Local exchanges and markets will be better for health care costs than Washington price-fixing.
It is nobody's fault, but our health finance system has long been a disaster. Since World War II it has slowly evolved, with all the best intentions, into not one but at least three wholly separate entities--each with different infrastructures and different sets of perverse incentives for hospitals, doctors, and other providers. This nutty system of finance is the reason that health care expenses are swallowing the U.S. economy (and federal and state budgets), and that health care is our biggest domestic policy issue. The health care profession has always been quite honorable, but the reality is that these professionals--physicians, nurses, hospital administrators alike--aren't immune to financial incentives, and the incentives created by our current system are completely out of whack.
So what does the average local health care market look like?
1) Medicare: The almost 50 million Medicare beneficiaries (seniors and the disabled) make up about 16 percent of the U.S. population--but account for over 40 percent of the spending for the average health-care system, public or private. Medicare drives everything in local health economics, because seniors consume lots of health care and they are in the hospital often. For three-quarters of Medicare beneficiaries, traditional Medicare programs fix prices nationally. Think about that--every hospital and every doctor gets paid the same thing! Recently there have been minor variations through "Accountable Care Organizations" and other "pay-for-performance" models--but for the vast bulk of services, the worst hospital in town gets paid the same as the best.