Health Care: What Should a Populist Do Now?

Why not a plan that would actually help the forgotten folks who voted for change—and even attract some liberals’ support?

How can the Trump administration and the Republican Party make history forget their embarrassing failure to “repeal and replace” Obamacare? Interestingly, their best strategy—if they can withstand the political heat from all those who prosper under health-care business-as-usual—would be to embrace an explicitly populist program aimed at correcting the numerous and serious economic injustices deeply embedded in American health care today. The victims of these injustices include many of the lower-income Americans who in 2016 voted against elite interests in both political parties and in favor of fundamental, not just incremental, change. A program to right their wrongs should appeal even to some liberals, specifically those whose principal concern is the welfare of the people themselves, not just aggrandizing government or restoring the Democratic Party’s rightful dominance.

The political chances of the reform program outlined below would depend on making a direct, explicitly populist appeal to the many millions of Americans whom the health-care system currently exploits economically almost entirely without their knowledge.

Health-Sector Monopolies and Those Who Pay Their Prices

In the great populist era around the turn of the last century, the people’s anger was directed not, as now, at political elites or government itself but at huge private monopolies, the “trusts.” Teddy Roosevelt’s trust-busting effort broke up large agglomerations of market power while also establishing competition as America’s fundamental mechanism for inducing private businesses to satisfy consumers. If today’s populists are truly serious about protecting ordinary Americans from abuse by elite interests, they should begin by declaring a similar war against monopoly in health-care markets. Liberals should be invited to join this effort.

Although physician groups, hospitals and health systems have acquired monopolies only in local markets, they possess more actual power to exploit the public than the trusts ever enjoyed. They are uniquely free to charge extremely high prices because insurers’ pockets are deep and because most of their customers pay only co-payments and deductibles and therefore have no reason to compare a prescribed service’s asking price with its likely value. Although moral hazard is a generally recognized problem with health insurance, the extraordinary pricing freedom enjoyed by health-sector monopolists has rarely been identified as a particularly vicious manifestation of it.

To be sure, health insurers do negotiate prices with providers, and many services have more than one provider. But bargaining never goes service-by-service, focusing instead on large bundles of unrelated services. Thus, the eye-popping price for, say, an aspirin on your itemized hospital bill is just one small manifestation of the hospital’s monopoly over other, really essential services in the bundle. A populist could truly declare that provider monopolies, with market power amplified by conventional health insurance, are causing huge redistributions of wealth from ordinary people to an immensely powerful industry.

Organizing a political coalition to exploit this situation would be difficult, however, because most of the massive pocket-picking goes on without the victims realizing it. Because employer-paid health insurance premiums are not taxed to them as income, workers have long more or less believed that employers pay for health care. In truth, while many employees now pay some share of premiums, they still unknowingly pay much more in lower take-home pay. Elite interests such as labor unions, employers, politicians and the monopolists themselves have each had selfish reasons to want employees kept ignorant of the cost burden they bear – and consequently deaf to a potential populist’s appeal.
Nonprofit hospitals, of course, have long enjoyed public acceptance of their tax-exempt monopolies on the ground that their excess profits enable them to provide many uncompensated, arguably charitable services. The surpluses they suck out of the general economy, however, are undoubtedly far larger than necessary to meet essential public needs, yet are unavailable for uses outside the ever-growing health care sector. A populist focused on the common good should consider releasing those funds for other uses by dropping tax law’s Nixon-era pretext that nearly everything nonprofit hospitals and health systems do is “charitable.” Although many nonprofit hospitals no doubt find it unseemly to actually maximize their profits, there are other respects in which, paradoxically, hospitals’ monopolies would be less problematic in for-profit hands, where earnings would be either taxed away for public uses—infrastructure, anyone?—or invested productively in the general economy. Similarly, nonprofit health systems’ frequent use of their profits to acquire doctors’ medical practices is objectionable because it prevents the acquired income streams from ever being used for anything except “the promotion of health.”

