Q &A with Martin Gaynor, PhD
The CMU economist talks about bringing market forces to bear on hospitals and consumers

On October 22, 2010, Martin Gaynor, PhD, the E.J. Barone Professor of Economics and Public Policy at the H. John Heinz III College at Carnegie Mellon University in Pittsburgh, presented the research paper “Death by Market Power: Reform, Competition and Patient Outcomes in the National Health Service” as part of the Leonard Davis Institute of Health Economics 2010-2011 Research Series. After his presentation, he sat down for an interview with Scott Harrington, PhD, the Alan B. Miller Professor, Professor of Health Care Management and Professor of Insurance and Risk Management at the Wharton School and Senior Fellow at the Leonard Davis Institute.

Q. What is the significance of your overall research to health policy?
A. Most of my research for the past 10 years has focused on competition in the health care markets. A lot of issues come up in the United States and other countries about competition. My research has been relevant for policy makers because it provides evidence on how well competition works.

Q. Do you think your research has had an impact on health care policy?
A. I do. I think it has had a bigger impact outside the United States. The work I have done on competition among hospitals in the United States has shown pretty clearly that competition matters—it has a big effect on prices, and mergers can have a deleterious effect on consumers. But I don’t know that that’s had much impact on health policy because I don’t think competition and anti-trust are getting on the radar screen of health care policy makers in the United States. In the United Kingdom and the Netherlands specifically, there has been a great deal of interest in this work. Those countries are already undergoing reforms of various sorts.

Q. To what do you attribute that difference basically?
A. The reforms in the U.K. and the Netherlands have been specifically designed to introduce markets and introduce competition, whereas in the U.S. the focus has been much less on markets and competition and more on other kinds of reform.

Q. If the next Speaker of House came to you and asked what would you change in the Affordable Care Act, what would you say?
A. While a lot of the goals of the law are quite laudable, I personally would’ve started with something more limited.  First, eliminate the tax exclusion for employer-provided health insurance.  Tax this just like income.  Second, create a basic insurance policy that covers catastrophic expenses.  There will be no upper limits on coverage, and cost sharing will be adjusted according to ability to pay.  Next, everyone in the United States is automatically enrolled in this basic insurance plan. They can then opt out into a different plan if they want. For the least fortunate among us, the cost of the plan would be subsidized. The premiums would also have to be risk adjusted to hold insurers neutral. I see this as costing much less than ACA.

Q. Does your support for a limited mandate rest on primarily what you see as perceived efficiencies, or is it more an issue of equity and access?
A. It’s based on efficiencies. We need to have everybody in the insurance markets so we can pool risks sufficiently.

Q. You describe a much more limited model for health reform. Have you thought of anything that the Affordable Care Act failed to address that it should have?
A. It’s 2,000 pages long. There’s a lot of stuff. My response might be the opposite, that there are things in the act I’d prefer not to see. There are way too many different moving parts. One criticism of the act has been that it did not really deal with health care costs, and that’s true. I actually don’t have a problem with that. I’d prefer to see the act more focused to just deal with coverage in a very simple way and then circle around on the cost problem. Two other things I would like to see happen. For low-income individuals, the issue is not so much insurance but availability of care. We have many people covered by Medicaid, but the reimbursement rates are so low that many physicians do not participate. Community health centers, staffed by nurses, nurse practitioners or other sorts of non-physician medical personnel, have proven very effective for these kinds of folks. I’d like to see more funding for them. I’d also like to see it made easier for nurses, psychologists, nurse practitioners and clinical non-physician personnel to provide care so they’re not so restricted by state laws that are intended to protect physician incomes and prevent these practitioners from competing with them.

Q. According to many economists, the problems with the private markets start with the tax preference for health insurance. If we moved away from that and toward more of a tax credit system, which would reduce the tax benefit for upper and middle income taxpayers, would that stimulate consumer and employee interest perhaps in managed-care plans or greater cost sharing?
A. The tax deductibility of employer-provided health insurance makes no sense. It was adopted during wage and price controls during the World War II, and it’s persisted like an appendix, or worse, like an inflamed appendix. The Obama administration, to its credit, took up this policy proposal to change the tax exemption for health insurance from the McCain campaign, but that didn’t make it through, although there’s a piece of it still in the act for the high-end plans. That’s at least a good start. I would like to see the exemption completely eliminated from the tax code and give people the right incentive so that, over time, employers and workers would start caring about cost and choosing the right kinds of plans. Insurers, of course, will provide whatever the market demands.

Q. Do you favor a substantial move toward repeal and replace of ACA or do you take as a given that it will go forward and we should try to modify it around the edges?
A. I’ve assumed that it’s going to go forward. There is a lot of room for discretion. There are lots of clauses that say “this shall be enacted by the secretary of Health and Human Services.” With repeal and replace, I guess the question is, what gets repealed and what gets replaced? I’d be concerned that the wrong things could get repealed and replaced or the whole thing could get bollixed up in nasty Washington politics. So while ACA is far from perfect, I’m thinking it’s probably going to go forward, and there are definitely some good things about it. It’s clear to me that we needed to do something, and the ACA gets us started on this very important task.  What I’m hoping is that all the smart people in Washington that are working on this can come up with the right kinds of plans and implement this in a sensible way.

Q. You’ve studied the National Health Service in England and more government-controlled systems in other countries. If you were to suffer an emergency rupture of the appendix—that’s all I’m going to tell you—where would you want to be, in the United States, England, Sweden or some other country?
A. Actually for something like that, in all those countries you would get pretty good care, although anywhere it depends on your income and where you live. I think complicated high-end care is better in the United States. I think routine care in some cases is actually better in these other countries.

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