Is free market medical care the only option?

Written by Derek Monson

February 28, 2020

If analysis from two American Enterprise Institute healthcare scholars is correct, free market medical care may not just be our best option to improve healthcare – it may be the only one available.

In their analysis, James Capretta and Joseph Antos discuss two states (Colorado and Washington) that have attempted to create state-owned insurance plans – aka the “public option” – to compete with their state’s private health insurance carriers. Apparently, things have not gone as hoped.

From the article:

Washington’s initial plan was to cap payments to doctors and hospitals at 100 percent of Medicare prices. Opposition from providers forced the Legislature — run entirely by Democrats — to move the cap to 160 percent of Medicare payments, with insurers having the discretion to adjust pricing for individual services so long as they stay at or under an overall limit. Hospitals and doctors are not required to participate in the state-directed option — an important feature — which would make the plan unattractive to consumers whose physicians opt out.

Colorado is considering forcing hospitals to participate in its plan, with payments for services set between 175 percent and 225 percent of Medicare’s rates. Legislation to start the planning process was signed in May of last year, but further legislation is needed before the reform can go into effect. It is far from certain that Colorado will be able to compel participation in its plan by hospitals or physicians.

Capretta and Antos conclude that both states “retreated from creating genuine public option plans” due to the combination of financial problems and political opposition.

This raises the question: if government-run insurance plans are not financially or politically feasible in blue and bluish-purple states, how could more expansive, federal-government-controlled health insurance proposals like “Medicare for All” have a chance?

The experience of states suggesting that progressive healthcare reforms are unfeasible – combined with the fact that the political right also failed a few years ago to reform the Affordable Care Act – suggests that the most practical solution to improving healthcare may be the free market.

Free market medical care happens when healthcare entrepreneurs innovate to reform healthcare from the inside – improving the cost and quality of care in the process. Often this happens without the need to change the law. Utah, for instance, has many such examples of free market medical care.

Of course, even with healthcare entrepreneurs innovating under current healthcare policies, there are still beneficial, market-based policy reforms that would allow free market medical care to do even more to benefit working Utahns and their families. Such reforms include removing regulatory barriers to free market medical care, prohibiting anti-competitive contracting practices by medical providers, and requiring price transparency for patients from providers.

The failure of significant healthcare policy reforms at both national and state levels suggests that these market-based policy reforms also require more time to become politically possible. Which means that for now, free market medical care may not just be the best option, but the only one, to improve healthcare for Utahns.

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