Competition in the Health Care Marketplace
Published: 2009-08-12 23:04:48
Author: Grace-Marie Turner | Galen Institute | July 16, 2009
Thank you Chairman Pryor, Ranking Member Wicker, and members of the committee for the opportunity to testify today on the issue of competition in the health care marketplace. My name is Grace-Marie Turner, and I am president and founder of the Galen Institute, a non-profit research organization devoted to advancing an informed debate over market-based health reform ideas.
There are many problems in our health sector that require careful and deliberative change, including the issue you are exploring today involving the lack of competition in many parts of the health sector. I would argue that many of the problems the country is facing involving cost, quality, and access to health care could be addressed by encouraging more competition and empowering consumers to have greater control over decisions involving their care and coverage.
In my testimony, I will highlight some of the progress that is being made through innovations in care delivery, in creative benefit offerings, and even in lowering the cost of treatments to show that the competitive market can respond to the demands of consumers for better quality care at more affordable prices.
While health care is different than other sectors of our economy and requires special consideration, there are many areas where consumers can and want to have more control over their health care choices. I believe the evidence shows that competition can work by engaging consumers as partners in getting better value for their health care dollars.
Change is indeed needed
Congress is attempting to address in major health reform legislation the many problems in our health sector: Health insurance and health care still cost too much. As a result, tens of millions of Americans don’t have health insurance, and many more are worried they are one pink slip away from losing their coverage. The lack of competition in health insurance in many states limits the options for coverage and over-regulation drives up costs. And the costs of Medicare and Medicaid are swallowing up a growing share of federal and state revenues, compromising other functions of government and threatening huge tax increases just to pay for current entitlement commitments.
But because Americans consistently tell public opinion pollsters they do not want a larger role for government in the health sector, policies that build on the private sector are much more likely to gain public acceptance.
Consider, for example, the progress that has been made in moderating costs over the last several years:
A climate friendly to innovation
The private sector is much more adept at innovation and evolutionary change than government-dominated programs. Continued innovation is vital to progress in health care. The medical profession is moving toward patient-centered medicine, with micro-targeting of treatments tailored to the individual genetic code of individual patients. Advances in medical science demand that progress continue without being blocked by regulatory obstacles and restrictive payment systems.
Two segments of the health sector
The U.S. health economy has two distinct segments – the public and private sectors – and each operates under different sets of rules. About 46 percent of the U.S. health sector is largely financed with tax revenues through government-operated programs, such as Medicare, Medicaid, the State Children’s Health Insurance Program, the Veterans Health Administration, community health centers, and others. The rest of health care is financed privately, largely through businesses’ contributions to support employment-based health insurance but also through direct purchase of insurance and out-of-pocket payments by patients.
Many analysts refer to our public and private health sectors as a health care system, but we do not have anything approaching a health system in the U.S. Rather, it is made up of conjoined twins, with one run by various government agencies and the other more reliant upon market forces. As health policy analysts attempt to achieve consensus on reforms for our health sector, it is becoming increasingly clear that this operational divide is one reason compromise is so difficult.
The government sector works primarily on a model that provides people eligible for public programs with an entitlement to a government-determined set of benefits within government-determined payment structures. Some patients receive care from physicians employed by the government in government-owned facilities, but most obtain care through private hospitals and physicians who are paid at government-determined rates.
Within the public sector, private health plans also are involved. For example, many states have contracted with private managed care companies to offer care through their Medicaid and SCHIP programs, and Medicare allows participation by private plans in Medicare Advantage and the Part D prescription drug benefit program. But the majority of publicly-financed health care is delivered through the fee-for-service (FFS) model that the private sector largely left behind in the 1980s as unacceptably expensive and inefficient. The response of the public sector to these problems has been to place restrictions on benefits and payments to providers in an effort to restrain costs, which often result in patients having difficulty accessing services and providers.
The private health sector is much more diverse in its range of options and payment systems, representing an alphabet soup of program options from PPOs, POSs, MCOs, and HMOs to HSAs, HRAs, FSAs and even FFS.4Private health plans, employers, and countless other companies in the health sector are continually innovating to provide more options for care and coverage. But the centralized control of health care even in these private sector plans limits and restricts consumer choices, giving them fewer options than they would have in a more competitive and open marketplace, as we have written in numerous papers, articles, and our book, Empowering Health Care Consumers through Tax Reform. (For more information see www.galen.org.)
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Published: 2009-08-12 23:04:48
Author: Grace-Marie Turner | Galen Institute | July 16, 2009
Testimony before the U.S. Senate
Committee on Commerce, Science, and Transportation
Committee on Commerce, Science, and Transportation
Consumer Protection, Product Safety, and Insurance Subcommittee
Thank you Chairman Pryor, Ranking Member Wicker, and members of the committee for the opportunity to testify today on the issue of competition in the health care marketplace. My name is Grace-Marie Turner, and I am president and founder of the Galen Institute, a non-profit research organization devoted to advancing an informed debate over market-based health reform ideas.
