U.S. Health Care Reform


WP/93/93-EA

U.S. Health Care Reform by Ellen M. Nedde

High and rapidly rising health care costs in the United States and
growing ranks of uninsured persons have brought health care reform to the
top of the U.S. Administration's policy agenda. This paper describes the
health care financing system in the United States and highlights what are
viewed as its most serious shortcomings. The study suggests that the most
important factors behind the rapid increase in medical care spending over
the past thirty years include rising national income and the advent of new
and expensive medical technologies, while the importance of demographics and
medical malpractice costs has been exaggerated. Reasons for the high level
of expenditure in the United States include excess capital investment, the
performance of unnecessary procedures, and administrative waste.

The most commonly cited proposals for reform of the U.S. health care
system to provide universal coverage and control costs include tax credits,
play or pay mandates, managed competition, and national health insurance.
Under managed competition, government regulations are designed to ensure an
equitable distribution of health care resources and to deal with the special
characteristics of the health care market, such as information asymmetries
and institutional limits on competition. Meanwhile, elements of competition
are introduced to increase cost-consciousness among consumers, providers,
and insurers and thus enhance efficiency. In order to complement the
incentives for cost control under managed competition, some observers would
advocate limits on national health expenditures or global budgets. Whether
health care reform based on managed competition would need to rely on global
budgets to control spending over the longer term depends in large part on
the extent to which it could encourage cost-saving rather than cost-
increasing technologies.