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The Free Market Works for Health Care

Posted By Kathryn Nix On May 2, 2011 @ 12:30 pm In Obamacare | Comments Disabled

Advocates of big-government health care have ruthlessly attacked Representative Paul Ryan’s (R–WI) proposal to reform Medicare, which would give seniors a contribution to apply to the health plan of their choice. Under this “premium support” system, [1] insurers would compete in newly created Medicare exchanges and would face pressure to offer high-value coverage at the best price possible.

According to opponents, this would force seniors to pay for a growing portion of their health coverage as medical costs rise. But real-world examples prove that applying free-market principles to health care can in fact reduce costs and improve patient satisfaction.

Employers have increasingly struggled with the rising cost of providing health benefits for workers. In a recent article [2], Kaiser Health News writer Julie Appleby highlights a popular solution that draws from the concept of Ryan’s Medicare plan: Rather than offering employees a defined health benefit package, employers are beginning to offer a defined contribution, with which employees can choose a health plan that best suits their needs from a private exchange.

Mike Sarafolean, the CEO of Orion Corp. based in Minnesota, recently switched from a one-size-fits-all plan to making monthly contributions to individual health reimbursement accounts. His employees then use the accounts to pay the premiums for the health plans they choose.

The switch benefited Sarafoleans’s employees in two ways. First, they now can purchase a plan that best suits their needs. One employee with a chronic illness said, “I haven’t heard anyone who is unhappy with the current insurance, because it was all individualized.” Second, the defined-contribution approach has led to savings for both Sarafolean’s business and his workers. Prior to converting, the company faced a 40 percent increase in premiums in one year. Now, Appleby reports that [2] “the company is saving 10 percent over its previous year’s cost of insurance,” and “Many of his workers also spend less.”

Starting in 2014, Obamacare creates state health exchanges. But rather than encouraging a marketplace with a wide variety of options, heavy government involvement will stifle competition and choice. A researcher at the Employee Benefit Research Institute asks [3], “As of 2014, why will the private exchanges be needed?” A better question is why the Obamacare exchanges are needed if the private sector has already begun to offer patient-centered solutions without the burdensome rules and regulations that will accompany the federally created exchanges. Instead, reform should encourage the growth of such solutions from the private sector.

Ryan’s proposal would improve and sustain Medicare by using the same principles that are working for Mike Sarafolean’s employees. As Heritage research shows [1]:

Giving people purchasing power and options would pressure insurers to offer plans of better value that respond to popular demand, and intense competition among insurers would control costs. As a result, the Medicare program would see serious savings. Giving seniors a defined contribution adjusted by income and health status as Ryan proposes would allow Congress to fashion a rational budget. Seniors would have a vested interest in ensuring health dollars were spent wisely, and they would seek out the best value in health plans and medical services. Seniors and taxpayers would thus become partners—not opponents—in efforts to control Medicare costs.

Experiences in market-driven health care reform show that it is the most successful way to reduce costs and maintain patient satisfaction. Putting patients back in charge of their health-related decisions can achieve these goals with minimal government involvement.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/05/02/the-free-market-works-for-health-care/

URLs in this post:

[1] “premium support” system,: http://www.heritage.org/Research/Reports/2011/04/How-to-Transform-Medicare-into-a-Modern-Premium-Support-System

[2] In a recent article: http://www.kaiserhealthnews.org/Stories/2011/April/29/private-health-exchanges.aspx?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+khn+(All+Kaiser+Health+News)&utm_content=Google+Reader

[3] asks: http://www.kaiserhealthnews.org/Stories/2011/April/29/private-health-exchanges.aspx?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+khn+%28All+Kaiser+Health+News%29&utm_content=Google+Reader

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