There are many problems in our health sector that require careful and deliberative change, including the issue you are exploring today involving the lack of competition in many parts of the health sector. I would argue that many of the problems the country is facing involving cost, quality, and access to health care could be addressed by encouraging more competition and empowering consumers to have greater control over decisions involving their care and coverage.
In my testimony, I will highlight some of the progress that is being made through innovations in care delivery, in creative benefit offerings, and even in lowering the cost of treatments to show that the competitive market can respond to the demands of consumers for better quality care at more affordable prices.
While health care is different than other sectors of our economy and requires special consideration, there are many areas where consumers can and want to have more control over their health care choices. I believe the evidence shows that competition can work by engaging consumers as partners in getting better value for their health care dollars.
Change is indeed needed
Congress is attempting to address in major health reform legislation the many problems in our health sector: Health insurance and health care still cost too much. As a result, tens of millions of Americans don’t have health insurance, and many more are worried they are one pink slip away from losing their coverage. The lack of competition in health insurance in many states limits the options for coverage and over-regulation drives up costs. And the costs of Medicare and Medicaid are swallowing up a growing share of federal and state revenues, compromising other functions of government and threatening huge tax increases just to pay for current entitlement commitments.
But because Americans consistently tell public opinion pollsters they do not want a larger role for government in the health sector, policies that build on the private sector are much more likely to gain public acceptance.
Consider, for example, the progress that has been made in moderating costs over the last several years:
• In 2007, U.S. health spending grew at its slowest rate since 1998, increasing just 6.1 percent, with year-over-year increases of 6.7 percent and 6.8 percent in 2006 and 2005.1 These increases are still higher than the general inflation rate, but not the double-digit spikes seen over the last several decades.
• Premiums for private health insurance also rose by only 6 percent in 2007, the same rate as in 2006, but much lower than the peak of nearly 11 percent in 2002.2
• Premiums for new consumer-directed health insurance plans introduced in this decade increased by much smaller amounts – 2.8 percent in 2005 and 2.6 percent in 2006 – helping to moderate costs overall.3
A climate friendly to innovation
The private sector is much more adept at innovation and evolutionary change than government-dominated programs. Continued innovation is vital to progress in health care. The medical profession is moving toward patient-centered medicine, with micro-targeting of treatments tailored to the individual genetic code of individual patients. Advances in medical science demand that progress continue without being blocked by regulatory obstacles and restrictive payment systems.
Two segments of the health sector
The U.S. health economy has two distinct segments – the public and private sectors – and each operates under different sets of rules. About 46 percent of the U.S. health sector is largely financed with tax revenues through government-operated programs, such as Medicare, Medicaid, the State Children’s Health Insurance Program, the Veterans Health Administration, community health centers, and others. The rest of health care is financed privately, largely through businesses’ contributions to support employment-based health insurance but also through direct purchase of insurance and out-of-pocket payments by patients.
Many analysts refer to our public and private health sectors as a health care system, but we do not have anything approaching a health system in the U.S. Rather, it is made up of conjoined twins, with one run by various government agencies and the other more reliant upon market forces. As health policy analysts attempt to achieve consensus on reforms for our health sector, it is becoming increasingly clear that this operational divide is one reason compromise is so difficult.
The government sector works primarily on a model that provides people eligible for public programs with an entitlement to a government-determined set of benefits within government-determined payment structures. Some patients receive care from physicians employed by the government in government-owned facilities, but most obtain care through private hospitals and physicians who are paid at government-determined rates.
Within the public sector, private health plans also are involved. For example, many states have contracted with private managed care companies to offer care through their Medicaid and SCHIP programs, and Medicare allows participation by private plans in Medicare Advantage and the Part D prescription drug benefit program. But the majority of publicly-financed health care is delivered through the fee-for-service (FFS) model that the private sector largely left behind in the 1980s as unacceptably expensive and inefficient. The response of the public sector to these problems has been to place restrictions on benefits and payments to providers in an effort to restrain costs, which often result in patients having difficulty accessing services and providers.
The private health sector is much more diverse in its range of options and payment systems, representing an alphabet soup of program options from PPOs, POSs, MCOs, and HMOs to HSAs, HRAs, FSAs and even FFS.4Private health plans, employers, and countless other companies in the health sector are continually innovating to provide more options for care and coverage. But the centralized control of health care even in these private sector plans limits and restricts consumer choices, giving them fewer options than they would have in a more competitive and open marketplace, as we have written in numerous papers, articles, and our book, Empowering Health Care Consumers through Tax Reform. (For more information see www.galen.org.)
Full story