Monday, 8 November 2004

It's the consumers, stupid

Tyler Cowen wonders why health care sucks:

It remains a mystery, why private health insurance has performed badly in holding down costs. Companies compete fiercely to shed costly patients but they do less to invest in reputations for reliability and trustworthiness. Similarly, it is a puzzle why HMOs don’t do more to invest in good reputations; lately Kaiser has moved in this direction.

All of this, I suspect, can be traced directly to the disconnect between health care consumption and health care customers; employers contract with health care plans as a fringe benefit for their employees (which Cowen has noted before), but they have no real incentive to make sure the health insurance is good (although there certainly is an incentive to make its cost as low as possible), except to the extent that a good health insurance plan can attract new employees; but, once employed, few people change jobs solely because their health insurance sucks (and nobody in a cartelized labor market, like academe, does so), so there’s little incentive to improve health care coverage.

It seems to me the sensible course forward is to couple HSAs with incentives for employers to provide a health insurance purchasing account (in lieu of employer contributions), which employees could use to purchase a health insurance plan in a competitive market. This would align the customer-consumer interest much better than the present system.