Removing the Middleman: What States Can Do to Make Health Care More Responsive to Patients

Executive Summary

It is no secret that the American health care system suffers from high costs, lack of access, and uneven quality. Many, if not most, of these problems stem from a dramatic rise in the cost of health care driven by the third-party payer system.

In 1960, Americans paid almost half of their health care expenses directly out of pocket; today less than one-eighth of health care costs are paid out of pocket. As government and private health insurance programs have taken on increasing shares of health care payments, medical prices relative to general prices have risen precipitously.

That means solutions must be targeted toward bringing health care costs down. Measures that encourage a more open health care market will do much to reduce costs and make health care more affordable and responsive to patients. Fundamental reforms needed at the federal level include putting individually purchased health insurance on an equal tax footing with that provided by employers and block-granting Medicaid.

While states are somewhat limited by federal tax and health care policies, they can take positive steps toward bring health costs under control by

• Restructuring health programs to target the most needy by seeking waivers to impose copayments, and establishing Health Savings Accounts (HSAs) for Medicaid recipients
• Allowing greater competition in the health care industry by reducing regulation, requiring greater price transparency and plain-language billing, and allowing pharmacists to prescribe some drugs
• Encouraging greater competition in health insurance by allowing purchasing of insurance across state lines and reducing mandates for lower-income purchasers of insurance
• Removing barriers to private medical charity
• Establishing HSAs for state employees
• Prohibiting hospitals from charging to treat infections contracted in the hospital.

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