Expanding Choice through Defined Contributions: Overcoming a Non-Participatory Health Care Economy

Abstract

The fate of the Patient Protection and Affordable Care Act of 2010 is uncertain. Much of the opposition is grounded in popular hostility to expansive federal control over individuals' health care decision-making. But the new law reinforces existing third-party payment, primarily through employers and government programs. This financing already restricts personal choice of health plans and coverage options. Private employers, managed care executives, and public officials make the key spending decisions in health care. Unlike consumers in other sectors of the economy, individuals are mostly passive spectators. Normal market dynamics do not exist, and consumer choice is frustrated. Curiously, public programs, such as the Federal Employees Health Benefits Program (FEHBP), the Medicare Advantage Program, and the Medicare Part D Drug program, are the main exceptions to the norm. In these programs, individuals control the flow of dollars over the purchase of health plans. In crucial areas such as access to care and benefits, cost control, quality, and patient satisfaction, these programs have a strong record. By realigning health reform with the primacy of personal choice, and building on the experience of these programs, policymakers can expand consumer control through defined-contribution financing. Specifically, Congress can replace the existing tax regime for commercial private health insurance with a national tax credit system, provide generous financial assistance for the poor, and transform Medicare into a "premium support" program.