The social cost of adverse medical events, and what we can do about it.

Adverse medical events-medical interventions that cause harm or injury to a patient separate from the underlying medical condition-are unfortunately an all-too-frequent occurrence in US hospitals. They may cause as many as 187,000 deaths in hospitals each year, and 6.1 million injuries, both in and out of hospitals. We estimate the annual social cost of these adverse medical events based on what people are willing to pay to avoid such risks in non-health care settings. That social cost ranges from $393 billion to $958 billion, amounts equivalent to 18 percent and 45 percent of total US health care spending in 2006. A possible solution: Patients offered voluntary, no-fault insurance prior to treatment or surgery would be compensated if they suffered an adverse event-regardless of the cause of their misfortune-and providers would have economic incentives to reduce the number of such events.

Employer-sponsored, personal, and portable health insurance.

Personal and portable health insurance is an idea whose time has come. Despite its stated intent, however, the Health Insurance Portability and Accountability Act (HIPAA) strongly discourages individually owned, portable insurance. Federal tax laws do the same. Some examples of portable benefits exist, such as the TIAA-CREF system. This paper considers three reform models for moving toward personal, portable coverage: the National Center for Policy Analysis-Texas Blue Cross Blue Shield proposal, the Massachusetts health care plan, and a health reimbursement arrangement (HRA) approach. Congress could make the transition smoother by clarifying when and if individually owned insurance can be purchased with pretax dollars.

What is consumer-directed health care?

To control health care costs, someone must choose between health care and other uses of money. The value of most health care is experienced subjectively, as is the value of other goods and services. No one is in a better position to make these subjective trade-offs than patients themselves. The current system not only systematically denies patients the opportunity to make such choices, it distorts the incentives of providers in the process. Chronic patients in particular would be much better off if they could manage more of their own health care dollars and if providers were free to compete to meet their needs.

Solving the problem of the uninsured.

Reform of the United States health care system is less complicated than at first might appear. The building blocks of an ideal system are already in place. The federal government already generously subsidizes private health insurance and safety net care. What is wrong with the current system is that there are too many perverse incentives. One could reasonably argue that government is doing more harm than good, and that a laissez faire policy is better than what is now in place. Nonetheless, if government is going to be involved in a major way in the health care system, perverse incentives should be replaced with neutral ones. At a minimum, government policy should be neutral between private insurance and the social safety net, never spending more on free care for the uninsured than it spends to encourage the purchase of private insurance. Careful application of this principle would go a long way toward creating an ideal health care system.