In Defense of Poorly Regulated Private Markets

Here's Center on Budget Priorities senior fellow Paul Van de Water criticizing GOP Rep. Paul Ryan's plan to turn Medicare into a smaller, genuinely sustainable program: "The Ryan bill just gives every [Medicare] beneficiary a voucher and makes them fend for themselves in a poorly regulated private market."

That's meant to sound frightening, but properly translated, it's not: What Van de Water's really saying is that Ryan's proposal would give individuals control of how they spend their medical dollars while freeing providers from excessive government rules and regulations. 

The quote comes from this Jonathan Cohn column. In it, Cohn argues that seniors aren't capable of making their own medical decisions without government assistance. That's not meant to be uncharitable: Cohn wants the government to help ensure that people get proper medical care; his method of doing so is to focus on centralized decision making and provider-side regulations. It's nannying, to an extent, but it's earnest, well-intentioned nannying. As Cohn puts it:

It's not clear how many seniors really have the ability to navigate the world of health care with the sort of sophistication to really hunt down the most cost-effective care, even if, as Ryan promises, they'd have more information at their disposal. At the very least, you'd want to give seniors ironclad protections when it comes to the design of insurance products—making sure a wide array of services were covered and that out-of-pocket spending were limited.

The problem with those "ironclad protections," however, is that they're a big part of what makes insurance so expensive: This is essentially an argument for government-designed health insurance, with insurance companies told what they must offer in order to be allowed to operate. Industry figures indicate that state-level mandates add anywhere from 20 to 50 percent to the cost of insurance premiums, depending on the state.

On the other hand, there's limited but fairly strong evidence that giving individuals control over their own medical dollars actually lowers medical spending. As I've noted on multiple occasions in the past, consumer-driven plans, which couple individual spending accounts like HSAs with high-deductible insurance, have proven remarkably effective at bringing down overall medical spending without sacrificing quality of care. And yes, that means actually reducing spending rather than simply slowing spending growth. And in contrast to liberal worries that this approach might incentivize people to avoid getting the care they need, such plans have actually shown increased usage of preventive services. Granted, none of the studies involved seniors, but it is really wise to discount their ability to make their own medical decisions just because they're a little older? Rather, I think we ought to assume that, regardless of age, individuals working with their doctors can make good decisions about their health care—and that we shouldn't be afraid of policies that move the government out of the way in order to let them do so.

I noted a televised exchange about health care between Congressman Ryan and President Obama here. In July, Reason Senior Editor Michael Moynihan spoke with Congressman Ryan about why we don't need more college entitlements: