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Health Insurance Misdiagnosis and the Destruction of Medical Wealth
September 08, 2009
Most Americans agree that our health care system is broken. But it is increasingly clear that what ails health care is not too little, but too much government intervention.
President Barack Obama and congressional Democrats have proposed a major restructuring of the American health care system. They argue that Americans spend too much for health care of often dubious quality and that tens of millions of Americans lack meaningful access to health insurance. In turn, they have proposed structural reforms to the existing private and public health care financing systems that are intended to increase coverage, lower costs, and improve health care quality.
Most Americans agree that our health care system is broken and must be fixed. But it is increasingly clear that what ails health care is not too little, but too much government intervention. Federal and state tax preferences for employer-sponsored health insurance distort the market in a way that limits choices for individuals, reduces competition among insurers, and artificially inflates costs for health care services. For most working Americans, switching jobs often entails switching health plans and doctors or losing coverage altogether, while many others find non-employer-sponsored insurance unaffordable or difficult to obtain.
Efforts by federal and state governments over the past few decades to solve these problems have generated additional burdens and distortions, leading to increasingly bigger problems. To ensure affordable coverage for those in poor health or with potentially expensive medical conditions, governments have implemented guaranteed renewability, guaranteed issue, and community rating laws that force healthy individuals to subsidize those with higher health care costs. Many states require insurance policies to pay for niche specialists, including acupuncturists, pastoral counselors, and massage therapists, or to cover alcoholism and substance abuse treatment, smoking cessation, and in vitro fertilization. But these regulations further raise the price of insurance coverage, leading many healthy individuals to forgo insurance altogether.
Similarly, numerous state and federal restrictions on who may provide medical services and how they must be delivered have hindered the development of innovative ways for medical professionals to offer more convenient and lower-cost health services to consumers. A combination of government and medical professional lobbying has restricted the supply of new doctors, creating an artificial scarcity and contributing to rising prices. And medical products regulation substantially raises the cost of producing new drugs and medical devices, often without increasing their safety.
Instead of reducing these burdens, Democratic health reform proposals would impose more regulations on insurers, place mandates on individuals and employers to purchase health insurance, provide subsidies for individuals to pay for health care coverage, expand Medicaid, and create a new government-run “exchange” through which individuals and businesses could purchase strictly defined coverage from private insurers. But more government intervention will only add cost and complexity to the health care system; without solving the underlying problems.
As an alternative, policy makers should eliminate the many layers of market-distorting government regulation that have produced our current crisis. To truly reform America’s health care system, policy makers should:
- Modify tax policy to eliminate the disincentives for individual purchase of health insurance and health care.
- Eliminate regulatory barriers that prevent small businesses from cooperatively pooling and self-insuring their health risks by liberalizing the rules that govern voluntary health care purchasing cooperatives.
- Eliminate laws that prevent interstate purchase of health insurance by individuals and businesses.
- Eliminate rules that prevent individuals and group purchasers from tailoring health insurance plans to their needs, including federal and state benefit mandates and community rating requirements.
- Eliminate artificial restrictions on the supply of health care services and products, such as the overregulation of drugs and medical devices, as well as state and federal restrictions on who may provide medical services and how they must be delivered.
- Improve the availability of provider and procedure-specific cost and quality data for use by individual health consumers.
- Reform the jackpot malpractice liability system that delivers windfall punitive damage awards to small numbers of injured patients while it raises malpractice insurance costs for doctors and incentivizes the practice of defensive medicine.
Each of these changes would help to fix our broken health care system by reducing costs and enabling better informed, cost-conscious decision making. By themselves, they will not guarantee access to health insurance among those with chronic preexisting conditions. But if we reform the existing maze of federal and state regulation, we will then be able to address the problem of the truly chronically uninsured. Because they are a fraction of the 46 million individuals who now lack insurance or government health coverage, it would then be possible to create targeted programs to help subsidize their health insurance costs without breaking the bank and without distorting the rest of the health care and health insurance markets.