In any event, no true populist should tolerate financing even the most vital public services by facilitating their subsidizing from monopoly profits. Hospitals’ profits are earned at the expense of premium payers, who thus bear more or less equally whatever costs the hospitals choose to incur. This method of financing resembles nothing so much as a supremely regressive “head tax,” levied equally on individuals without respect to their wealth, income or ability to pay. Although American hospitals do many good things in education, research and patient care, head taxes are no way to pay for anything. A populist, of course, need only educate insured voters to understand that they are paying much too much for their health care; it is only incidentally relevant that they are also paying far more than their fair share for many things unlikely to be worth their cost.

Publicity given these days to the high prices charged for many pharmaceutical products should make it relatively easy for insured Americans to understand that they also bear heavy, unfairly distributed burdens in the form of unwitting contributions to the extraordinary, insurance-driven profits of pharmaceutical firms with patent monopolies. This head-tax-like burden on premium payers is justified in public policy as providing essential incentives for pharmaceutical R&D—for the benefit, it turns out, of the entire world (for which, it might be noted, the American working class is not currently happy about doing any favors). Fortunately, a populist’s program aimed at weakening provider monopolies could reasonably be expected to bring down pharma prices as well.

For the reasons given above, health-sector monopolies—provider as well as pharmaceutical—are shockingly costly to the nation as a whole and to premium payers in particular. How costly? The United States spends a far bigger share of its impressive GDP on health care than any other nation, with less than superior results. The second biggest spender is Switzerland, which spends about a third less when measured in “purchasing power parity international dollars.” Higher prices, not more health services per capita, seem to account for most of the international differences. Provider and pharma monopolists seem to be helping themselves to whole percentage points of US GDP, not small potatoes.
To be sure, a closer look would no doubt show that some of these chunks of GDP earned at the expense of insured Americans reflect, not monopoly, but the higher volume of questionably or marginally valuable services and products that they, unlike the nation as a whole, consume because of rampant, unchecked moral hazard. Here again, though, the inflated costs fall most unfairly on premium payers with below-average incomes. These ordinary Americans would stand to gain much more in welfare terms if the system gave them appropriate opportunities to consume (and pay) less. Also, copayments and deductibles disproportionately induce them to forgo truly, not just questionably, valuable services they have paid for.

Calling attention to the excessive health-insurance premiums and monopoly prices paid by many lower- and middle-income Americans is not meant to minimize in any way the problems facing individuals and families without health insurance. The concerns regularly expressed by hospital, physician and other industry interests about the plight of the uninsured, however, seem calculated to draw attention away from the system’s high costs and prices and the burdens they impose on ordinary premium payers. In fact, the problems of insured and uninsured Americans are just two sides of the same coin; instead of paying hugely inflated prices, the uninsured have simply been priced out of the market altogether. Any caring populist’s reform program should be conceived to improve the welfare of both groups.

Now, how might a concerned populist attack the monopoly problem in health-care markets? A market-by-market trust-busting campaign against provider monopolies would require an unimaginable enforcement effort and undoing past mergers, which is almost never done. Although pharmaceutical patent monopolies could be weakened somewhat by antitrust enforcement removing obstacles to competition from generic substitutes, something more fundamental is needed to fix both markets. Thus, an honest, caring populist should undertake an uncompromising legislative effort to unleash new competitive pressures in all health-care markets, beginning a process of fundamental change such as Joseph Schumpeter labeled “creative destruction.” Today’s provider monopolies would be among the first and principal casualties. Ordinary Americans, insured and uninsured, would have the most to gain.

Disruptive Innovation

If President Trump wants to leave a positive legacy in health policy, he ought now—whether or not he truly cares about those voters others seemingly forgot—to focus exclusively on preparing and promoting legislation pro-actively conducive to what is now called “disruptive innovation” in markets for both health coverage and health services. Disruptive competition occurs when consumers are suddenly offered new, significantly cheaper though arguably less good alternatives to a previously popular product and find these new options attractive enough either to switch products or to enter the market for the first time. Nearly all consumers would benefit hugely if populist reform legislation could give them new and better opportunities to economize in purchasing both health insurance and providers’ services. In a newly fertile market, disruptive innovation would quickly replace Obamacare’s bronze, silver, gold and platinum models of the health-care industry’s preferred Cadillac with a variety of affordable health plans chosen by well-subsidized consumers in healthy competitive markets.

