Redefining Consumer-Driven Health Care

Published October 1, 2006

Redefining Health Care: Creating Value-Based Competition on Results
Michael E. Porter and Elizabeth Olmsted Teisberg
Boston: Harvard Business School Press, 2006
506 pages, hardcover, ISBN: 1591397782, $35.00

Government policies, malpractice lawsuits, the copayment culture, and provider responses to past attempts at reform have created a system in which patients fight their health plans, doctors resent patients for being “know-it-alls,” and everyone thinks somebody else should pay the bill.

Who better to offer a fix for the dysfunctional health care market than the guru of competition, Harvard Business School professor Michael E. Porter? Porter and Elizabeth Olmsted Teisberg of the Darden Business School at the University of Virginia conclude health care reform efforts should focus on providing results and value information, rather than simply promoting more competition among insurers and providers.

The authors suggest “mandatory measurement and reporting of results,” which they call “perhaps the single most important step in reforming the health system.”

Porter and Teisberg have many ideas for improving health care through competition and information–which makes their attack on consumer-driven health care (CDHC) and advocacy for mandatory universal coverage disappointing.

Allow Choice

According to the book,”The role of the consumer is taken too far [in CDHC], as if consumers can replace doctors and make medical decisions entirely on their own.” This disregard for consumers’ responsibility for their own health carries into other areas as well.

Deregulation of the insurance and provider markets would allow for rapid evolution in getting important information to health care providers and consumers, and in the behavioral responses of providers and consumers to that information. But Porter and Teisberg do not trust markets alone, and press instead for “the federal government, or a consortium of states” to mandate changes.

Regarding employer-centered health insurance, the authors write, “Employers that avoid health insurance gain an artificial advantage unconnected to their true quality or efficiency, distorting competition.”

They acknowledge the distortion created by the favorable tax treatment of employer-provided health insurance, and the advantages large corporations have in the form of self-insurance not subject to state mandates. But the authors still think employers are trying to game the system and should be forced to bear extra costs by paying higher Medicare and Medicaid taxes or disclosing the cost of the forgone benefits. They would address the tax differential only “in the long term.”

Trust the Market

The authors also recognize that mandated benefits make insurance expensive, but their suggested solution is a national minimum standard for insurance set by “a respected, expert body [that] must act on behalf of all Americans” … as if one body of anointed experts would be more difficult to lobby on what constitutes essential care than 50 state boards or millions of individual consumers.

In contrast to the authors’ claims, removing regulations banning interstate competition for insurance, greater geographic competition among providers, less third-party payment for services, tax neutrality in insurance purchases, and more leeway for insurance companies to set premiums based on behavioral risk factors such as smoking and lack of physical activity would allow consumers to choose how they want to pay for their health care.

New rules are not needed. The only additional legal change needed would be a provision to exempt providers from some malpractice suits that could otherwise be filed as a result of information sharing.

The authors rightly conclude that health care can be like other markets, with positive-sum, results-based competition. If only they would trust the market to achieve that result, instead of trying to impose such competition through government fiat.

Joseph Coletti ([email protected]) is a fiscal and health policy analyst at the John Locke Foundation, a free-market research group in North Carolina.