Medical Savings Accounts Study
Has Competition Failed in the Health Care Marketplace?

Nearly all reformers agree that health care competition in the United States has been successful in fostering breakthrough medical technology. But the many critics of the U.S. health care system charge that same competition has failed to control costs or increase access to affordable coverage. Claiming marketplace failure, most reform efforts have concentrated on price and supply controls through government intervention and regulation.

But has competition in health services really failed? In reality, true competition has not been permitted for decades due to distorted incentives, government intervention and dysfunctional tax policies. It is not surprising that the economic equilibrium has been upset. By distorting normal market exchanges, government subsidies and tax preferences have fueled rather than stemmed most health care financing problems.5

It is an accepted axiom of economics that voluntary exchanges of goods and services for a sum of money leave both of the negotiating parties better off. Consumers make purchasing decisions and pay for the product or service. But such economic transactions rarely occur in health care. The system separates purchasing from payment and receipt of services. This is the result of the growth of prepaid comprehensive medical care and government subsidized services—a system that removes discussion about payment between the patient and the provider. The patient and doctor are therefore usually ignorant of the economic consequences of consumption.6

MSAs do not externally control price or access to providers—they influence demand. MSAs reduce the growth in medical spending by empowering the patient in both clinical and economic decision making. Tightly operated managed care health plans and provider organizations depend mostly on controlling supply of service.

Provider profiles—establishing economic credentials of medical decision makers and rigid utilization review—are common methods employed to hold down costs.7Capitation based reimbursement and strong provider risk-sharing mechanisms are also commonplace. None of these actively includes the patient in deciding what and how much health care he needs, desires or is willing to pay. Neither Medicare, nor any other federally subsidized programs fare any better in providing patient-focused incentives to control spending. Precious few in the health care industry understand and place the patient at the center of health care transactions.8

"Precious few in the health care industry understand and place the patient at the center of health care transactions."

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org