The essential first step toward introducing corrective competition in health care markets must be to give as many consumers as possible appropriate incentives to economize at the margin in insurance markets. This might be done simply by, first, treating employer-paid insurance premiums as employees’ taxable income and, second, offering employees and others not covered by Medicare or Medicaid a substantial, refundable tax credit spendable only on health coverage. This use-it-or-lose-it tax credit should be age-adjusted and possibly also adjusted for gender, income and regional economic conditions. If made large enough to allow the purchase of essential coverage, it would satisfactorily replace Obamacare’s controversial—and unconstitutional (whatever Chief Justice Roberts said he thinks)—individual mandate. Certainly, if higher-bracket taxpayers are to be given tax credits to spend on health coverage, they should not be allowed tax-favored health savings accounts as well.

The suggested tax reform would greatly alter employer-sponsored health coverage while still capitalizing on employment groups’ relatively stable risk profiles and comparative immunity to adverse selection. With employer payments for coverage taxed as employee income and with tax credits available to individual employees, employers would finally have good reasons to offer workers a full range of health-plan choices. Currently, employer coverage is often designed by unions and employers principally to win favor with the cost-ignorant rank-and-file, not to give the latter good value for their reduced take-home pay. Moreover, some employer plans are designed mainly for higher-income employees, and an abuse-sensitive populist would have good reasons for thinking that these employees regularly get more out of their coverage than less-well-paid workers bearing the same premium costs.

Although the recommended tax credits would be costly to the federal government, their value could be set well below the likely cost of basic coverage in today’s market because (if and when the populist program is implemented) new, disruptive insurance products would soon appear to satisfy the new demand for good, low-cost coverage, services and products, causing prices to fall, even for monopolized services and pharmaceuticals. Some of the credits’ budgetary cost would be covered by the proceeds from finally taxing employee health benefits as income, and more could be recovered by setting compensatory new individual rates in anticipated tax reforms (in effect earmarking some of each taxpayer’s income for health insurance, without a mandate). Government could also expect to gain revenue as nonprofit monopolies become, or give way to, tax-paying entities. In any event, a far-sighted populist should probably not hesitate at all about paying the full cost of any legislative package that, by unleashing new competition, would reduce the power of both provider and patent monopolies, nonprofits’ wasteful spending, and the overall cost of health care in America.

In addition to tax credits, government should help finance a one-time insurance buy-in for anyone with a pre-existing condition. After initial enrollment, plans should be prevented from discriminating against any enrollee who maintained continuous coverage. Similarly, insureds should not be free to upgrade their coverage when major illness strikes; here, any individual’s newly chosen health plan might have the contractual right, for a limited time, to invoke coverage limits in his old one. Such rules are essential to discourage both consumers and health plans from attempting to game the insurance system, the goal being to make competition for consumers’ business focus as much as possible only on the quality and cost of the coverage offered and to minimize adverse selection.

As counterintuitive as it may seem, consumers should not be encouraged to choose a health plan based on their particular medical needs; while they should certainly be well-informed about the insurance options available, markets will work better to the extent consumers purchase their health plans in ignorance about their future health. Similarly, health insurers should be barred from pitching plans calculated to attract better risks. Finally, to keep competition fair to more generous plans (and also to prevent races to the bottom), provision should be made for annual risk-adjusting transfers to compensate those plans having a disproportionately high number of enrollees with chronic conditions.

Managing Competition

Borrowing from the 1980s the notion of so-called “managed competition,” populist legislation today could create user-friendly, reasonably managed marketplaces by incorporating the notion of “health alliances” from Hillary Clinton’s ill-fated Health Security Act of 1993. Despite its shortcomings, that bill proposed a general framework and some statutory language that could be adapted with profit today. Some might find a pleasing irony in tweaking, not Obamacare, but the old Clinton proposal.

