Healthy, Wealthy, and Wise: Five Steps to a Better Health Care System

Innovation and Economic Growth

Article Snapshot


Daniel Kessler


Washington: AEI Press/Hoover Institution, 2006


This book proposes policies to improve health care.

Policy Relevance

Reforms could improve the operation of health care markets and reduce the price of insurance.

Main Points

  • Market forces can work in health care, but public policies have stopped markets from working effectively.
    • The tax code affects how people buy insurance.
    • Health insurance is over-regulated at the state level.
    • Information about health care quality is hard to find.
    • Hospitals do not compete enough among themselves.
    • Malpractice liability rules encourage waste and errors.

  • Because of tax policy, most people use insurance plans bought by their employers, rather than paying for care out-of-pocket or buying individual insurance. This raises the price of care and insurance because individuals do not "shop around" for low prices.

  • Price distortions caused by the tax code could be reduced by
    • Revoking the tax deduction for health insurance bought by employers.
    • Making out-of-pocket medical expenses and insurance premiums deductible.
    • Capping tax-free health savings accounts (HSAs) and letting people combine them with any kind of insurance plan to encourage the use of the accounts to pay for medical care out-of-pocket.
    • Giving federal refundable tax credits to help poor people buy insurance.

  • State regulation of health insurance should be replaced by lighter federal regulation.

  • Federal malpractice rules should replace state malpractice law.

  • Antitrust policy could help increase competition between hospitals.

  • Government “report cards” could be made available to give consumers more information about the quality and cost of health care.

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