The core problem behind the major crisis in the U.S. health care system is poor incentives for patients and medical providers. Neither patients nor medical providers have the proper incentives to increase health care quality and decrease its costs. In fact, consumers and medical providers have the opposite incentive due to issues such as defensive medicine or the government incentives that thwart the development of sound comparative effective research.

The result is skyrocketing health care costs that limit dollar wage growth, accelerate medical inflation, and increase the total government burden on the private sector. These costs impose a large burden on the U.S. economy and underscore the importance of effective health care reform.

An effective approach to reforming the health care system begins by addressing the incentives driving the unsustainable rise in health care expenditures. Reforms based on President Obama's priorities fail to do this. Instead, those priorities, if adopted, would exacerbate what is wrong with the current health care system, causing total national health care expenditures and health care inflation to increase. Lower economic growth and increased government deficits would result.

Our analysis has shown that reform in the Obama manner would render U.S. citizens poorer and their federal and state governments sorely pressed for revenues. Just as important, the reforms based on the President's priorities are cost-ineffective with respect to expanding health insurance coverage, one of the primary goals of reform.

Reforming the problems with the current U.S. health care system is too important to do incorrectly. The guiding principle of beneficial health care reform should be that the current third-party/government-driven health care system needs to be changed, not enhanced. One of the objectives of reform should be a simpler system. The extraordinary complexity of the current system not only frustrates health care providers and patients alike, but also adds to the cost. This complexity is also responsible for much of the waste in the system, which is estimated to be 30 percent of health care spending.

Rather than expanding the role of government in the health care market, Congress should implement a patient-centered approach to health care reform. A patient-centered approach focuses on the patient-doctor relationship and empowers the patient and the doctor to make effective and economical health policy choices. A patient-centered health care reform would:

• Begin with individual ownership of insurance policies. The tax deduction that allows employers to own your insurance should instead be given to the individual.



• Leverage Health Savings Accounts (HSAs). HSAs empower individuals to monitor their health care costs and create incentives for individuals to use only those services that are necessary.
  
  
• Allow interstate purchasing of insurance. Policies in some states are more affordable because they include fewer bells and whistles; consumers should be empowered to decide which benefits they need and what prices they are willing to pay.
  
  
• Reduce the number of mandated benefits that insurers are required to cover. Empowering consumers to choose which benefits they need is effective only if insurers are able to fill these needs.

• Reallocate the majority of Medicaid spending into simple vouchers for low-income individuals to purchase their own insurance. An income-based sliding scale voucher program would eliminate much of the massive bureaucracy needed to implement today's complex and burdensome Medicaid system. It would also produce considerable cost savings.
  
  
• Eliminate unnecessary scope-of-practice laws and allow non-physician health care professionals to practice to the extent of their education and training. Retail clinics have shown that increasing the provider pool safely increases competition and access to care—empowering patients to decide from whom they receive their care.
  
  
• Reform tort liability laws. Defensive medicine needlessly drives up medical costs and creates an adversarial relationship between doctors and patients.
  
  
  

By empowering patients and doctors to manage health care decisions, a patient-centered health care reform would directly address the distortions weakening our current health care system and would simultaneously control costs, increase health outcomes, and improve the overall efficiency of the health care system.

Conversely, any health care reform based on President Obama's priorities would worsen the current inefficiencies in the health care system due to incorrect diagnosis of the problems with our health care system. If implemented, the President's reforms would significantly harm the health care system, patient welfare, and the economy overall.