Unlike Obamacare’s government-run “exchanges,” alliances should be either large employers offering choices to their employees or private nonprofit entities well-immunized from capture by medical or other interests. Their principal function would be to create fair and efficient markets for health coverage by curating menus of health plans to be offered to consumers in defined geographic areas, carefully vetting each offering for its reasonableness as an option for a cost-conscious buyer. Other functions should include not only ensuring that consumers are accurately informed about each menu item but also screening plans to minimize gaming and risk selection. Alliances might also administer the risk adjustments needed to correct for adverse selection.

Significantly, alliances’ oversight of health plan offerings would greatly improve the climate for disruptively competitive innovations by reassuring consumers about the new products being offered and by reducing would-be innovators’ fear of legal or regulatory repercussions if they implement potentially disruptive ideas.


Once a structure is in place to oversee competition, sweeping deregulation should follow. In cleaning the regulatory stables, a populist could reasonably presume that consumers with substantial tax credits—and perhaps also some discretionary money—to spend on health coverage in well-managed markets would not need government’s “consumer protection.” Indeed, interest-group (public-choice) theory makes clear why health-sector regulations are so seldom anything more than ways by which the “have-mores”—well-connected minorities and middle-class majorities—force millions of “have-lesses” to either pay more or go without.

Among the main targets for populist deregulation should be occupational licensure. The proliferation of separately regulated—often self-regulated—health care occupations with limited entry and narrow, rarely overlapping scopes of practice means not only higher prices but also turf wars, confusion and staffing inefficiencies while providing little quality assurance. To be sure, state laws may have the support of too many interest groups to be tampered with; in that case, health alliances, acting as overseers of competing health plans and not as regulators, should be empowered to approve exceptions to them, requiring disclosure of any arrangements authorizing a health plan and its associated physicians to ignore scope-of-practice restrictions on personnel use. In particular, plans should specify the roles in primary care to be played by physician extenders such as nurse practitioners and physicians’ assistants.

With alliances looking out for consumer interests, state limits on the corporate practice of medicine should certainly be overridden by federal law, with plans expected to disclose their relationships with their affiliated physicians. Alliances should encourage health plans and their providers to reveal their policies for quality assurance and to account publicly for their performance.

State certificate-of-need laws, most of them adopted under federal compulsion in the 1970s but not repealed when Congress removed that compulsion in 1986, should certainly be preempted under a populist federal regime. By tightly controlling market entry by new competitors, such laws have long served as crucial bulwarks of provider monopoly. Such monopolies are certain to break down far faster once payers are free to negotiate with new market entrants; if credible, an insurer’s threat to steer business to even a potential competitor can bring prices down. Preempting state CON laws is surely the single best anti-monopoly move that any reformer, populist or not, could make.

A populist regime should also consider some federal preemption of state regulation of health insurance. While leaving in place states’ oversight of health plans’ solvency, federal law should override their command-and-control measures, especially mandates to provide particular benefits. Markets, rather than easily-influenced state legislators, should decide which health services are covered by health insurance and thus subject to moral hazard so costly to premium payers and beneficial to a service’s providers. Federally mandated benefits for mental health and similar needs should be rethought to let health plans economize on such services to roughly the same extent they do in seeking other efficiencies.

