What Should Be Done? (Health Care)

"How to employ market reforms? Here are five simple steps.

"Make health insurance more like other types of insurance. Health savings accounts, which passed as part of the Medicare reforms of 2003, were an important first step, separating smaller expenses from high-deductible insurance, for catastrophic events. However, the legislation is overly rigid. Congress must expand and revise the structure of HSAs, and level the tax playing field for those not covered by an employer plan.

"Foster competition. American health care is the most regulated sector in the economy. The result? A health insurance policy for a 30-year old man costs four times more in New York than in neighboring Connecticut because of the multitude of regulations in the Empire State. Americans can shop out-of-state for a mortgage; they should be able to do so for health insurance. Likewise, many laws intended to promote fairness end up reducing competition and thus innovation. Congress should reconsider such laws, beginning with the federal Emergency Medical Treatment and Active Labor Act (EMTALA).

"Reform Medicaid, using welfare reform as the template. Medicaid spending is spiraling up, now consuming more dollars at the state level than K-12 education. Like the old Aid to Families with Dependent Children, part of the problem stems from the fact that the program is shared between both the federal and state government -- and is thus owned by neither. Congress should fund Medicaid with block grants to the states, and let them innovate.

"Revisit Medicare. Back in the late 1990s, a bipartisan commission approved a reasonable starting point for Medicare -- junking the price controls, and using the Federal Employees Health Benefits Plan as a model. Elderly Americans would then have a choice among competing private plans. Given that the unfunded liability of Medicare is four times greater than that of social security, the time is right to experiment with this idea.

"Address prescription drug prices by pruning the size and scope of the FDA. It costs nearly a billion dollars for a prescription drug to reach the market, and roughly 40%of that is due to safety requirements. This is effectively a massive tax on pharmaceuticals. With new technology and focus, it would be possible to update the FDA, drawing from President George H. W. Bush's experiments with contracting out certain approval steps to private organizations, which boasted lower costs and faster approval times.

"None of these steps would be dramatic but all are important. Congress also slowly needs to weigh bigger issues: how to shore up Medicare, create portability of health insurance, and foster a market for medical innovation."