Health Reform Without Side Effects: Making Markets Work for Individual Health Insurance

Health reform designs from the current administration and from Congress propose some dramatic and far-reaching changes and alternatives to the current system. Are these new models the best, or are there other alternatives better matched to actual needs and with fewer adverse side effects? Can the current individual market serve as a foundation for reform, or must it be swept away in a root-and-branch change and replaced with something entirely new?

In Health Reform without Side Effects, Mark V. Pauly offers a detailed look at the individual insurance market in the United States. He explains how it works, suggests approaches to improvement that build on what currently works well, and provides a realistic assessment of how much improvement we can demand and expect. Pauly concludes that, although there are some serious deficiencies in today’s individual insurance market, the current criticisms are overly harsh, often based on anecdote and speculation rather than fact, and ignorant of some important positive advantages in this market that should be preserved. He suggests some approaches to change that take into account the current strengths of the individual market and that can yield much higher net benefits with much greater confidence.

Mark V. Pauly holds the position of Bendheim Professor in the Department of Health Care Systems at the Wharton School of the University of Pennsylvania. He received a PhD in economics from the University of Virginia. He is a professor of health-care systems, insurance and risk management, and business and public policy at the Wharton School and professor of economics in the School of Arts and Sciences at the University of Pennsylvania. Professor Pauly is a former commissioner on the Physician Payment Review Commission and an active member of the Institute of Medicine.

One of the nation’s leading health economists, Pauly has made significant contributions to the fields of medical economics and health insurance. His classic study on the economics of moral hazard was the first to point out how health insurance coverage may affect patients’ use of medical services. Subsequent work, both theoretical and empirical, has explored the effect of conventional insurance coverage on preventive care, on outpatient care, and on prescription drug use in managed care. He is currently studying the effect of poor health on worker productivity. In addition, he has explored the influences that determine whether insurance coverage is available and, through several cost-effectiveness studies, the influence of medical care and health practices on health outcomes and cost. His work in health policy deals with the appropriate design for Medicare in a budget-constrained environment and the ways to reduce the number of uninsured through tax credits for public and private insurance.

Pauly is co-editor in chief of the International Journal of Health Care, Finance, and Economics and associate editor of the Journal of Risk and Uncertainty. He has served on the Institute of Medicine panels on improving the financing of vaccines and on public accountability for health insurers under Medicare. He is an appointed member of the U.S. Department of Health and Human Services National Advisory Committee to the Agency for Healthcare Research and Quality.