Freedom of Contract

Unfortunately, giving working people tax credits generous enough to buy basic health coverage and a well-managed, deregulated marketplace in which to buy it would not alone be enough to trigger disruptive innovation in health-care markets. Instead, the essential linchpin of a modern populist’s program should be something rarely mentioned in health policy discussions: freedom of contract. His or her reform bill should expressly authorize health insurers to write unconventional contracts with their subscribers and instruct courts to enforce them as written.
The new types of contracts contemplated here are necessary to add a crucial new dimension to the purchase of health insurance and to all health-care decision making. Health insurance is now generally thought of only in either/or terms: one either does, or does not, have coverage within various, vertically distinct categories, such as preventive services and dental, cancer, maternity and mental health care. As shown below, innovative contracts could and should draw horizontal lines across all covered categories, specifying each competing health plan’s general policy with respect to the innumerable trade-offs between cost and probable benefit that are encountered (but usually finessed) throughout health care; contracts could, in other words, help consumers choosing a health plan know with some confidence whether they are being offered more and less generous coverage for the prices quoted. The staggering cost of American health care today is in large part the result of industry interests’ historic success in making it virtually illegitimate to compare any health service’s or product’s cost with its likely benefits to patients—with the result that the system, when it errs, nearly always does so, conveniently, on the side of spending more. In health-care markets, more than in any other area of economic activity, consumers seeking an affordable product are given only Hobson’s choice: either pay for Cadillac coverage or take your chances without it. Innovative contracts are essential to finally give consumers, well-subsidized and purchasing in well-managed markets, good opportunities to make personal, welfare-maximizing choices.

The only time expanded freedom of contract has ever come close to surfacing in the real world of health policy and politics was in the work of the task force charged with developing the Clinton Health Security Act in 1993-94. This author successfully negotiated with task-force leaders actual legislative language that would have authorized, with significant safeguards provided by health alliances, innovative contracts intended to enhance the welfare of everyone purchasing health coverage. Although that language was developed too late to be incorporated in the final, unsuccessful bill, it could easily be adapted for use in a populist reform bill today, as follows:

Such contracts may clarify, particularize, expand, or limit (in the interest of responsible economizing) the specific obligations of the health plan and the health care providers with which it has arrangements to provide services, if the alliance concludes, in its discretion, that the resulting contractual rights and obligations—
are such as might reasonably be agreed to by an informed, value-conscious consumer purchasing coverage through the alliance;
are adequately specified in the contract, either—
by reference to clinical practice guidelines meeting reasonable scientific standards with respect to the manner of their development, objectivity, documentation, and grounding in outcomes and effectiveness research, or
by general language altering the legal and professional standards that would otherwise be employed by courts in resolving coverage disputes or malpractice claims arising from care rendered under the health plan, or by identifying a responsible, reasonably disinterested party whose interpretations of general or ambiguous contractual obligations will be deemed binding unless arbitrary and capricious; are reasonably disclosed to prospective subscribers and health care providers; are unlikely, because of their nature and the terms on which the health plan is offered, to distort appreciably or unacceptably the risk profile of the enrollees attracted to the health plan; and ensure the provision to enrollees of every service, within each covered category of services, that has been demonstrated to be appropriate by health services research confirming the existence of health benefits clearly sufficient to justify incurring the cost of such services in all cases of like kind.

Note that the contracts contemplated here may go well beyond the scope of ordinary insurance contracts and also define the obligations of a health plan’s providers to its patients. Using integrated contracts to establish relevant aspects of their three-cornered relationship, the parties could see win-win-win opportunities to alter crucial aspects of their legal environment—all with a view to enabling individuals with differing resources and feelings about risk to obtain near-optimal health protection for themselves and their families. A modern populist keen on dethroning political and professional elites should see this as a revolutionary opportunity to reestablish the sovereignty of ordinary consumers. Private contracts could do nothing less than let well-informed, well-protected individuals choose for themselves the legal regime under which they and their families will receive their future health care. What an inspiringly democratic idea!

Today, all insured patients are generally entitled by contract, common law or otherwise to both (a) plan coverage of all “medically necessary” services and (b) provider services meeting a general, ill-defined “standard of care.” These near-universal terms of entitlement operate essentially as a form of command-and-control regulation because they require plan administrators and courts to refer to medical opinion, which tends to hold that all patients must receive virtually any service—no matter how costly—having some chance of yielding a medical benefit. A populist’s deregulation agenda should include new freedom for consumers to contract for something different.

