The principal divide in American health care policy is over what to do about rapidly rising costs. On one side are those who believe the solution is to enhance the government's power to direct the system's resources and enforce budgetary controls. This point of view animated the drafting of the recently passed health care law.
On the other side are those who believe the answer is a functioning marketplace for insurance and care, not coercion and heavy-handed regulation. The key to such a competitive market is cost-conscious consumers, something sorely lacking today.
In Congress, the new House majority plans to pass a bill to "repeal" last year's health law. That's a start (even if the odds of enactment are long for now), but House leaders know that repeal of ill-advised legislation on its own will not fix health care's complex challenges.
Pro-competition, pro-consumer-choice advocates should press for reforms that would begin to convert existing, federally subsidized arrangements from open-ended benefit guarantees into "defined contribution" programs. The comprehensive and strategic approach we propose would apply defined contribution financing by taxpayers to all three major insurance coverage platforms -- Medicare, Medicaid and private health insurance.
The defined contribution revolution is already well underway in private pensions. In 1985, some 80 percent of all full-time U.S. workers were enrolled in defined benefit pension plans sponsored by their employers. By 2006, the number had dropped to just 20 percent.
However, this wholesale shift has not yet occurred in the health care context, largely because the vast majority of Americans are in comprehensive insurance arrangements that are heavily subsidized by the federal government. Further, these subsidies are generally without limit. Incentives for employers as well as workers and consumers to economize and seek better value are thus substantially muted by existing government policy.
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