Before we recommend solutions to America's health care problems, we need a clear idea of where we want to go. That is, we need a vision of an ideal medical marketplace in order to plan the necessary steps to get us there.

In general, the vision of the health care system we accept determines what we think is possible, and even desirable. Our vision of how the health care system can and should function determines what we see as problems, how we analyze those problems and how we propose to go about solving them.

One vision, the cost-plus vision, has dominated thinking about health care since the end of World War II. In this vision, the primary relationships are between bureaucracies rather than between patients and physicians. People who accept this vision willinevitably attempt to solve health care problems through bureaucratic rule-making, or by changing the ways bureaucracies relate to each other.

We propose a different vision – a vision of an ideal health care system. The secret of the American success story is that for most of our history, in most sectors of our economy, we have created an institutional environment in which the pursuit of individual self-interest promotes the well-being of all of us. That is not true in the health care sector. But it can be. The market for medical care will never resemble the market for corn or wheat. Yet there is no reason why health care problems cannot be solved through market-based institutions. In such a system, decisions would be made by individuals rather than large institutions. Supply and demand and competitive forces would allocate resources. But the destiny of our health care system would be determined by consumer preference and individual choice.

By "ideal," we do not mean a visionary world in which there are no problems. The ideal medical marketplace is simply a market which works at least as well as most other markets in which we buy and sell. [8]

Principles that Would Govern an Ideal Health Care System. If our objective is to create a medical marketplace which solves problems at least as well as markets for other goods and services, we can identify five principles that would govern an ideal health care system. These principles serve as goals. In the very act of reaching these goals, we would be simultaneously solving- America's health care problems.

  • Solving America's health care problems requires transferring power from large institutions and impersonal bureaucracies to individual people.

  • Solving America's health care problems requires restoring the buyer/seller relationship to patients and medical suppliers, so that patients (rather than third-party insurers) become the principal buyers of health care.

  • Solving America's health care problems requires creating institutions in which patients (as much as possible) spend their own money, rather than someone else's money. when they purchase health care.

  • Solving America's health care problems requires removing health care (as much as possible) from the political arena, in which well-organized special interests can cause great harm to the rest of us.

  • Solving America's health care problems requires subjecting the health care sector to the rigors of the competitive markets, and creating market-based institutions in which individuals reap the full benefits of their good decisions and bear the full cost of their bad ones.

How an Idea! Health Care System Would Function. In a health care system based on principles listed above, there would be a radical change in the roles of patients, physicians, hospitals, insurance companies, employers and even government.

  • In an ideal health care system, patients rather than third-party payers would become the principal buyers of health care, comparing options, comparing prices and making decisions.

  • In an ideal health care system, physicians would no longer serve as the principal agent of third-party payers. Physicians instead would serve as the principal agent of patients, helping them make informed choices.

  • In an ideal health care system, hospitals would no longer serve as the principal agent of either physicians or third-party payers. Instead, hospitals would become competitors in the business of health care delivery and would compete for patients by improving quality and lowering price.

  • In an ideal health care system, health insurance companies would no longer be buyers of health care. Instead, insurers would specialize in the business of insurance, reimbursing policyholders in the case of unforeseen and risky adverse health events.

  • In an ideal health care system, employers would not be buyers of health care and would no longer make decisions for employees concerning the content of employee health insurance policies. Instead, employers would be agents for individual employees, helping them to make informed choices in the health insurance marketplace and to monitor the performance of competing insurers.

  • In an ideal health care system, government (in its role as an insurer of last resort) would no longer serve as a buyer of health care. Instead, the role of government would he to provide a source of funds for health insurance premiums for indigent policyholders.

  • In an ideal health care system, government (in its policymaking role) would facilitate the goals of the system on the demand side by encouraging private savings for small medical bills, private health insurance for large medical bills and life-long savings for medical needs during retirement. On the supply side, government would encourage free and open competition in the markets for physicians services, hospital services and private health insurance.