There are many ways in which contracts could better specify patients’ entitlements vis-à-vis their health plan and its providers, creating room for serious economizing within the margins of acceptable medical practice. Contracts authorizing such economizing will not appear, however, until consumers are given financial reasons to consider them. Once such contracts are in place, clinical practice guidelines, now in widespread use, could be modified for reference in them, specifying the rights of patients who have accepted some degree of cost-consciousness in their future care.

In 1995, the author published a book designed to show, with examples, that it would be possible to write fair, reasonably intelligible, enforceable contracts particularizing patients’ rights vis-à-vis health plans and providers, all with a view to enabling different degrees of economizing by competing plans. To pave the way for such economizing, the book suggested the following “cold shower” clause for inclusion in a contract for indemnity insurance:
§X.1.1.  Why the Plan May Not Cover Some Services Your Physician Might Recommend. Because this Contract was written to provide essential financial protection for your health care needs at an affordable price, it does not obligate the plan to pay for every service that your physician might be inclined to prescribe. A decision not to treat a particular service as a covered service even though it might seem desirable in a particular case reflects the judgment of the Plan and its medical consultants that making that service and others like it available to Plan subscribers would invite the provision of many services that do not represent good value for the money spent, thus increasing the Plan’s cost to you by more than the additional coverage would be worth. Thus, the Plan has been designed, not as an ideal health plan, but as an option that a consumer with moderate income might reasonably select.
Another proposed clause stated, “You acknowledge that your agreement to accept the Plan’s limited coverage is given in return for (a) the agreement of other Plan subscribers to accept the same limitations on their freedom to draw on the Plan’s limited reserves and (b) the reduction in Plan premiums that such agreements make possible.” Health alliances would presumably make certain that such contractual declarations are brought to the attention of prospective subscribers and not just tucked into plan documents as protective boilerplate.

The contract provision that proved the most difficult to write was paradoxically both the provision most essential to establish a plan’s policy respecting benefit/cost trade-offs and the provision least likely to be helpful in settling specific disputes. The book suggested a list of six discrete tests, ranging from the least to the most generous, from which health plans could choose the one they would undertake to use in selecting practice guidelines, working out clinical policies with providers, and deciding specific coverage issues whenever health services research, medical opinion and guidelines were inconclusive. Presumably, some such (possibly smaller) set of alternative declarations of plan policy, once settled upon by the health care industry and health alliances, would become the standard ways by which health plans advise consumers just how generous they intend (and undertake) to be, thus facilitating consumers’ price comparisons and reasonably informed choices.

The 1995 book recommended contract provisions relating to the administration of the contract and to procedures for its interpretation when inevitable ambiguity is encountered. It also addressed the special moral hazard that arises when, in contractual disputes between an aggrieved consumer and a corporate entity, courts lean to the former’s side, refusing to believe that a contract term yielding an unfortunate result ex post (after the fact) was entirely fair and reasonable ex ante (when entered into). To address this problem, statutory language proposed to the Clinton task force would have expressly instructed courts that “[s]uch contractual obligations shall be interpreted for all purposes in accordance with the probable purpose and intent of the contract language and not in accordance with any special principle of contract interpretation . . . that systematically favors patient interests over the interests of the health plan or health care providers.” One hopes that courts would be sufficiently impressed by the lengths to which the alliances and the health plans had gone to ensure fairness to consumers that they would go along with such a legislative attempt to curb their interpretive instincts.

Common-law and other rights of injured patients to recover damages for provider negligence could be contractually modified in any number of sensible ways, all to the advantage of nearly everyone except trial lawyers. Earlier discussion identified the legal standard of care governing medical practice as an important, cost-increasing target for deregulation, which private contracts could accomplish simply by letting consumers choose among plans with different stated policies regarding trade-offs between benefits and cost. Contractual fixes of the tort system could also enhance consumer welfare by addressing such other issues as the following:

The locus of legal responsibility for the quality of care: Because health plans may not be closely integrated operationally with their providers, they might be left free to deny responsibility for providers’ torts. Many believe, however, that quality will be better if treated as a “system” responsibility, and experience with so-called managed care revealed strong public distrust of plans that assume responsibility for the cost of care but not its quality. Legislation might therefore establish as a default rule (variable by contract) the principle that a health plan is vicariously, and exclusively, liable for the torts of the providers it selects to treat its enrollees.

