Health Care Reform

Abstract

To the Editor: In the April 2006 issue of Mayo Clinic Proceedings, Cortese and Smoldt1Cortese DA Smoldt RK Healing America's ailing health care system.Mayo Clin Proc. 2006; 81: 492-496Abstract Full Text Full Text PDF PubMed Scopus (28) Google Scholar provided an excellent framework for discussion of health care reform. The authors advocate a consumer-based model driven by economic principles and described the favorable economic impact of information technology, systems engineering, and research. Three additional economic efficiencies are a competitive market system, economy of scale, and appropriate health care tax policy. These economic efficiencies would substantially influence the role of providers, government, and private insurance companies in the market system for basic health care services. An efficient competitive market system requires that each health care provider choose a single price for a standard product or service.2Griffiths A Wall S Intermediate Microeconomics: Theory and Application. Addison Wesley Longman Ltd, Essex, England1996: 174-178Google Scholar This implies that a fixed price for 1 year of basic health care would replace the complex fee-for-service system. Health care providers would compete within each medical specialty. Actual provider payment would be risk adjusted among providers to reflect the volume and type of care provided. Consumers would receive health care from the lowest-priced provider network that reflects the consumer's preferences. The economy of scale principle states that large organizations are often more efficient than smaller organizations.2Griffiths A Wall S Intermediate Microeconomics: Theory and Application. Addison Wesley Longman Ltd, Essex, England1996: 174-178Google Scholar This economy of scale principle explains the much greater administrative efficiency of government health care systems compared to smaller private insurance organizations.3Woolhandler S Campbell T Himmelstein DU Costs of health care administration in the United States and Canada.N Engl J Med. 2003; 349: 768-775Crossref PubMed Scopus (462) Google Scholar In an efficient health care system, a few large organizations would provide administrative functions unrelated to price competition or innovation. These organizations would replace private health care insurance. In an efficient market system, price and value compel consumers to purchase health care services appropriately. Price distortions from health care tax subsidies lead to excessive health care spending.4Phelps CE Health Economics. 3rd ed. Addison Wesley, Boston, Mass2003: 344-356Google Scholar Elimination of this enormous tax subsidy4Phelps CE Health Economics. 3rd ed. Addison Wesley, Boston, Mass2003: 344-356Google Scholar could contribute to helping low-income Americans, who would receive tax reductions or vouchers to purchase minimal-cost basic health care. Although the best approach to health care reform is controversial, certain implications of an economically optimal health care system are not. The Federal Employee Health Benefits Plan may be a good first step toward health care reform. However, traditional fee-for-service health care, private health care insurance, and tax-subsidized health care do not represent an economically optimal health care system. Health Care Reform–Reply–IMayo Clinic ProceedingsVol. 81Issue 8PreviewDr Murro discusses 3 “economic efficiencies” that would further enhance a market-based health care system—competitive market system, economy of scale, and health insurance tax policy. Full-Text PDF