By James R. Copland, Roy Cordato, John R. Graham, Nina Owcharenko, Brett J. Skinner, Shirley V. Svorny and J.P. Wieske, Pacific Research Institute (PRI) , July 2006

Health care reform is one of the biggest challenges facing our country. The increasing costs of government-run health-care programs have strained federal and state budgets, while the number of uninsured has notappreciably changed.

Free-market advocates recognize that the core weakness of American health care lies in government’s intrusion: it significantly weakens the incentives necessary to ensure that health providers put the needs of patients first. Americans experience health systems that are burdened bymore rules and regulations every year. Consequently, patients, providers,and public officials struggle to understand the nature of American health care, and find it difficult to bring policies to fruition that will promote healthy competition.

Most books that promote consumer-directed health care in the United States are focused at the federal level. These efforts have resulted invaluable reforms, including Health Savings Accounts. However, states alsohave an important role to play in reforming health care. Now, we have a primer on how states can achieve that reform.

Seven leading scholars contributed chapters to the primer, which focuses on Medicaid (Nina Owcharenko), health insurance (J.P. Wieske), hospital certificate-of-need laws (Roy Cordato), malpractice liability (James R. Copland), physician quality assurance (Shirley V. Svorny), prescription piracy (Brett J. Skinner), and pharmaceutical costs (John R. Graham). Governor Mark Sanford of South Carolina wrote the foreword. The book examines important areas of health care where states have the responsibility to finance, legislate, and regulate. They include:

• Medicaid, the federal-state health program for the poor, faces draining state budgets and declining quality for those who depend on it. State policymakers should use successful welfare reform, which started at the state level, as a model for Medicaid reform.
  
  
• Many health-insurance reforms of the 1990s simply transferred costs from one group to another – often with net harmful effects. Insurance regulation that harms patients often rewards politicians – making positive reforms very challenging. Targeted, pro-market solutions like health savings accounts and tax credits provide the biggest bang for the buck. They ensure that the existing marketplace can operate and that specific populations will be able to obtain affordable health insurance.
  
  
• Malpractice liability costs have risen four times faster than consumer price inflation and twice as fast as medical price inflation, causing “defensive” medicine and shortages of physicians’ services.
  
  
• Most states prevent the building of new hospitals without government permission – a policy supported by incumbent hospitals to prevent competition. This leads to higher prices, communities without adequate medical resources, and money wasted on lobbying that could be devoted to patient care. States should repeal hospital certificate-of-need laws in order to increase competition, reduce prices, and increase access to hospital care.

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