Alternative dispute resolution: Consumers should be free to waive by contract their right to a jury trial of their tort claims in public courts, accepting some more efficient and arguably more dependable forum for their resolution. Provision might be expressly made for ensuring the reliability of medical experts, requiring for example their familiarity with providers’ plan-specific duties. Special procedures facilitating settlements might also be provided for.

Limits on tort recoveries: Providers might reasonably bargain with health plans for relief from very large damage awards, including punitive damages, with agreed-upon limits incorporated in plan contracts (subject to alliance approval). Legislation should, however, preempt all state-imposed limits, particularly limits on awards for noneconomic injuries such as “pain and suffering”; unsurprisingly to a perceptive populist, the latter limits seem most effective in preventing injured individuals with only small claims for lost income from obtaining legal representation to pursue their claims.

No-fault compensation: Relief from nuisance lawsuits could be obtained, without impairing (and possibly improving) incentives for quality maintenance, by giving subscribers a kind of warranty: automatic, unconditional compensation for specified injuries deemed usually, if not always, preventable.
Collateral source offsets: Plan contracts might specify when damages will be reduced by the amount of any compensation received by the patient from other sources.

Without a definitive legislative embrace of freedom of contract in managed health-care marketplaces, lawyers will continue to doubt that courts will enforce unconventional contracts, thus leaving health care a de-facto regulated industry functioning under unchangeable rules more beneficial to providers than to most of their patients. A true populist should see the huge welfare gains ordinary consumers would enjoy if private contracts were available to introduce new ways of doing business in an industry hitherto largely impervious to disruptive innovation.


The most common response to the suggestion that private contracts could be useful in reforming the health-care system for the benefit of ordinary Americans is the observation that people—ordinary Americans in particular—cannot reasonably be expected to read, let alone understand and compare, the multiple contracts they would confront. This point, however, while valid, is beside the real one, which is to give adequately subsidized consumers meaningful choices with respect to the cost and content of their future health care and enough reliable help in making them that they can be reasonably content with their decisions. Buying a health plan is, of course, a huge investment for every consumer, requiring monthly payments far bigger than almost anyone’s car payments. For this reason and also because it may not be easy to change health plans down the road, consumers should certainly approach the purchase of a plan contract as a serious matter. But there are good reasons to expect that marketplaces structured and operated as recommended to a hypothetical populist in this essay would yield millions of long-term, generally satisfactory legal relationships in which consumers are content to live with their health plans and their providers—for better or for worse (in sickness and in health). There are at least some reasons to hope these relatively “free” markets would be less commercialized, with less advertising, than the current one.

Of course, it is most unlikely that government, the political class and dominant elites will ever allow such a big and vital sector of the American economy to escape their control. And much of the general public would be naturally content to see a “single-payer” health plan taking care of everyone who can’t opt for something better. Nevertheless, an idealistic, clear-thinking American populist, devoted to freedom as well as the welfare of ordinary people, might prefer to see elite interests deposed, consumer sovereignty restored, and economic inequality reduced in this large, inspiring and symbolically important field of human endeavor. And many voters, finally informed about who are friends and who are not, might rally to his or her cause.

