JOHN A. MACDONALD, Employee Benefit Research Institute (EBRI)
Email: macdonald@ebri.org

This paper summarizes discussion at the Employee Benefit Research Institute's December 2007 policy forum, which sought to assess reports that the U.S. employment-based health benefits system has reached a "tipping point" because of ever-rising costs, with employers entering a period of fundamental change in providing health benefits to workers. Large employers say they are not ready to bail out of their role of acting as the backbone of health insurance coverage in the United States, although they are pushing for major changes that they hope will alleviate the rising costs of those benefits. Some of the changes large employers are talking about could be as much as a decade into the future. And large employers have not settled on one model for change and are not convinced that new consumer-directed health plans are the solution. The policy forum was held December 6, 2007, in Washington, DC. About 120 attended the forum and heard presentations by 12 experts on health care, behavioral finance, and consumer financial education.

JOHN F. COGAN, Stanford University - The Hoover Institution on War, Revolution and Peace, National Bureau of Economic Research (NBER)
Email: COGAN@HOOVER.STANFORD.EDU
R. GLENN HUBBARD, Columbia Business School, National Bureau of Economic Research (NBER)
Email: rgh1@columbia.edu
DANIEL P. KESSLER, Stanford Graduate School of Business, National Bureau of Economic Research (NBER)
Email: FKESSLER@STANFORD.EDU

In this paper, we estimate the effect of the tax preference for insurance on health spending based on the Medical Expenditure Panel Surveys from 1996-2005. We use the fact that Social Security taxes are only levied on earnings below a statutory threshold to identify the tax preference's impact. Because employer-sponsored health insurance premiums are excluded from Social Security payroll taxes, workers who earn just below the Social Security tax threshold receive a larger tax preference for health insurance than workers who earn just above it. We find a significant effect of the tax preference, consistent with previous research.

DAVID A. HYMAN, University of Illinois College of Law
Email: dhyman@law.uiuc.edu

Health insurance is once again on the policy agenda, and it is déjà vu all over again. There are the same statistics and anecdotes about the uninsured. There are the same reports by government agencies, think tanks, and do-gooder organizations. There are the same policy entrepreneurs, pushing old wine in new (and not so new) bottles, based on the same appeals to social solidarity, self-interest, or both. The interest groups are back in force as well.

Reform proposals are also being pushed by all the usual suspects. The reform proposals vary in their specificity, but all (either implicitly or explicitly) identify the source of the problem as market failure - and promise new regulations and more taxes to fix the problem. This article makes the case that government failure should occupy center-stage in understanding how things came to look the way they do. Rather than market failure, it is our inefficient and perverse regulation of health insurance that should be the focus of our ire, and of regulatory reform.

CARL E. SCHNEIDER, University of Michigan Law School
Email: carlschn@umich.edu
MARK A. HALL, Wake Forest University - School of Law
Email: mhall@law.wfu.edu

The ultimate aim of health care policy is good care at good prices. Managed care failed to achieve this goal through influencing providers, so health policy has turned to the only market-based option left: treating patients like consumers. Health insurance and tax policy now pressure patients to spend their own money when they select health plans, providers, and treatments. Expecting patients to choose what they need at the price they want, consumerists believe that market competition will constrain costs while optimizing quality. This classic form of consumerism is today's health policy watchword.

This article evaluates consumerism and the regulatory mechanism of which it is essentially an example - legally mandated disclosure of information. We do so by assessing the crucial assumptions about human nature on which consumerism and mandated disclosure depend. Consumerism operates in a variety of contexts in a variety of ways with a variety of aims. To assess so protean a thing, we ask what a patient's life would really be like in a consumerist world. The literature abounds in theories about how medical consumers should behave. We look for empirical evidence about how real people actually buy health plans, choose providers, and select treatments.

