Still in Mortal Peril? Recent Research Suggests a New Agenda for Health Care Reform

The Affordable Care Act expanded funding for health insurance and regulated health insurance markets. These actions followed from two premises. First, nearly 50 million people lacked health insurance in 2010 and were unable to obtain critical medical care. Second, the primary threat to health insurance markets is adverse selection: because healthy individuals are reluctant to join insurance pools, they must be mandated to purchase insurance.

Research on those premises yields inconsistent conclusions. I review this research and offer an alternative framework for understanding health-related risk and health care financing in the United States. Three implications follow. First, the best way to tackle health-related risk is to encourage innovation and eliminate inefficiencies that inflate health care prices.

Second, insurance markets should be stabilized by allowing experience rating and long-term contracts instead of requiring community rating and imposing insurance mandates. Third, redistribution is better accomplished via targeted premium subsidies than insurance-pricing regulations.