Strengthening competition in health care markets

Michael Porter offers some suggestions for restructuring competition in the sector:

…competition in the health care system occurs at the wrong level, over the wrong things, in the wrong geographic markets, and at the wrong time. Competition has actually been all but eliminated just where and when it is most important.

We should have more competition for service and innovation and less competition for cost-shifting:

In a healthy system, competition at the level of diseases or treatments becomes the engine of progress and reform. Improvement feeds on itself. For that process to begin, however, the locus of competition has to shift from “Who pays?” to “Who provides the best value?”

This implies some specific proposals, including the following:

1. Greater specialization of providers and facilities.

2. Large deductibles combined with medical savings accounts. But most importantly, copayments should be the same both “within the network” and “outside of the network.”

3. Transparent prices independent of group affiliation.

4. Public availability of provider track records.

5. Better risk pooling for the self-employed. And do not allow premium boosts for the sick.

6. No malpractice suits in all but extreme cases.

7. A federal mandate for minimum standards of health insurance coverage.

In Porter’s view “Attempts to limit patients’ choices or to control physicians’ behavior would end.”

My main worries: Let’s say insurers can’t get rid of people. Won’t they simply decrease the quality of service to their most costly charges? If reputational forces won’t stop insurers from unloading the sick, how will those same forces stop them from treating the sick badly? Yes transparency will be greater, but is such bad behavior today any secret? Can the federal government really regulate every margin of service?

My second worry is how all these changes will be implemented and enforced in a radically decentralized system. We might end up with more centralized control than, say, the Democrats are contemplating. That is unlikely to favor beneficial market incentives. In essence the whole proposal could amount to nationalizing the insurance industry.

Here is one short account of the proposal, with a longer version available for $5.