The Market for Medical Care: Why You Don't Know the Price; Why ...

The Market for Medical Care 29taxed away almost half of every dollar employers put into savings accountsfor employees to pay their medical expenses directly. The result was a tax lawthat lavishly subsidized third-party insurance and severely penalized individualself-insurance. This has encouraged consumers to use third-party bureaucraciesto pay every medical bill, even though it often makes more sense forpatients to manage discretionary expenses themselves. 103“Tax laws should make iteasier for people to self-insurefor medical expenses.”If the tax laws made it easier for people to self-insure instead of relyingon third-party payers, competition would improve the efficiency of themedical marketplace. Currently, Health Savings Accounts (HSAs) are allowingmillions of people to partly self-insure. However, congressional tax-writingcommittees have made decisions about the design of HSAs that moreproperly should be determined by the market 104 For instance, the amount ofthe HSA deposit and the accompanying health insurance deductible are set bylaw. Instead, the market should be allowed to answer such questions as: Whatis the appropriate deductible for which service? Should different amounts bedeposited into the accounts of the chronically ill? In finding answers, marketsare smarter than any one of us because they benefit from the best thinking ofeveryone. Further, as medical science and technology advance, the best answertoday may not be the best answer tomorrow.ConclusionData on prices and quality are generally not available to patients in theU.S. health care system. That is because of the third-party payment system inwhich providers do not compete for patients based on price or quality. As a result,patients do not benefit from the price-reducing, quality-increasing activitiesthat characterize competitive markets. To make prices and quality transparentin the health care marketplace, the way Americans pay for health carewill have to change, and the health care industry will have to fundamentallychange the way it does business. Some of these changes are already occurringbecause of the increase in individual self-insurance. In the prescriptiondrug market, for example, transparency is already a reality for those who usethe Internet. Government can speed the transition to greater transparency byremoving obstacles to competition and innovation. But transparency does nothave to be forced upon the health care industry. It will be the natural productof a market in which patients control their own health care dollars and providerscompete for those dollars.NOTE: Nothing written here should be construed as necessarily reflecting theviews of the National Center for Policy Analysis or as an attempt to aid orhinder the passage of any bill before Congress.