We conclude that consumerism, and thus mandated disclosure generally, are unlikely to accomplish the goals imagined for them. Consumerism's prerequisites are too many and too demanding. First, consumers must have choices that include the coverage, care-takers, and care they want. Second, reliable information about those choices must be available. Third, information must be put before consumers, especially by doctors. Fourth, consumers must receive the information. Fifth, the information must be complete and comprehensible enough for consumers to use it. Sixth, consumers must understand what they are told. Seventh, consumers must be willing to analyze the information. Eighth, consumers must actually analyze the information and do so well enough to make good choices.

Our review of the empirical evidence concludes that these prerequisites cannot be met reliably most of the time. At every stage people encounter daunting hurdles. Like so many other dreams of controlling costs and giving patients control, consumerism is doomed to disappoint. This does not mean that consumerist tools should never be used. It means they should not be used unadvisedly or lightly, but discreetly, advisedly, soberly, and in the fear of error.

JOHN SABELHAUS, University of Maryland
Email: sabelhaus@econ.umd.edu

Between 1970 and 1992 growth in spending on health care services in the U.S. outpaced total consumption growth by 3.5 percent per year, and the share of spending devoted to health services doubled from 7.3 percent to 14.6 percent. Since 1992 the growth rate of spending on health care services has averaged only 0.5 percentage points faster than growth in total consumption, and thus the share devoted to health services rose much more modestly, to 15.6 percent as of 2006. This break in trend cost growth can be traced directly back to quantities and relative prices of factor inputs. Between 1970 and 1992 the share of the labor force working in health services and the relative earnings of health workers both rose dramatically, causing total health spending to surge. After 1992, the share of the labor force working in health services grew more slowly while the relative price of labor in health services stabilized at the new higher level.

ADAM WAGSTAFF, World Bank - Development Research Group
Email: awagstaff@worldbank.org

Health systems are not just about improving health: good ones also ensure that people are protected from the financial consequences of receiving medical care. Anecdotal evidence suggests health systems often perform badly in this respect, apparently with devastating consequences for households, especially poor ones and near-poor ones. Two principal methods have been used to measure financial protection in health. Both relate a household's out-of-pocket spending to a threshold defined in terms of living standards in the absence of the spending: the first defines spending as catastrophic if it exceeds a certain percentage of the living standards measure; the second defines spending as impoverishing if it makes the difference between a household being above and below the poverty line. The paper provides an overview of the methods and issues arising in each case, and presents empirical work in the area of financial protection in health, including the impacts of government policy. The paper also reviews a recent critique of the methods used to measure financial protection.

ARTHUR B. LAFRANCE, Lewis & Clark Law School
Email: lafrance@lclark.edu

Although national efforts at healthcare reform in the United States have largely stalled, reform efforts at the state level have enjoyed surprising success - either independently of federal programs or within the latitude allowed by federal funding for the states. These state efforts hold great promise of extending access and healthcare coverage to uninsured Americans, improving quality of care, containing costs, and raising new revenues. These efforts are of great importance not only to other states, but also to other nations that already have universal healthcare and are now struggling with issues of coverage, cost, and quality.

It is commonly understood that reform of the United States healthcare system is greatly needed. Total national healthcare expenditures exceed $1 trillion annually and, at the present rate of increase, will surpass $2 trillion within the present decade. This burden is unacceptable, whether viewed as a percentage of domestic national product, exceeding 18 percent, or as a per capita expenditure, exceeding by nearly a factor of two to three times expenditures by other industrialized nations. The burden on individuals is onerous, unequal, and increasing.

At the same time, there are major deficiencies in coverage and quality. As to coverage, the U.S. Census Bureau reports that over 47 million Americans are uninsured. As to quality, the Institute of Medicine estimates tens of thousands Americans die from negligence in hospitals annually. By most quality measures, American outcomes fall far short of international standards, whether the criteria are simple mortality or more complex quality-of-life measures.

There is consensus that the United States cannot continue on the present path. A recent analysis by the Center on Budget and Policy Priorities concluded that if present budget policies are continued, by 2050, the national debt will increase from 37 percent of the national economy to 231 percent.