Obama's push for health reform: What are the hurdles?

Medicare costs are up partly because of a growing prevalence of health problems (such as obesity), as well as expanding treatments, Boston University economist Laurence Kotlikoff says in his book “The Healthcare Fix.”

Q: The healthcare industry isn’t exactly a free marketplace. Is that part of the problem?

A: Insufficient competition is a major problem, many economists say. This is a business in which the consumer generally doesn’t see the full cost of care, and those providing healthcare services don’t have to compete for consumers the way most retail stores do.

Still, how much to emphasize competition as a solution is a matter of debate. Some health-policy experts, citing other nations, emphasize the role that government can play in bargaining on behalf of consumers and holding costs down. At a minimum, they say, individuals would have a hard time finding affordable care – or making wise choices amid the complexities of insurance – without government playing a role.

“We need to think about how to heighten competition in the private sector,” says Leemore Dafny, a health-policy expert at Northwestern University in Evanston, Ill. This could mean placing more responsibility with consumers, but it also could mean making it easier for new firms to enter the market as care providers.

Often, local healthcare markets are dominated by just a couple of large insurance firms, and Professor Dafny’s recent research finds that insurers often charge higher prices to businesses with deep pockets than to less-profitable firms. “The fact that they can do that means that the market is far from perfectly competitive,” she says.

Q: What can be done to curb costs?

A: There’s no one easy fix.

Because so many Americans are uninsured, many plans seek to expand coverage while containing costs.

Some economists say the US could best do this by making the federal government the single payer for care. Whether they’re right or not, this approach lacks political momentum.

Leading legislative proposals involve helping individuals and small firms shop for insurance as part of larger “risk pools,” so they can enjoy the same pricing leverage as employees of large firms. This would be done through a government-regulated “exchange” in which insurers offer competing coverage plans. Federal subsidies would pick up a chunk of the tab for many people.

Other potential steps could include:

•Reforming Medicare’s costly “fee for service” system of payments.

•Investing in better information systems to streamline records, testing, and care.

•Having employers or government provide vouchers to families for purchasing insurance, with the goal of both expanding coverage and increasing cost-conscious choices by consumers.

•Incentivizing healthy behaviors that, for example, reduce smoking and obesity.

Those are just a few among a host of ideas, large and small in scope. Some mix of the ideas could address the problem over time.

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