Market Competition Can Improve U.S. Health Care, Authors Say

Published November 1, 2005

Healthy Competition: What’s Holding Back Health Care and How to Free It
by Michael F. Cannon and Michael D. Tanner (Washington, DC: Cato Institute, 2005)
$9.95, ISBN 1-930865-81-3

Every day, America’s health care system demonstrates its success by the number of lives saved or made better. However, soaring costs, uneven quality, tremendous waste, mind-numbing regulation, and lack of useful price information demonstrate its failures.

Healthy Competition: What’s Holding Back Health Care and How to Free It offers prescriptions for how to heal these problems and make the health care system better.

Authors Michael F. Cannon, director of health policy studies at the Cato Institute, and Michael D. Tanner, director of health and welfare studies at Cato, make the case that market competition can improve quality, reduce costs, and give patients, physicians, and other medical service providers greater control over care.

Government Inhibits Competition

The authors point out that government already funds half of all medical care, mainly through the Medicare and Medicaid programs, and regulates the health care industry more heavily than nearly any other. Because of these constraints on market forces, costs continue to soar and dissatisfaction among consumers, health care providers, and third-party payers grows.

The benefits of competition and free choice are driven home in the first few pages, when Cannon and Tanner describe experiences with some of the few medical services where patients pay, rather than the government or private insurance.

For instance, in the cosmetic surgery market, “patients pay directly and therefore must weigh the costs and benefits of each procedure. As a result, inflation-adjusted prices have fallen every year from 1992 to 2001,” they note.

The authors add, “Patients also weigh the costs and benefits of laser eye surgery, another highly competitive market where prices have fallen dramatically. … It is also notable that these falling prices occur despite the fact that more than 80 percent of Lasik patients search for an experienced surgeon with a strong reputation, rather than just the lowest price.”

Costs Fall with Choice

The authors contrast these experiences with the situation in virtually every other area of medical care, where costs are climbing far faster than inflation, despite thousands of pages of government regulations, insurance restrictions, and other measures to limit choices and hold down costs.

“America faces a choice between two approaches to meeting the nation’s medical needs: greater choice and competition in an open marketplace, or more government control,” Cannon and Tanner write. “Ultimately, the decision is between competing visions of whether power in the medical marketplace should reside with individuals or with government.”

Healthy Competition makes a strong case for placing decision-making power with individuals.

Market Forces Beneficial

Cannon and Tanner provide several proposals to free up market forces in health care:

  • expanding health savings accounts to allow workers to control all their health care dollars and decisions;
  • injecting choice, competition, and ownership into Medicare, and pre-funding Medicare through personal accounts;
  • reforming Medicaid along the lines of the successful 1996 welfare reform law;
  • deregulating health insurance by allowing people to purchase coverage from any state;
  • creating a competitive certification process for new medical technologies (drugs and medical devices);
  • eliminating waiting lists for transplantable organs by allowing payments to organ providers;
  • making care more accessible by reducing barriers to entry for providers, clinics, and hospitals; and
  • allowing individual patients to choose the level of malpractice protection they desire.

In his foreword to the book, former U.S. Secretary of State George P. Shultz, now a distinguished fellow at the Hoover Institution at Stanford University, aptly summarizes the value of the book: “Cannon and Tanner offer proposals that would further tap the power of markets to make health care more valuable and more affordable.”

Steve Stanek ([email protected]) is managing editor of Budget & Tax News.