance.  This would, of course, create healthcare cost consciousness amongst employees.  Employers could still offer a health insurance package to their employees but it would become part of their taxable compensation.  They might decide to join an exchange instead for a better deal.
Such a system as outlined above is based on the Swiss free market model.  The Swiss choose their own doctors and have short waiting times for appointments.  The cost of healthcare in Switzerland is about half as much per person as in the U.S. so we would achieve a huge savings.  We have got to make big changes in the way we deliver and pay for healthcare in the U.S. and here is one way to do it!

4 thoughts on “Free Market Healthcare in America: How Do We Get There?

  1. In my view the whole problem with health care is that health insurance is inherently communist and suffers from the same tragedy of the commons. But that can change with a few easy modifications to the system and it could have all the low cost/ high quality benefits of a true free market. 1. Health insurance payouts must be in the form of a health voucher. 2. Voucher amounts would be based on your diagnosis, so to avoid conflict of interest, the doctor diagnosing you should be different than the doctor treating you (the exceptions would be in emergencies like heart attacks or in diagnoses with cheap/fast cures like a few stitches or cheap/over the counter prescriptions). After receding your diagnosis, you would immediately be given a voucher funded by your insurance company intended to cover most but not all of the expected expense. Here is where thre free market happens: you can bring your voucher anywhere, but you are on the hook for any costs in excess of the voucher, so you have a strong incentive to economize. Also, doctors and pharmacists would be required to disclose the full cost of treatment before you buy the medicine or undergo a surgery. Surgeons who use strong aesthetics would have to carry insurance that would cover any extra costs of your surgery if something went wrong while you were unconscious. That’s basically it. But I would make health insurance non-mandatory, and would prevent insurers from disqualifying you for preexisting conditions, however they could require you to continue paying premiums for multiple years if I’m the first year of your coverage you have exceptionally high health care costs, to give them a chance to recoup some of their costs if they want. I would not subsidize premiums, but I would institute wage subsidies so that all workers could afford basic health insurance premiums from their wages.

    • I guess I would say that your proposed system is too “purist” for todays American society. The voucher idea is a good one and really differs little, I think, from having exchanges providing subsidies for low-income people. I see the point of have different doctors do diagnosis and treatment but it sounds pretty cumbersome. I also agree with you about having insurance be non-mandatory but I would have annual enrollment periods rather than forcing continued premium payment. Wage subsidies rather than premium subsidies also is perhaps too high a standard because it leaves out the unemployed (I assume you intended this).
      We definitely need a more stringent system than we have now but, really, my goal is just to be able to pay the bills without borrowing, not to be overly stringent. I want to be as generous toward others as we can afford to be!

      • Thanks for the reply. It probably is too purist, but if we aim for the ideal I think we will likely get something closer to ideal than if we don’t. But I disagree about a few points of your reply. Wage subsidies should both boost wages and reduce unemployment – ideally (again, probably too purist) anyone who couldn’t find a private sector job could be provided an even lower paying job with the state or local government cleaning up trash or holding government information signs or something (lower paying so that they have an incentive to find private sector work). Better to spend billions creating make-work jobs than spending the same billions incentivizing people not to work with means tested welfare. But more pertinent to health care, there is actually a huge difference between a “voucher” to help pay a premium and a voucher to actually buy the medical service or pharmaceutical with. The former makes health costs go up while the latter makes them go down. That’s because a giving someone a health voucher and having them decide how to spend it will put the patient in control of how much they want to spend, and accountable to pay any excess costs over the voucher amount. If we could cut health care costs by 70% (and I’m confident we could), that strikes me as more generous to lower income Americans than paying even 50% of their premium.

  2. You have so many ideas it is hard to know where to focus! It seems complicated to give vouchers for treatment rather than for premiums. I think the “ideal” way to go along this line is to combine Catastrophic Care insurance with Health Savings Accounts. This is the Singapore model which would probably be too difficult to implement in such a large, diverse country as ours.
    Simply removing the tax deductibility of employer provided insurance would do wonders for price competition. Avik Roy does not include this in his plan because, I suspect, he considers it politically impossible, since so many people receive it.
    Giving health insurance as a wage subsidy only would mean largely doing away with Medicaid, again politically impossible. Roy proposes migrating Medicare, Medicaid and Veterans healthcare onto the Obamacare exchanges. These would then provide means-tested vouchers for everyone who does not have employer provided health insurance.
    I think that something along these lines is probably the best we can do and would, at any rate, be a hugely more cost efficient system than what we have now.
    I greatly appreciate your interest in my blog!

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