High and rapidly rising health care costs in the United States and growing ranks of uninsured persons have brought health care reform to the top of the U.S. Administration’s policy agenda. This paper describes the health care financing system in the United States and highlights what are viewed as its most serious shortcomings. The study suggests that the most important factors behind the rapid increase in medical care spending over the past thirty years include rising national income and the advent of new and expensive medical technologies, while the importance of demographics and medical malpractice costs has been exaggerated. Reasons for the high level of expenditure in the United States include excess capital investment, the performance of unnecessary procedures, and administrative waste.
The most commonly cited proposals for reform of the U.S. health care system to provide universal coverage and control costs include tax credits, “play or pay” mandates, managed competition, and national health insurance. Under managed competition, government regulations are designed to ensure an equitable distribution of health care resources and to deal with the special characteristics of the health care market, such as information asymmetries and institutional limits on competition. Meanwhile, elements of competition are introduced to increase cost-consciousness among consumers, providers, and insurers and thus enhance efficiency. In order to complement the incentives for cost control under managed competition, some observers would advocate limits on national health expenditures or global budgets. Whether health care reform based on managed competition would need to rely on global budgets to control spending over the longer term depends in large part on the extent to which it could encourage cost-saving rather than costincreasing technologies.