Columbia International Affairs Online: Working Papers

CIAO DATE: 08/2013

Best of both worlds: Uniting universal coverage and personal choice in health care

Tomas J. Philipson, Darius Lakdawalla, Anupam B. Jena, Michael Chernew, Dana Goldman, Jay Bhattacharya, Amitabh Chandra, Anup Malani

August 2013

American Enterprise Institute for Public Policy Research

Abstract

The US health care system suffers from three structural flaws. First, it artificially inflates health insurance premiums for the healthy in an attempt to lower premiums for the sick. This encourages healthy individuals to reduce their insurance coverage or even exit the market entirely, driving up costs for everyone. Mandates to purchase insurance and penalties for lack of insurance can serve as cosmetic solutions, but they cannot erase this fundamental problem. Second, by relying heavily on open-ended fee-for-service public insurance, the present system rewards costlier high-volume care rather than higher-quality care. Perhaps as a result of these incentives to do more, per capita health care spending in the United States is the highest in the world, while patient health outcomes rank much lower. Third, the poor are funneled into a Medicaid system with reimbursement levels well below those of private payers. This relegates the most vulnerable groups in America to a separate and unequal health care system with more limited access and worse outcomes. The current system professes to sacrifice some efficiency to protect the sick and the poor, but ultimately it fails to achieve either efficiency or equity.