Selected references to the author’s writings on themes touched on in this essay

Health Care Choices: Private Contracts as Instruments of Health Reform (AEI Press 1995)
Deregulating the Health Care Industry: Planning for Competition (Ballinger Pub. Co. 1982) (certificate-of need laws)
“The Provider Monopoly Problem in Health Care,” 89 Oregon Law Review 847-883 (2011) (with Barak D. Richman)
“Disruptive Innovation: The Demand Side,” 27 Health Affairs 1341-1344 (2008)
“Distributive Injustice(s) in American Health Care,” 69 Law and Contemporary Problems 7-82 (Autumn 2006) (with Barak D. Richman)
“How the Health Care Revolution Fell Short,” 65 Law and Contemporary Problems 55-101 (Autumn 2002)
“Vicarious Liability: Relocating Responsibility for the Quality of Care,” 26 American Journal of Law & Medicine 7 (2000)
“Why Preserve Private Health Care Financing?,” in American Health Policy: Critical Issues for Reform (R.B. Helms ed., 1993)
“By Fiat or By Choice?–How Practice Guidelines Might Become Legal Standards,” in Defining Health Care Needs and Basic Benefits Using Clinical Guidelines (D.C. Hadorn ed., 1992)
“Prospective Self-Denial: Can Consumers Contract Today to Accept Health Care Rationing Tomorrow?,” 140 University of Pennsylvania Law Review 1755 (1992)
“Practice Guidelines as Standards Governing Physician Liability,” 54 Law and Contemporary Problems 87 (Spring 1991)
“Practice Guidelines for Medical Care: The Policy Rationale,” 34 Saint Louis University Law Journal 777 (1990)
“The Professional Paradigm of Medical Care: Obstacle to Decentralization,” 30 Jurimetrics 415 (1990)
“The Changing Locus of Decision Making in the Health Care Sector,” 11 Journal of Health Politics, Policy & Law 697 (1986)
“Private Reform of Tort Law Dogma: Market Opportunities and Legal Obstacles,” 49 Law and Contemporary Problems 143 (1986)
“Altering the Applicable Standard of Care,” 49 Law and Contemporary Problems 265 (1986)
“Decentralizing Decision Making: Private Contract versus Professional Norms,” in Market Reforms in Health Care: Current Issues, New Directions, Strategic Decisions (J. Meyer ed., 1983)
“Controlling Health Care Costs: Strengthening the Private Sector’s Hand,” 1 Journal of Health Politics, Policy & Law 471 (1977)
“Coping with Quality/Cost Trade-Offs in Medical Care: The Role of PSROs,” 70 Northwestern University Law Review 6 (1975) (with James F. Blumstein)
“Medical Adversity Insurance” — A No-Fault Approach to Medical Malpractice and Quality Assurance,” 53 Milbank Memorial Fund Quarterly 125 (1973) (with Lawrence R. Tancredi)

A short version of this essay appeared as an op-ed in the Wall Street Journal, March 2, 2017. Clark Havighurst is Wm. Neal Reynolds Professor Emeritus of Law, Duke University

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1 reply »

  1. Havighurst does what every one who thinks competition can be made to work in the health insurance biz — he admits his proposal needs accurate risk adjustment, but he says not a word about whether accurate risk adjustment is possible and, if so, at what cost.

    Here’s how he put it: “Finally, to keep competition fair to more generous plans (and also to prevent races to the bottom), provision should be made for annual risk-adjusting transfers to compensate those plans having a disproportionately high number of enrollees with chronic conditions.” That’s it. Notice the passive voice — “provision should be made.” Why didn’t Havighurst tell us who will be making this “provision” for accurate risk adjustment, what it will cost, and why it hasn’t happened yet? Answer: Because he can’t.

    Accurate risk adjustment is necessary not just for competition-based proposals (be they Enthoven’s managed competition proposal, Obama’s exchanges, Ryan’s Medicare voucher scheme, or Havighurst’s tax credit proposal), but for all managed care fads as well (CMS’s ACO programs, and that craziest of all managed care fantasies, MACRA).

    We don’t have anything remotely resembling accurate risk adjustment now, and we never will. How many more decades of risk-adjusting Medicare Advantage payments with a risk adjuster that explains 12 percent of the variation will we put up with? How many more years must we watch the gaming of risk-adjustment schemes?

    It’s hard to know which of the myths out there do the most damage to rational discussion of health policy these days. The myth that some bright guy somewhere some day will invent accurate risk adjustment, and its cost will be so trivial it can be ignored, has to rank way up there. When I’m czar, it’ll be illegal to propose a health care reform that relies on risk adjustment.