Consumer-Oriented Government Policy Can Avert Dire Health Care Mega-Trends

Published August 1, 2008

One of the most innovative ideas that appeared in Patient Power: The Free-Enterprise Alternative to Clinton’s Health Plan, a book I wrote in 1993 with Gerry Musgrave, and again in my 2007 study on “Applying the ‘Do No Harm’ Principle to Health Policy,” was a way to slice through a Gordian knot created by five health care mega-trends.

The current state of the U.S. health care system, and the surrounding debate, show it to be as relevant now as ever.

Here are the trends.

Trend No. 1

As health care costs continue to grow faster than income, being uninsured or being on Medicaid will look increasingly attractive to lower-income families. (I am going to treat “Uninsured” and “Medicaid” as interchangeable, since they both create the same social/economic problem.) A new Commonwealth Fund study by Sherry Glied and Bisundev Mahato, “The Widening Health Care Gap Between High- and Low-Wage Workers,” finds the percentage of low-wage workers who are uninsured/Medicaid grew from one-fourth to more than one-third in eight years.

Trend No. 2

Our commitment to free care will reinforce the incentives created by Trend No. 1. In a separate Commonwealth Fund study, Glied and Mahato found for each person in the uninsured/Medicaid population we are spending about $1,500 per year through direct subsidies and cost-shifting. Thus the health care system offers a family of four with few assets and low income “public insurance” worth about $6,000 a year. That compares to premiums of $5,799 for insurance purchased directly.

Trend No. 3

Trends No. 1 and No. 2 threaten a system-wide death spiral. As people who have the least to gain from private insurance leave the system, average costs will rise for those who remain, including increasing cost-shifting from Medicaid and the uninsured to everyone else.

Trend No. 4

Public policies designed to create an increasingly competitive hospital marketplace will make it difficult to shift costs from one group of patients to another. In a perfectly competitive market, there is no such thing as cost-shifting.

Trend No. 5

Under the pressures described by the first four trends, the safety net as we know it will eventually collapse. Those institutions that survive will deliver a different kind of care than what is received by private paying patients. Care will be delivered under a public/private version of localized global budgets.

Reform Idea

So what can be done? To ameliorate all five trends and neutralize perverse incentives, there should be a government commitment of $X (in this case $1,500) to every individual. Those who choose private insurance would receive a refundable tax credit to offset premium costs. For those who do not insure, $X would be sent to local safety nets in the communities where they live–to be spent on Medicaid-type programs or on free care services.

This plan makes private insurance just as attractive as public insurance as far as subsidies are concerned, makes a fixed financial commitment to every individual, lets money follow people as they move from insured to uninsured status and vice versa, and guarantees a minimum per-capita funding for the safety net.

John C. Goodman ([email protected]) is president of the National Center for Policy Analysis. His health care blog is at

For more information …

“Applying the ‘Do No Harm’ Principle to Health Policy,” John C. Goodman, January 23, 2007:

“The Widening Health Care Gap Between High- and Low-Wage Workers,” The Commonwealth Fund, May 2, 2008:

“Who Pays for Health Care When Workers Are Uninsured?” The Commonwealth Fund, May 2, 2008: